Citigroup Fell Behind With Rich Customers. Can It Win Them Back?

The collapse is one reason why Citi’s stock is stuck in a deep slump and CEO Jane Fraser is under pressure to boost profits. She is hoping to turn the unit around after recently poaching Andy Sieg from a job running Bank of America’s Merrill Wealth Management business.

In an interview with The Wall Street Journal, Sieg said he plans to cut costs, get rich people to bring over more of their investments and target customers in Asia.

“We have the brand, the clients and the capabilities to be the number one wealth business in the world," Sieg said.

It is far from that now.

In the early 2000s, Citi had grand ambitions of being a financial supermarket that offered banking products to companies and individuals everywhere. Its wealth operations included its Smith Barney unit with thousands of brokers selling stocks and bonds to well-off families, and a private bank offering bespoke products to the ultrarich. 

After the 2008 financial crisis hit, Citi sold Smith Barney to Morgan Stanley as part of divestitures intended to keep the bank afloat.

Other megabanks doubled down on their wealth operations in the years that followed. The business is appealing because it uses little capital and generates steady fees; plus, loans to rich people rarely go bad. Morgan Stanley used Smith Barney to build a wealth behemoth with $5 trillion in client assets.

Citi was left with a hodgepodge of wealth businesses a fraction of that size. They include the high-end private bank, a lower-end business called Citigold for retail customers and another operation catering to lawyers and other professionals.

Fraser combined these operations in 2021, hoping to improve results. Instead, the business fell behind revenue targets, the Journal reported last year. “We’ve been disappointed," Chief Financial Officer Mark Mason said of the business at an investor conference in December.

Citi in January broke out the unit’s earnings for the first time in years: It earned $5 million in the fourth quarter and $346 million for the full year, a 64% drop from 2022. The division’s return on tangible common equity was 2.6% for the year, far below similar profit measures at rivals.

“When you have results that look like the fourth-quarter results, there’s a premium on taking decisive action," Sieg says.

A central Pennsylvania native and the middle of three brothers with top jobs in finance, Sieg, 56, previously worked at Citi from 2005 to 2009. He left for Bank of America, which bought Merrill in 2009, and was promoted to run that business in 2017.

At Merrill, his job involved hobnobbing with top Wall Street figures whose firms sold products through the wealth manager and overseeing Merrill’s advisers around the U.S.

The Citi role, which he started in September, is far more international: Nearly half of the unit’s revenue comes from abroad. Sieg has spent weeks in offices in Asia and Europe. At an office in Singapore, local private bankers had him roll a pineapple for good luck.

Sieg is taking aim at the culture that led to poor results. He told staffers at a town hall meeting to manage-up less, which led to a flood of supportive emails from those who tuned in.

Fixing the business won’t be easy. Other banks large and small are trying to expand in the same area. And the focus on cutting will likely make it hard to put together the pay packages required to hire top producers away from competitors.

Citi has been struggling to right itself since the financial crisis. Its shares are 89% below where they were in early 2007.

In recent months, CEO Fraser announced a reorganization across the bank that eliminates layers of management and cuts 20,000 jobs. The heads of the bank’s five businesses, including Sieg, now report directly to her.

Fraser’s overarching plan is to increase the profitability of each client by pitching them more of the bank’s services. Selling wealth management to corporate CEOs and founders who are already Citi customers for other services is a key part.

Sieg plans to trim “several hundred million" in annual costs from his unit, which had $6.6 billion in expenses last year. The unit is laying off over 1,000 staffers as part of the broader cuts, people familiar with the matter said.

The bank is also re-evaluating some far-flung projects. A program to provide bank accounts to customers of brokerage firm Edward Jones and independent investment advisers was quietly scrapped. Sieg also killed an initiative to provide services like debit cards for private-banking clients in the U.K.

“There’s a lot to do. It still feels like a lot of their clients use them for a little bit of their wealth, but not all of their wealth," said Jason Goldberg, an analyst at Barclays who covers Citi. Global wealth is projected to grow at a rate that could make the turnaround plan work, however, he said.

Sieg thinks the business is too focused on making loans and taking deposits. In a higher-rate world, rich people have been curtailing their borrowing and demanding more interest on deposits. Sieg wants clients to bring over more of their investments, which the bank can earn management fees on.

Citi has $1 trillion in client balances, a metric that includes investments, deposits and loans, but those clients have $5 trillion of investments elsewhere, he said. The bank is starting to track the amount of new assets clients bring to the bank, and private bankers’ bonuses are now more heavily weighted toward investments they bring in.

Sieg also wants to sell wealth products to more customers in Asia. Citi is the only large U.S. bank with branches in Singapore and Hong Kong, a vestige of its empire-building days that he thinks helps its reputation with local customers.

“They see Citi as the number one wealth business, which is interesting because today, it’s not," he says.