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Citigroup late in the game to merge key investment bank units

The question about the new organisational structure unveiled last week by Citigroup’s investment bank is not so much why changes were made, but what took the bank so long to make them.

Wall Street’s other big banks have long run their advisory and capital markets businesses as one unit, recognising the benefits of a one-stop shop for clients seeking advice on a big transaction who may well have the need to raise debt or equity too.

Why, then, did it take until now for Citi’s Corporate and Investment Banking division (loans and advice) to be fused with the Capital Markets Origination division (debt and equity raising)?

Jamie Forese, who heads the Institutional Clients Group which sits over CIB, CMO, markets, treasury and private banking, told the Financial Times the move is about “thinking of the future” now the process of post-crisis “repairing and rebuilding” is over.

That spirit of renewal is in evidence elsewhere in the group; on Tuesday chief executive Mike Corbat announced the retirement of Citi’s veteran chief financial officer John Gerspach, its Europe, Middle East and Africa CEO Jim Cowles and its North America boss Bill Mills.

The banks’ experience with past restructurings may have a lot to do with the longevity of the old structure in the investment bank.

Citi was an early mover when it merged its corporate and investment banks back in 2008, but the experience was a painful one and complications and rivalries endured for years after, bankers say.

That merger was complicated by investment bankers believing they were more important than corporate banking colleagues, even though corporate banking was a more stable business line after the financial crisis, a senior banker who lived through the merger said.

Last week’s merger will not be afflicted by the same challenge because investment bankers and capital markets bankers are on a more even footing, but still the hangover from the last merger was enough to make Citi want to bide its time before attempting another.

“It’s better to do the right thing a bit slow than the wrong thing too soon,” said Tyler Dickson, former head of capital markets origination who was named to co-head the newly-created Banking, Capital Markets and Advisory unit with investment banker Manolo Falco.

Two senior investment bankers told the FT that “personalities” had made it difficult for Citi to merge the divisions sooner, but would not give further details on what the issues were.

“Universally people have said this makes a lot of sense,” said Mr Dickson, adding that he and Ray McGuire, the former head of Citi’s CIB global and now chairman of the new combined unit and vice-chairman of Citigroup, already had a close working relationship. A senior investment banker said Mr McGuire was “very happy” with his new role, where he will be spending more time focusing on clients.

“Ray has had the longest tenure of any global business head I can remember,” he added, describing running global businesses as a “brutal” exercise. Mr McGuire spent 13 years as the head of Citi’s CIB globally.

Mr McGuire’s move from a key operational role and the trio of departures announced on Tuesday come less than a month after Citi’s global head of cards Jud Linville stepped down as part of a restructuring of Citi’s consumer bank.

“Each change individually makes sense” as an example of normal succession, said Brian Foran of Autonomous Research, especially given that four of the men are over 60. “But in aggregate it is a lot of change, and it makes some investors wonder whether this is passing the baton to a new generation or whether there is internal pressure about hitting financial targets.”

Several executives stressed that the new structure was about growth opportunity, not cutting costs. One key challenge will be to translate Citibank’s traditional strength as a global commercial bank, and as a leader in foreign exchange and credit, into wider success in investment banking, in areas such as M&A and equities.

Citi trails three other banks — Goldman Sachs, Morgan Stanley and JPMorgan — in global M&A revenue, according to Dealogic data. It has never ranked higher than fourth in the decade since the crisis. It is, by contrast, at the top of the table for raising debt capital.

“A decade into it (post crisis) we’re taking the view that we can aim higher,” said Mr Dickson, describing the changes as a “natural evolution” as “organisational structure is catching up with the behaviour of the team” which was already working more closely together.

In Europe, where Citi’s advisory and capital markets businesses have worked together more closely — and where Mr Falco played a key role — Citi has experienced good growth. “Citi has gone through a lot, CIB (in Emea) has shown you can grow a lot and compete,” said Mr Falco. He said the combined division would benefit from a shared position on capital, conflicts, talent and strategic direction. “We will be great partners . . . there are some very good synergies here.”

The hard work, according to a former Citi executive, lies ahead: translating Citi’s strong relationships with corporate treasurers and chief financial officers into success with the chief executive.

“The question is who will compete with Jamie Dimon, James Gorman and David Solomon [the top executives at JPMorgan, Morgan Stanley and Goldman, respectively]. Who goes into the boardroom with the credibility to say ‘I can make this $40bn transaction happen’? Because when Dimon says it gets done, it gets done.”

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