Citigroup Inc. President John Havens is working to overcome the injuries, many self-inflicted, its investment bank suffered in the financial meltdown.
During an interview Tuesday, Havens, Citi's second-highest-ranking executive and the company's capital markets chief, spoke of progress. A number of bankers and advisers joined recently; Citigroup's own financial problems are abating, which removes distractions and improves morale; and it remains a top trading firm by revenue.
Yet, Havens said, "We experienced quite a falloff" in equity underwriting, and Citi is now in "an unacceptable position."
In some European debt categories, the New York company wasn't even among the top ten underwriters anymore — certainly not a good showing for a bank that boasts of its vast international reach. "We'd rather not be in the business" than have such a low ranking, Havens said.
In merger and acquisitions advisory, Havens said, "We are not where we want to be, and we are dealing with it."
Havens' success or failure is critical for Citi. Its investment bank is among the world's largest, and Citi's success as a global bank will depend on its ability to attract and keep as clients big corporations with cross-border capital markets needs.
During the crisis, "we had lost focus," Havens said. Nevertheless, "We continue to be heavily engaged with our largest clients on how they are building their cross-border capabilities. We are seeing the results."
Havens, the company's capital markets chief since 2008, had to refocus the division at the heart of what went wrong at Citigroup: Taking on too much risk, trying to be all things to all customers, doing deals for deals' sake rather than emphasizing long-term profitability.
As part of the solution, Citi shrank its roster of clients from about 20,000, to the roughly 4,000 it had banking relationships with. "We had to redefine what our goals were. We were a client-acquisition business; now we are in the relationship-management business," he said.
The revival, he said, is behind schedule. In 2009, Citigroup struggled with its own problems while the market rebounded. Invigorated competitors lured customers with charts illustrating Citi's decline.
Hiring top bankers, Havens said, "was a tough sale."
First-quarter 2011 net income from the capital markets businesses fell 46% from a year earlier, to $1.7 billion. At JPMorgan Chase & Co. such income fell 4%, to $2.4 billion, and at Bank of America Corp. it fell 34%, to $2.1 billion.
In trading, Citi had "a dip, and now we are back," Havens said. Citi generated almost $5 billion of revenue from stock, bond and commodities trading in the first quarter — ahead of Morgan Stanley and B of A and Morgan Stanley but behind Goldman Sachs Group Inc. and JPMorgan Chase. Citigroup is building more heft in commodities trading, Havens said.
In equities underwriting, Citi slid a notch from a year earlier, to eighth in 2010; in fixed income, it ranked seventh, down from third, according to Dealogic.
Citi may never regain the top spot it once held in the bond business, said Jeff Harte, an analyst at Sandler O'Neill & Partners LP, because its focus on profitability will make Havens more selective about deals.
"Executing landmark transactions for our clients: that's what I care about," Havens said. Recent deals are evidence of Citi's strengths, he said.
Citigroup was coordinator for Glencore International, a Swiss commodities company; and it was the lead bookrunner in HCA Holdings Inc.'s initial public offering.
Citi added about 70 managing directors this year. In September, Stephen Trauber joined from UBS AG.
Since, Ethan Topper joined as technology banker from Credit Suisse AG and Yuichi Jimbo from JPMorgan Chase in Japan.
"We have a sense that, if the world stays calm, you will see … large pools of liquidity deployed," Havens said, particularly in cross-border transactions and investments. And that, Havens argues, is Citi's sweet spot.
