Boths hands in the market

Christopher Preston is fine-tuning European operations at Citigroup Private Bank in Geneva. Yuri Bender asks him about ‘fire-proof’ portfolios, open architecture, and how the competition matches up.

Citigroup Private Bank, the Geneva-headquartered wealth management operation which employs 1000 staff across Europe and manages assets worth $31bn, is standardising the selection of external managers. “We are looking at an increasingly uniform process for the appointment of external managers across Citigroup’s global operations,” says Christopher Preston, who joined as head of the Europe, Middle East and Africa division last October. He was recruited from Rothschild Private Bank in Zurich by Peter Scaturro, US-based chief executive of Citigroup’s private banking arm, in a bid to snatch market share from European rivals. The bank backs a fashionable open architecture strategy, having recently acquired multi-manager specialist Winter Capital. According to Mr Preston, it looks outside the group whenever a particular manager is required for a certain kind of risk. What one Citigroup insider describes as the “sausage machine of selection” is operated centrally to make sure the right discipline is applied to generate improved returns. Fund of fund products are structured in New York, with managers monitored from Stanford, Connecticut. “Previously, we had them in different places in the world, now we are putting them together centrally,” says Mr Preston. This fine-tuning goes hand in hand with a re-branding of what were “Citibank” services until the merger with Travelers Group in 1997. Consumer bank accounts are still marketed to UK clients under the old Citibank brand, but the “Citigroup”, tag conveys that “we can do a lot more than people expect of a private bank”. This includes generation of alternative products, embracing hedge funds, real estate funds, private equity, and credit structures. Investments can be made through the new Umbrella Portfolio funds using both internal and external managers. These products, launched because clients were concerned about exposure to traditional long-only portfolios, have an internal target of well over $1bn in assets. But Mr Preston insists that such funds are only one part of the ultimate fire-proof discretionary portfolio, which needs to draw on cash, listed stocks, direct investment and alternative products. It has always been part of the Citigroup philosophy to co-invest some of its own balance sheet cash along with the customer’s assets. An ideal client would normally have at least $10m to invest, with international requirements in terms of asset management. Distribution challenges Clients can benefit from the channelling of Citigroup’s institutional expertise into the private banking operation, including the direct brokerage and equity analysis capability acquired after the purchase of Salomon Smith Barney. But distribution is carried out on more of a softly, softly basis. Preferred partners are not the more usual banks but smaller asset managers in Switzerland and elsewhere in Continental Europe. “Distribution allows us to garner assets, but we would have to pay other people fees for distribution and weaken the exclusivity of what we can offer,” says Mr Preston. “These products are far too good to sell down the distribution chain. Why should we share them with other people?” He also pours cold water on new US competitors who want to sell institutional products to wealthy clients. Recent entrants to this market include State Street and BGI. “It takes a long time to do two things – build a wealth management client base and channel institutional capability to private clients,” says Mr Preston. “Very few people have succeeded in this. How can you distribute in a market based on trust and personal relationships? It is much easier to market institutional style products through retail distribution rather than private banking.” But at least some of these competitors – Lazards and the Merrill Lynch HSBC joint venture are two examples – have helped increase the labour pool through their own cut-backs in Europe. “It is easier to recruit quality staff at the moment,” says Mr Preston. “People want to be with successful institutions. There is an enormous apacity available from US brokerage houses who have reduced services in Europe, and people coming from smaller private banks which cannot satisfy the product needs of private clients. Other institutions, including his previous employers, did “not have the access to the same expertise and competence as Citigroup does, particularly since the SSB merger, which has left us world leader in research.” Knowing the markets With the importance of Swiss confidentiality declining, Mr Preston now spends almost as much time in his London office as he does on the lakeside boulevard of General-Guisan in Geneva. “I don’t believe any particular place is the wealth management capital of the world,” he says, adding, however, that “some of my colleagues in both London and Geneva would dispute this”. Certainly, Geneva still has huge appeal as a booking centre in terms of security and services for wealthy clients in the less politically stable regions of the Far East and Latin America. Both have traditionally been happy hunting grounds for Citigroup. “There has always been less domestic competition in Latin America and Asia,” says Mr Preston. “And investors are looking outside the region due to political turmoil.” Europe is a much more difficult nut to crack. “The diversity of the client base, currencies, regulatory systems and client needs means that creating a wealth management operation for a market place such as Europe is an incredibly complex process,” he admits. Good growth is forecast from Italy, Spain and the UK, plus steady flows from Greece and the Middle East. Citigroup’s 10-year target for European market share is 15 per cent, assuming continued consolidation in wealth management. Citigroup’s income across all business was $3.3bn at the end of the third quarter of 2001, compared with $1.7bn for Credit Suisse and $1.5bn for UBS. Last year, Citigroup’s private bank earned $1.5bn in revenue, up 9 per cent on 2000 figures. But Mr Preston looks respectfully at Credit Suisse’s return on assets. “In terms of global wealth management profits we are number one, but in Europe we can work to leverage our revenues better,” he says. “Ours are growing significantly and the quality of our business is improving, but we are not where we would like to be as yet.” The Citigroup board has highlighted Germany for long-term expansion. But Mr Preston is not one to count his chickens prematurely. “Germany has enormous potential, but is an extremely demanding and highly competitive market. Any entrant must be confident of providing the right products, back-up and infrastructure.” Mr Preston admits that Citigroup cannot give that at this stage. “We have a long-term objective in Germany, but we need to be sure we have the right suite of products to justify our services effort.”

Competitive across borders Formerly head of private banking at Rothschild Bank in Zurich, and with 13 years at Bank of America under his belt, Christopher Preston can reasonably claim to have earned his current vantage point. At 47, Citigroup’s head of wealth management for Europe, the Middle East and Africa is installed in an office with a view onto the snow-capped peaks beyond Lake Geneva. But he was previously something of a nomad, working in Monaco for UK yacht builder and broker Camper & Nicholson, then Germany, Switzerland and Britain for Bank of America, before joining Rothschild in 1994. Indeed, he boasts an affinity with an increasingly cross-border client base, having travelled so much since the 1970s that “it’s a way of life”. And even now, Mr Preston retains an air of international mobility, dividing his time between Geneva, London and beyond. He brings to his role not only experience of both European and US banks, but also teamwork skills honed through competing in both the US and British sailing teams in the prestigious Admiral’s Cup.