Citi Bonuses Buy time for the New Wealth Boss rush to renew

On November 27, 2024By Littum

(Bloomberg) — Citigroup Inc . was preparing to declare its wealth business a key part of the bank’s growth strategy, but behind the scenes technology continued to cause problems.

Ultra-wealthy clients complained about outdated platforms that couldn’t keep up with the competition, and relationship bankers privately agreed. Again and again, a pair of Dallas-based tech executives tried to assuage those concerns, flying to New York to give presentations about how much they would accomplish with two years and more than $1 billion.

But to the annoyance of top executives, not much was delivered.

Amid this dysfunction, chief executive Jane Fraser took the rare step of recruiting a senior executive from outside the bank, assigning him to lead a new independent wealth division and report directly to her. A year after his arrival, Andy Sieg — a tall Pennsylvania native who ran Bank of America Corp.’s Merrill Lynch wealth brokerage — has since fired executives, filled executive positions with outside hires, pushed clients to pick up more of their wallets and revamped pressure to upgrade technology.

This year, his team also announced special retention bonuses for dozens of staff who tried to stave off departures during the turnaround. The latest results, he said in an interview, show that it is starting to take hold.

“This is a growth strategy — make no mistake,” Sieg, 57, said in an interview. Before his appointment, “there wasn’t a unified wealth strategy, there wasn’t necessarily an operating philosophy of what we were trying to get done.”

A top executive at another part of Citigroup compared Sieg to the arrival of cavalry in battle, suggesting he has a more sophisticated vision than predecessors. It was an unusual move: a jump from one of the country’s biggest wealth franchises to an industry laggard.

Citigroup’s wealth business has lagged behind its main banking rivals since the aftermath of the 2008 financial crisis, when it agreed to sell its Smith Barney retail brokerage to Morgan Stanley, now the leader of the big US banks.

Sieg first met Fraser over breakfast at Citi headquarters less than a month before he delivered his announcement to Bank of America in early 2023. Since arriving, he has made a statement, publicly asserting that his new franchise has the potential to be the best in the world.

“I came into this role with eyes wide open about where the business was and with the utmost confidence in our ability to make this business successful,” he said. “I’m even more optimistic today than the day I started.”

His mission is key to Fraser’s own legacy. She runs the only major Wall Street bank whose shares are trading below where they were five years ago. To boost revenue, she wants Citigroup to leverage its relationships with companies around the world, handling more of their cash flow and deals while helping their founders and executives look after their burgeoning wealth.

Fraser has set an ambitious goal for wealth – a three-pronged division that includes the private bank she once ran. The goal is to produce a return on tangible common equity, a measure of profitability, of 15% to 20% by the end of 2026. That would be a big boost, up from 8.5% in the third quarter.

On her third-quarter earnings call with analysts in October, Fraser touted rising client assets at the bank and said she was excited about “the great potential of our franchise.”

It is a fiercely competitive moment for talent and clients in the wealth industry. Virtually all of Citigroup’s main US rivals are investing heavily. In September, Goldman Sachs Group Inc. said CEO David Solomon that the biggest constraint for his wealth business was being able to hire enough advisers.

“Wealth is a battlefield,” Wells Fargo & Co. said. banking analyst Mike Mayo, adding that Citigroup’s returns have been “abhorrent” compared to peers in recent years. “It’s only going to get harder for Citi at a time when they’ve already fallen short.”

Sieg held more than 350 client meetings since joining the bank last October, dropping in Hong Kong, Riyadh, Paris, Florence and elsewhere. He also created a 26-member advisory council of executives from around the world so they can move more quickly to refine strategy and tackle problems.

Citigroup has an edge over US rivals in reaching entrepreneurs and billionaires in Asia, where it has greater reach. Already, about half of the division’s revenue comes from outside the US – predominantly Asia and Australia.

One of Sieg’s top initiatives is to persuade the private bank’s clients to move more of their investment assets to the company.

That includes drawing a tougher line on those who are wealthy enough to qualify for the top tiers of service but keep much of their wallets elsewhere, according to a person familiar with the matter. They may end up having their fringe benefits downgraded as they are potentially moved to another segment of the business.

At the same time, the bank has cut the time it takes to set up accounts to days from weeks. When some colleagues mentioned they were having problems with DocuSign Inc., Sieg spoke to his CEO. The software was soon updated.

“We ran the strongest quarter this year in investment flows,” Sieg said.

His abrupt personnel changes rankled some executives, causing bankers to defect. In response, Citigroup offered dozens of staff retention bonuses, particularly in the Wealth at Work unit and to some in the private bank, rewarding them for staying next year, according to people familiar with the matter.

The move followed the exodus of around 20 people from Wealth at Work, which caters to clients in professional services such as law firms. Their manager, Joe Ryan, was appointed as the interim head of the franchise following the unexpected resignation of his boss, Naz Vahid. But Ryan jumped to BMO Financial Group after he was not interviewed to replace her permanently, said a person briefed on the matter.

The private bank, which serves the wealthiest clients, has lost about 10% of its most senior bankers in North America over the past year, reducing its fleet to about 120. Departures included top rainmaker Luke Palacio, who looked after Florida’s billionaires . He joins Bank of America, which announced two more hires from Citigroup late last week.

Even some new ones didn’t last long. Just four months after Sieg named Don Plaus, his former deputy at Merrill Lynch, to replace Halé Behzadi as head of private banking in North America, Plaus left for what the firm said were personal reasons.

At the bottom, the bank is hiring more brokers for its entry-level wealth segment, Citigold, sweetening pay deals and improving the online self-directed investment platform.

“It doesn’t have the capabilities that a Schwab might have, but it’s in the plan,” said chief David Poole. Assets invested through this platform rose 70% this year, he said.

Kris Bitterly, head of Wealth at Work, is looking to expand in the United Arab Emirates, Singapore and Hong Kong and smooth out cumbersome processes. “There used to be a bias for anyone who wanted personal, white-glove service,” she said. “But customers want to be able to choose.”

Attempt upgrades

Technology and data remain headaches.

Citigroup’s systems have been outdated for years. But as client investments boomed during the pandemic, a pair of executives in Dallas — Japan Mehta and Shadman Zafar — promised executives that a new suite of tools was on the way. The pair previously worked together at Verizon Communications Inc., Barclays Plc and JPMorgan Chase & Co. before landing at Citi.

Bankers and their executives welcomed the pair’s presentations in New York, eagerly awaiting a replacement for clients’ In View desktop portal and an app to streamline processes. The desperation grew so acute that one team even held its off-site meeting in Dallas to ensure that technologists could not forget them.

As time went on, wealth managers cringed at how costs quoted to them would blow up with little to show for the increase, prompting jokes about “T-shirt sizes,” the busy Silicon Valley approach to budgeting, according to a former banker.

Meanwhile, risk and compliance teams discovered flaws in pricing, portfolio performance calculations and tax data, a group of former CEOs wrote last month in an unsigned letter to the board, outlining a series of problems at the firm. Bloomberg has been unable to confirm the identities of all the authors of the letter, which Citigroup has disputed as inaccurate with “a number of misleading statements.”

In the end, the promised projects did not materialize. Pressure from shareholders to keep a lid on company-wide costs and from regulators demanding quick fixes for internal systems didn’t help.

Mehta has since moved to another part of the bank, and Zafar is now co-chief information officer for the entire company. The wealth division has since assigned Joe Bonanno and hired JPMorgan’s Eric Lordi to oversee data and technology platforms. The company says it has already begun streamlining those operations to create better desktop and mobile app platforms.

Still, the regulators’ demands that the bank set broader data and risk controls are pulling on growth initiatives. For the wealth division, that means more than $100 million of its discretionary budget for next year will be redirected to address such problems, according to people familiar with the matter.

“I’m confident we have plenty of tech dollars to execute our strategy,” Sieg said. The mantra, he added, is “no hobbies” — no distractions from the company’s core business. Cuts have so far included the cancellation of a planned UK debit card rollout and the sale of the bank’s trust business.

‘Peep in their step’

Many who remain hope Sieg’s push to focus on customers will pay off. Insiders say he encourages customers to communicate their needs and pushes staff to talk to each other and other divisions.

“It’s been the last couple of years where people in the wealth department haven’t had as much fun,” said Dawn Nordberg, a former Morgan Stanley executive hired by Sieg to build “connective tissue” to other parts of the firm, such as offering advising investment banking clients with newly acquired wealth. After posting gains in the third quarter, her colleagues seemed more optimistic, she said. “We see a little pep in their step.”

It’s still hard to gauge how much of that improvement can be attributed to Sieg. Much of the industry reported higher customer balances. Observers including Mayo are watching to see if Citigroup can narrow the gap.

“There’s nowhere for Andy Sieg to hide,” Mayo said. “Either he’s going to be another wealth manager to fail at Citigroup, or he’s going to be the equivalent of Houdini.”

–With assistance from Katherine Doherty.

(Updates with commentary from the CEO in episode 13. An earlier version of the story corrected the number of retention bonuses in episodes five and 21.)