Citi’s success reflects a changing of the guard

The working day of Peter Charrington, energetic global CEO of Citi Private Bank, is “well under way” by 6.30am, as he speaks to PWM from his US head office, close to New York’s Central Park.

His strategy has proved a successful one, with the bank bringing in $42bn of net new money in 2017, compared to marginal inflows in 2016. “It was a terrific year for us, as we experienced growth in all four regions,” of Emea, the US, Latin America and Asia, he says. 

The reason, he suggests, is a changing of the guard in the private banking aristocracy, with US banks taking over from Swiss rivals.

“American banks are enjoying a massive renaissance,” confirms Mr Charrington, responsible for banking client assets of $286bn, suggesting US players are backed by the most robust balance sheets and liquidity ratios. “Post financial crisis, the American banks came out strongest in private banking, investment banking and products,” having responded to the turbulence in a “a faster and more pro-active manner.”

While the likes of Citi, JP Morgan and BNY Mellon had strengthened balance sheets and quickly re-defined themselves, giving them ability to focus purely on clients, those banks servicing predominantly European customers were still wrestling with their business models and self-image. This meant they failed to stem outflows. “They are still struggling to come out of the crisis and change their business models,” he says. “They need an outward focus on clients, not to be looking inwards.”

Global reach

The majority of ultra-high net worth entrepreneurial clients that Citi targets typically use three or four banks, starting with a regional specialist, whom they outgrow once their business becomes more global in nature, says Mr Charrington. This is the point at which they require a bank with more international presence and capability.

“You need to deliver a global reach, not just talk about it,” says Mr Charrington, describing clients as “global citizens” unattached to any national territory. “They might be born in the UK, or US or Mexico, but they think of themselves not in terms of national boundaries, but as citizens of the world,” he says.

Citi’s decision in 2009 to embed the private bank within its Institutional Clients division, allowing private clients direct access to the capital markets platform, was played out in particular for the benefit of this audience, and appears to have helped attract healthy flows.

“At most of our competitors, such as UBS and JP Morgan, the private bank either sits together with asset management, or is part of the retail and consumer business,” says Mr Charrington. 

“We decided not to do that at Citi. This was an incredibly important decision which allowed us to focus on a more sophisticated group of clients and family offices, who need a capital markets platform.”

This gives clients access to institutional equities trading and specialist foreign exchange advice and services. “I can’t think of any competitors where their organisational model can deliver that,” he adds. A global client service and strategy is then designed around this model, so that clients can speak with relationship managers wherever they need to do business or conduct transactions. 

“With us, you are treated in the same way as a global client wherever you are. Most competitors have a separate P&L for each region, so they cannot provide this seamless service,” he says.

Bricks and mortar

Currently, purchasing real estate, to take advantage of regional downturns, is the main pre-occupation of much of Citi’s clientele, especially the Asian contingent. “Asian clients from Hong Kong, mainland China and Singapore are very interested in London, as they have an affinity to the UK,” says Mr Charrington, personally familiar with the top tier of Citi’s clients. “They see opportunity there,” having seen the pound lose value and central London property prices no longer achieving previous highs.

These investors seek long-term assets, with real estate seen as a perfect portfolio substitute for bonds, which have entered an era of low returns and uncertainty.

“Asian billionaires see high quality, London real estate as an alternative investment to fixed income,” he says. “We can identify and facilitate property purchases and lend against them. Our competitors also say they do real estate transactions, but they hand this over to the capital markets part of the firm. At Citi, we have a dedicated lending team within the private bank, which holds the loan on our books.”

In addition to London, US real estate remains an important segment of portfolios, particularly for Middle Eastern and Chinese clients, with the latter particularly interested in West Coast destinations such as San Francisco and Los Angeles.

Clients investing in US assets, especially those who are dollar-denominated, perceive the country to be “a safe and secure location, with rule of law and title”.

Mr Charrington sees his job as “spending a lot of time, building a real connection with certain client segments,” including family offices. “We are not selling anything, but creating a connection with them and the private bank,” he says, talking with apparent humility about “building a community and ecosystem” for the family offices. Typical clients might be families of high-flying lawyers, private equity investors and sports stars.

Is there an element here of Citi and other private banks making a strategic decision to work together with single and multi-family offices, because they see them as a key competitor for private client business?

“I like to partner with people if I can,” admits a smiling Mr Charrington. “There is no question that the industry is getting bigger and we can be a terrific partner for them. They need a bank – in fact these people need a very serious counterparty around the world to access capital markets, a partner with great strength and a global custodian, plus somewhere to run cash and place money around the world.”  

The favoured few

Luigi Pigorini, CEO of Citi’s regional private bank for Emea, says regular annual inflows of $6bn to $7bn are down to clients consolidating holdings with favoured banks.

“Marginal institutions are being taken off the roster. There is increasing clear blue water between a small group of banks – including us, JP Morgan, Credit Suisse and UBS – and all the rest.”

Firms outside this exclusive group cannot deliver a global product offering or a lending capacity, he believes.

A banker would have to have worked within this coterie in order to represent the Citi brand, says Mr Pigorini, who claims he can spot an experienced private banker, suited to serving the upper echelons, within seconds by their “emotional intelligence”.

“It’s all about the way they present themselves, talk about the business and their clients,” he volunteers, always preferring former investment bankers to those from retail or commercial banking backgrounds. “Their knowledge of the market, products and their own firm, means they have the capacity to deliver the whole institution.”

Alternative products are key to the bank’s success, with private equity funds now having taken over from hedge funds. Investments suggested by Citi’s quantitative “Theme Machine”, which crunches big data and analysis, are also wound into the mix.

“We seek to populate client portfolios with strategies following the Theme Machine,” says Mr Pigorini.

His next challenge will be to reshuffle staff across EU markets in which Citi operates, with Luxembourg looking to benefit most post-Brexit in terms of staff numbers.