Jane Fraser aims to restore Citigroup's past glory
Citigroup Plans to Re-enter Brokerage Business as Part of Turnaround Strategy
After struggling to compete in high-end businesses like M&A, Citigroup is set to make a comeback in the brokerage sector, according to reports. This move forms part of CEO Jane Fraser's turnaround strategy, aimed at making Citigroup a global leader in wealth management and a valued personal bank in the US.
The bank's vision, originally conceived by former CEO Sandy Weill, was to provide one-stop shopping for all financial services, both institutionally and for individuals. In the 1990s, Citigroup indeed became the king of banking, but its reign was short-lived, leading to a precipitous decline.
However, things have taken a positive turn for Citigroup. Shares of the bank have risen 47% compared to a 15% rise in the S&P, and 40% compared to JPMorgan's rise. This recovery, coupled with a less stringent regulatory environment from the Trump administration and the Federal Reserve, has made buying a brokerage firm a possibility.
Citigroup's balance sheet is now in order, and the stock price has risen, making acquisitions possible, including merging with a European bank. The bank is planning to re-enter the brokerage business for small investors, focusing on scaling wealth management and targeting share gains in services, banking, markets, and U.S. personal banking.
The strategy involves simplifying the organization, investing in technology including AI tools for productivity, and emphasizing fee-based revenue streams like wealth management and corporate lending. This pivot away from more traditional, less stable revenue sources reflects a new direction for the bank.
Regarding potential acquisitions, no specific companies have been identified as part of this strategy. However, given the focus on expanding wealth management and market services, it would align with the strategy to seek acquisitions or partnerships in these areas.
Citigroup's former brokerage firm, Smith Barney, was among the largest on Wall Street and was purchased by Citigroup in the late 1980s. During the 2008 financial crisis, Citigroup's balance sheet was a toxic dump of under-water mortgage debt and other problematic holdings. James Gorman, a shrewd former McKinsey consultant, used Smith Barney to create a wealth management behemoth at Morgan Stanley.
Jane Fraser's turnaround strategy includes a major reorganization, cost-cutting, and hiring new leadership. She could ramp up hiring of wealth advisers, also known as brokers, or buy mid-sized brokerage outfits like Stifel or Raymond James.
The journey to Citigroup's current position began in 1998 when Weill merged his brokerage and insurance company, then called Traveler's, with the massive Citigroup commercial banking empire to create Citigroup. However, regulatory issues began wearing down both management and investor confidence, leading to Weill's ousting of protege Jamie Dimon.
In conclusion, Citigroup plans to rebuild its brokerage presence by scaling wealth management, leveraging its global network, and focusing on fee-based revenues, supported by organizational simplification and investment in technology. However, no specific acquisition targets have been publicly identified as part of this strategy yet.
[1] Source: Reuters, Bloomberg [2] Source: The New York Times, The Wall Street Journal
- Citigroup's re-entry into the brokerage business is part of a broader strategy to establish itself as a global leader in wealth management and a valued personal bank in the US, following a turnaround plan led by CEO Jane Fraser.
- In alignment with this strategy, Citigroup may potentially seek acquisitions or partnerships in areas that focus on expanding wealth management and market services, similar to what James Gorman did with Smith Barney at Morgan Stanley.
- Jane Fraser's turnaround strategy for Citigroup includes various initiatives such as simplifying the organization, investing in technology, emphasizing fee-based revenue streams like wealth management and corporate lending, and possibly hiring more wealth advisers or acquiring mid-sized brokerage outfits.
