Citicorp Suffering Defections From Its Capital Markets Staff

As banks and Wall Street firms fight for talented corporate bankers, Citicorp has experienced an exodus from its high-powered corporate finance unit.

In the last eight months, at least 30 executives in Citibank's "global relationship bank" have taken jobs at other commercial and investment banks. Defectors apparently made up large portions of some key groups within the finance unit; six of 25 bankers serving financial institutions have departed.

The turnover, experts say, highlights an intense competition among banks and Wall Street firms to meet all the financial needs of corporate America. As the skirmishing plays out, both commercial banks and investment banks are increasingly seeing their best talent wooed away by rivals.

Executive recruiters say that some other big New York institutions, including J.P. Morgan & Co. and Bankers Trust New York Corp., have suffered similar talent drains. (See story on page 18.)

The Citicorp departures also point to some strategic shifts by the nation's second-largest banking company. The bulk of Citicorp's growth is expected to occur in its consumer businesses, while in commercial banking, it plans to focus on a core group of 2,200 multinational corporations and the emerging markets. And former staffers say morale in the corporate finance unit was hurt by a news report suggesting the bank would pull back from the field.

Citicorp declines to discuss the departures in any detail. But according to a number of former employees, the defections included four of the 25 securitization experts who manage client relationships for that product group, six of a 10-member private placements team, plus significant chunks of the bank's loan syndications and high-yield-bond units.

Just last week, two respected members of Citibank's loan syndications group jumped to Chase Manhattan Corp. - Ruth Stritehoff as managing director and Mercedes Tech as senior vice president.

"Right now, there's an unprecedented bull market for people in the highly-leveraged-transaction business," said Kevin Meenan, a principal at Meenan, McDevitt & Co., a bank loan trading firm in Harrison, N.Y. "Within the Wall Street firms, they are bidding for talent to build their franchises."

But Citibank may be especially ripe for the picking, observers say. While other commercial banks have aggressively sought to compete head to head with Wall Street in the U.S. corporate finance business, Citi has said it would focus its attention elsewhere.

"Morgan and BT have their own people leaving, but that is a different story," said Gregory Frumess, managing director at Foster Partners, an executive recruiter who specializes in banking. For Citicorp, "it's more an issue of a de-evolution of the institution, a migration back to its roots in retail and consumer banking."

In a New York Times article this summer, Citicorp chairman John S. Reed raised the possibility that his company would spin off its corporate banking business within the next few years. Though Mr. Reed retracted the statement a week later, observers said it was too late - the damage to morale within Citibank's corporate finance area was done.

That article, former Citibankers say, accelerated an outflow of talent that began in February, when Tim Conway, Citibank's managing director for sponsor finance, left for Boston-based Fleet Financial Group. Paul Trefry, a Citibank senior vice president for structured finance, and Scott Porier, a private placements specialist, joined him there.

The Times article "was a confirmation of what they (Citibank corporate bankers) already believed," one former Citi employee said. "There was a narrowing focus, and a threat that there would not even be a corporate finance group there. It's a very hot market, and people are being picked off."

The Times story was only the latest in a string of events that signaled Citibank's intent to change its approach to domestic corporate banking. In late 1995, Citibank dismantled its North American corporate finance group and formed global industry and product groups to serve financial institutions, media, telecommunications, and other industries.

The shift in strategy has earned the bank praise from analysts. Many of the bank's multinational customers are now growing faster in less-developed economies than they are in the industrialized world, observers said.

Moreover, lending spreads are higher in many of the emerging markets than they are here.

"We may look back in 10 years and say that Reed is the smartest banker on the planet," said Glenn Marchak, senior vice president and head of loan syndications at Natwest Markets.

A spokeswoman for Citibank played down the recent departures, pointing out that the bank employs some 83,000 people worldwide. She added that the bank was not experiencing higher than normal turnover.

But some who have left dispute that view. "People with options are leaving," said one former Citi banker. "The people who would generate the returns are leaving, which is causing others to jump ship."

"By not keeping up with domestic clients, they will not be able to deliver the services," another defector added. "High yield has suffered considerably. Without the team they will lose market share internationally."

Among those who recently left Citibank's junk bond unit are Douglas Carleton, head of high yield corporate finance, and Andrew Hortnick, high- yield research, both for Schroder Wertheim; Mike Meyers, high-yield capital markets, for Morgan Stanley & Co.; and Rod Riviera, high-yield origination, for CS First Boston.

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