Morning Coffee: The ex-JPMorgan banker making Citi MDs feel inadequate. Investment firms are cutting heads too

This is a true story – I won’t say which bank it happened at, but I saw it with my own eyes.

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“I want you to know”, the new head of investment banking told the town hall meeting, “that I have really big ambitions for this franchise.  I’ve looked at our business and identified where we need to make changes. The first thing I’m going to do is to go out and hire some really good people in key positions”.  The top management team, all of whom were on stage with him, tried to keep smiling as they considered the implications of that statement.

This little vignette has played out, in only slightly different form, in a great number of banks over the years. 

Whenever a banker gets a brand-new boss who has a great reputation somewhere else, there’s always mixed emotions.  That’s particularly the case if the new boss has big ambitions and something to prove.  On one hand, it can be exhilarating – if you feel that you’ve been held back by working in a subpar franchise, then you might relish the prospect of a more aggressive approach, a return to the big leagues and potentially a step change in the revenue and bonus environment. But there’s also fear. Because you might feel there’s a risk that the new boss thinks you’re part of the reason that the original franchise was so subpar.

 And although he might never have put it quite as blatantly as that, this seems to be the energy that the Wall Street Journal says Vis Raghavan is giving off at Citigroup.  Raghavan is hiring former JPMorgan colleagues like Achintya Mangla into key Citi roles, and Citi incumbents are being reshuffled aside to make room for those he’s identified as having the right stuff.  Kevin Cox has been put in charge of the global M&A business but only “on an interim basis” which seems to be curiously located somewhere between a promotion and a threat.

Witnessing all this, Citi bankers seem to kind of know that to some extent they have brought this upon themselves. The Wall Street Journal reports that in a meeting with one private equity client, the sales pitch included the line “We’re embarrassed by how little we’ve done, for a long period of time”.

But the reason for this embarrassing performance (which has seen Citi lose its leading position with financial sponsors clients) might not have been wholly a lack of hustle or ideas. Some private equity firms claim that, after a series of regulatory problems, Citi had become gun-shy when it came to using its balance sheet, with deals falling apart late in the process due to a credit committee saying no. This will have to change. To reach his interim target of 5% market share and to bring in the $1bn or so of extra fees he aspires to, Vis Raghavan is saying that “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”.

However, Citi tightened its lending capacity for a reason.  Raghavan is right to say that lending is an important part of the package, but it’s noticeable that Barclays, which also wants to increase its share with financial sponsors, is trying to reduce the extent to which it relies on its balance sheet to win business.

The private equity firms all say that they like the new approach from Citi.  But some of them also make clear that they mainly like it because it gives more opportunities to play banks off against each other and get better pricing.  Investment banking is a tricky market, where gaining market share isn’t always good news.

Elsewhere, Man Group isn’t exactly a “multistrategy fund” in the same sense as Citadel or Millennium, but it does have a lot of different strategies under its roof, and it’s apparently going to be cutting “low single digit percentages” of its 1,787 employees while continuing to hire for its areas of strategic focus.  This might only mean a few dozen actual redundancies, and they will apparently be concentrated on “operations, middle office and technology roles” rather than portfolio managers, analysts or asset gatherers.  

Meanwhile …

Citi CEO Jane Fraser thinks US M&A is getting sweaty - "...it is game on and the clients are on the front foot.” (Bloomberg) 

The big prize for Wall Streeters in the new administration is Treasury Secretary – not only do you get to cash in all your stock in a tax-advantaged manner, you then get to literally control the money (and give orders to the SEC).  But is the juice worth the squeeze?  John Paulson has already dropped out of the running because of “complicated financial commitments” (tell us more!).  Howard Lutnick of Cantor is still in, but he’s facing competition from Scott Bessent of Key Square Capital. (FT)

BNP has let go of seven Hong Kong-based staff across investment banking, corporate finance and equity capital markets last week, along with three from its mainland offices. This amounts to 10% of its China focused dealmaking headcount. (Bloomberg) 

“Not euphoric but moderately happy” is the assessment of the Alan Johnson Associates bonus forecast for this year.  Although, relative to expectations at the start of 2024, a round where all sectors are up, with debt capital markets bankers as much as +35% on last year seems a bit better than moderate.  If you don’t get paid this year, it’s possible someone doesn’t like you. (Bloomberg)

The ideal response to the question “why should we hire you” at a job interview is something like “because you have just spent three months trying to persuade me to take your call”. But if you’re not in a position to say that, a combination of the job advert and the company’s mission statement is the best place to lift phrases from. (Harvard  Business Review)

Apparently things are improving in the annual Financial Conduct Authority staff survey – a majority of them still give unfavourable assessments of pay and talent management, but they are feeling better about job security, diversity and confidence in leadership.  This matters because it’s really not a good idea to have decisions that affect other people’s careers taken by employees who are distracted and unhappy themselves. (Financial News)

Co-CEO Rajeev Misra is now formally out of Softbank Vision Fund, and will be concentrating on his own “OneIM”.  Apparently although the “relationship will not continue”, Softbank management will still talk to him from time to time. (Bloomberg)

Isn’t inflation terrible? The World Economic Forum has put up the price of its “second tier” badges from CHF100 to CHF1000.  Not only that, but they’re making this tier much less exclusive – these badges used to be meant for the entourages of the real Davos crowd, but now they are going to have to share their space outside the inner conference centre with a lot more “mid-tier executives”. (FT)

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