Citigroup plans to rebuild its long-neglected equities franchise seeking to capitalise on a retrenchment by rivals in the face of new rules designed to make the financial system less risky, according to people familiar with the bank’s plans.
A lack of investment in equities and a traditional focus on bond trading kept the third largest US bank in the lower echelons of equities league tables, which measure how much revenue Wall Street banks earn from their equity trading units.
It will be tough to dislodge leaders such as Goldman Sachs, Morgan Stanley, and JPMorgan Chase & Co, that have long dominated the business.
But having shored up its business and capital ratios since the financial crisis, largely by spinning off non-core assets, Citi now aims to profit from a retreat of rivals that were slow in adapting to new rules that force banks to keep more capital, two people with direct knowledge of Citi’s plans told Reuters.
Deutsche Bank, Credit Suisse Barclays and others are re-aligning their investment banking businesses.
Prime brokerage units, which provide loans and other services to hedge funds, are being pared back in favour of less capital-intensive businesses such as wealth management.
Citi, meanwhile, plans to court hedge funds more actively as part of a four-point plan to boost its equities market share, the sources said.
The strategy includes an overhaul of Citi’s trading technology, hiring key executives, expanding research and boosting the unit’s financing.
The bank recently appointed former Chi-X Global chief John Lowrey to head its electronic execution unit, and ex-UBS executive Adam Herrmann to run prime brokerage.
Citi has also hired 11 analysts so far this year to support its investment advisory business, and is increasing financing of the unit in general, said the sources.
Citi has catered to traditional asset managers, but is now shifting its attention to hedge funds, which tend to trade more actively and can bring higher returns through fees.
Mid-sized firms are especially attractive, because they lack the resources of their bigger rivals and Citi can offer them services such as risk systems, credit monitoring, and trading algorithms, which have all been part of Citi’s technology revamp.
Building up its prime brokerage and bespoke equity derivatives, key to winning over hedge funds, will be difficult though, because they are capital intensive businesses, said analyst Guy Moszkowski.
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