Shanghai / Hong Kong: Citigroup Inc will close its private banking unit in China, which had sought to attract funds from the country’s fast-growing ranks of millionaires, as it streamlines its businesses, sources familiar with the situation said on Tuesday.
The three-year-old unit’s operations, serving high net-worth clients, will be folded into Citigroup’s consumer banking arm as part of an internal restructuring of its wealth management services in China, the sources said.
Several dozen employees at the unit will be transferred to other positions inside the bank, including the consumer banking business, said the sources, who declined to be identified as they were not authorised to speak to the media.
A Citigroup spokesman in Shanghai declined to comment.
The unit’s closure comes as the New York-based lender, the third-largest US bank by assets, is close to selling a stake in its Smith Barney retail brokerage business to Morgan Stanley, aiming to shore up its balance sheet.
Both its private bank and Smith Barney are under Citigroup’s wealth management group.
Citigroup’s private banking businesses elsewhere in Asia, including Hong Kong and Singapore, are operating normally and it is unclear whether the decision to close the China operation would herald similar restructuring elsewhere, said the sources.
Rush For Wealth
Both foreign and local lenders, including HSBC Holdings Plc, Standard Chartered Plc, Bank of China and Bank of Communications, rushed to launch private banking services in China in recent years, jostling for business from a rapidly growing wealthy class created by the once-booming economy.
Operations faced an acute shortage of experienced private bankers, in a country where such services were almost unheard of three years ago, and struggled with high rates of staff turnover.
Client managers-turned-private bankers found the business required more than just playing golf with wealthy clients, while overseas-trained private bankers faced challenges including stringent capital controls, a limited range of products and the lack of a mature set of rules governing the industry.
Citigroup started private banking in China in 2006, targeting wealthy Chinese with net worth of at least $10 million, a typical threshold for such services globally.
The consumer banking division also offers the bank’s Citigold wealth management services, which require a minimum of 500,000 yuan ($73,000) in deposits.
Although private banking’s prospects remain bright in China, with HSBC forecasting a population of 16 million high net-worth individuals in China by 2011 with $6.2 trillion in total assets, foreign banks face tough hurdles.
“Private banking services are constrained by a scarcity of outlets and a limited number of financial tools,” said Wang Jing, head of private banking at China Merchants Bank.
“Business models transplanted from overseas may not work in China.”
Citigroup’s global private banking clients have access to a wide range of risk management and hedging instruments, including interest-rate swaps, options, structured notes and warrants, according to the company’s website.
But many such derivatives are not available in China’s underdeveloped financial markets, spurring many mainland Chinese to go to Hong Kong for private banking services.