Analysis: Citi reaps profits from hiring rainmakers 2-3 years ago

Tue Apr 16, 2013 12:00am EDT
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By David Henry

NEW YORK (Reuters) - In the summer of 2010, senior executives at Citigroup Inc told the board of directors the bank needed to hire more dealmakers to have any chance of snagging underwriting assignments and rich takeover advisory fees.

Competitors, including JPMorgan Chase & Co and Morgan Stanley, had picked off the company's rainmakers during the financial crisis, when Citigroup's stock fell more than 95 percent. After the U.S. government rescued the bank, it took a more direct role in setting Citigroup's pay.

If Citigroup did not hire more dealmakers, the executives said, the bank would lose more and more market share. The board, despite some naysayers, approved the hiring campaign. On Monday, the bank showed how its investment is paying off.

Citigroup reported that its investment banking revenue from advising companies on mergers rose 84 percent to $204 million in the first quarter. It was the third consecutive period of big gains in investment banking revenue.

"They've picked up people who have produced results," said Michael Holland, founder of money manager Holland & Co, which owns warrants on Citigroup shares. The results bode well for Michael Corbat, who took the reins at Citigroup in October, Holland added.

The improvement in investment banking is emblematic of the larger healing happening at the bank, which the government bailed out three times during the crisis. Citigroup is slowly improving results in its Citi Holdings unit, which houses the assets the bank is looking to shed, and its lending margins are holding strong even as they weaken at other banks.

Not everything is perfect at the bank. Revenue in its transaction services unit, a processing business that generates stable earnings, shrank in the first quarter. In its consumer bank, revenue was flat in the first quarter and has been little changed for some time.

But in investment banking, the hires are bearing fruit.   Continued...

Passersby walk in front of a Citibank branch in New York, October 16, 2012. REUTERS/Keith Bedford