The outsider trying to restore Citi to investment-banking glory

Vis Raghavan, Citi’s new banking head, wants his dealmakers to advise on and finance more private-equity deals, bringing in more fees to a group that has punched below its weight for more than a decade.

If they succeed, the business should be taking a bigger slice of the pie that companies and investors pay to Wall Street each year. Hitting his even modest growth targets could bring in some $400 million in additional fees a year. Citi earned $2.7 billion in investment-banking fees last year.

Citi Chief Executive Jane Fraser hired Raghavan, who ran JPMorgan’s dealmakers, earlier this year. The bank is betting the decision to bring in a leading competitor will send a clear signal to clients—and its own bankers—that Citi is back in the game.

In a recent meeting with one firm, Citi bankers said, “We’re embarrassed by how little we’ve done, for a long period of time."

The challenge is steep. Citi was once a leader in private equity but because of regulation and wider problems at the bank, it grew reluctant to make the loans those clients expect. It lost the confidence of buyout firms and stumbled in the league tables, where competition remains stiff.

UBS and Jefferies are both trying a similar approach to strengthen their dealmakers by counting on private-equity firms, pitting them directly in competition with Citi. And Wall Street’s established players, from JPMorgan and Bank of America to Goldman Sachs, aren’t backing down, either.

Raghavan says his meetings with clients have given him confidence they want to work with Citi and are even rooting for more big lenders. But he acknowledges Citi will have to back up its words by taking more lending risks and “Show, don’t tell" before he succeeds.

The top payers on Wall Street

Citi, and most of its rivals, covet private-equity firms because their frequent dealmaking creates huge fees.

In many years, private-equity deals account for 40% or more of the total volume of mergers and acquisitions, said Devin Ryan, an analyst with Citizens JMP Securities. “Sponsors are the top payers to the Street, and that’s only accelerated in the last decade," Ryan said.

That volume is expected to pick up. Interest-rate cuts, the U.S. economy’s soft landing and Donald Trump’s return to the White House have all lifted expectations that KKR, Blackstone and other buyout firms are on the cusp of an acquisition spree.

Meanwhile, private-equity executives are happy to keep the banks competing against each other and say they are open to paying other banks. The more competitors vying for their business, the more deals they will see and the better terms they are likely to receive for financing them.

“It’s certainly better for us and the rest of the industry when the three biggest U.S. banks are more aggressive in leveraged finance," one senior U.S. buyout executive said.

Raghavan said he is aiming to boost Citi’s slice of the investment-banking fee pie above 5% by late 2025, up from about 4.6% today. From there, the bank will target an additional 0.5% to 1% over the next several years, he said.

There are usually about $80 billion in banking fees up for grabs each year, so every half percentage point in market share is worth $400 million in fees.

Starting at a two-decade low

For the plan to work, Raghavan said, Citi’s bankers will need to bring lots of deal ideas and insights to clients. Then the bank needs to be comfortable lending to them.

Last year, Citi ranked seventh in U.S. leveraged loans, the type of debt that fuels private-equity deals. Its market share stood at 3.3%, its lowest in two decades and one place below Truist Financial, a regional bank not typically considered Wall Street, according to data from LSEG. Before the financial crisis, Citi routinely financed more than 10% of U.S. leveraged loans.

Regulatory scrutiny, along with a string of failed restructuring plans, have weighed on Citi’s investment bankers and too often left them unsure whether their bosses would put the bank’s capital to work on deals, current and former Citi executives said. In time, they stopped asking as often.

One private-equity executive said his firm was working with Citi bankers on a potential deal before Raghavan’s arrival only to be told that the bank’s credit department was unwilling to finance the transaction.

“To work with someone who is inconsistent on whether they can get there on financing is a waste of time," he said. “That was one of the challenges we had working with Citi."

‘We’re not like that now’

Raghavan has made a handful of key hires, including Achintya Mangla, his deputy at JPMorgan who joined in September to lead investment-banking financing. Raghavan has kept Kevin Cox as interim head of M&A, leaving the impression that he is looking for another outsider, Citi employees said.

In one early win intended to signal Citi’s intent, the bank signed a new partnership with Apollo Management to create a $25 billion private-credit fund as a home for some of the debt it finances. (Like most banks operating under stiffer capital rules, Citi won’t hold leveraged loans on its balance sheet for long.)

One private-equity executive said he has already seen a more assertive Citi since Raghavan’s arrival.

“The message is ‘we know what we’ve been like before, but we’re not like that now,’" another buyout executive said.

Write to Justin Baer at justin.baer@wsj.com