Citigroup’s private bank unit not seen as leader

Post-Smith Barney, Citigroup Inc.’s hopes for capturing a greater share in the ultra-high-net-worth segment of the wealth management market will rest largely with its private bank unit.

But even with an estimated $200 billion in assets around the world, New York-based Citi Private Bank is unlikely to cause high-end competitors in the United States to lose sleep, industry observers say.

“Not many would designate Citigroup’s private bank as an overall leader in wealth management. They’re seen as a good, responsive deal-making and lending resource. But they’re at a completely different end of the spectrum from a Bessemer [Trust of New York] or Northern Trust [Corp. of Chicago], whose clients are well-established families with substantial assets,” said Michael Maslinski, director of London-based Maslinski & Co. Ltd., a consulting firm specializing in wealth management and private banking.

“Citi is not a core player in our business,” said a rival wealth manager who did not want to be identified.

“People who have money don’t wake up and say ‘I have to hire Citi.’ Goldman Sachs? Sure. Even Merrill Lynch could bring out the dogs. But I never heard anybody brag they were Citigroup clients at a cocktail party,” the wealth manager explained.

The unit combines lending, asset management and advisory services for clients with $25 million or more in investible assets

The private banking divisions of other large U.S. banks, such as Charlotte, N.C.-based Bank of America Corp., San Francisco-based Wells Fargo & Co. and New York-based JPMorgan Chase & Co., are Citi’s biggest competitors, according to industry analysts.

But unlike its rivals, Citi private bankers will face tough questions from clients about the health of its parent company. Citigroup posted an $8.29 billion fourth-quarter loss Friday and announced plans to break the company into two parts, Citicorp and Citi Holdings.

“If I have $25 million with Citi, I’m going to want to know if I should be concerned,” said Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy LLC, a wealth management industry consultant.

“I think Citi will have a lot of explaining to do,” Mr. Welsh said.

To be sure, Citi Private Bank has considerable strengths.

In addition to its formidable asset base, the Citi unit has about 200 bankers in the United States and 200 more abroad.

As of March 31, annualized revenue per banker was $4.2 million.

Citi Private Bank is also considered a leading player in South America, Asia, Eastern Europe and other emerging markets. And it has been able to attract money from entrepreneurs around the world, according to Mr. Maslinski.

SELF-MADE WEALTH

“They tend to appeal to aggressive entrepreneurs who are interested in borrowing and leveraging to drive transactions and do deals,” he said.

One of the keys to Citi Private Bank’s future performance is how much overlap there had been with Smith Barney, analysts say.

A Citi spokesman said there was “very little.”

In March, however, Citigroup reorganized its wealth management unit into four divisions based on clients’ net worth. The move put Smith Barney brokers and Citigroup private bankers under one roof, reporting to Charles Johnston, president of global wealth management, who had previously been chief executive of Smith Barney.

“With Smith Barney, the private bank had scalable products and lead generation that they suddenly don’t have anymore. It could be a big problem,” said Alois Pirker, senior analyst for Boston-based Aite Group LLC.

And while Citi Private Bank is given ample credit for its lending capabilities, it still is not seen as an investment powerhouse.

“There is certainly more emphasis on banking and deals than discretionary portfolio management,” Mr. Maslinski said.

Robert Pitti, a partner at Argos Wealth Advisers in San Francisco, summed up the sentiment of many of his wealth management colleagues this way: “To the extent that someone doesn’t need lending or other banking services, I’m not very concerned [about Citi Private Bank] because if a client just needs investment advisory services, I know I can do it better.”

E-mail Charles Paikert at [email protected].

Related Topics: Citigroup Inc., Smith Barney