Citigroup Inc. has created a new business unit to make the most of its corporate lending activities.
Steven Jones was plucked from his job as head of high-yield capital markets at Citigroup to run the new unit, which is known internally as the global loan portfolio management group.
In a memorandum to employees, Michael Carpenter, co-chairman of Citis global corporate and investment bank, and other senior executives said Wednesday that the group has responsibility for deciding which corporate loan customers are profitable and which are not, and for extending future credit accordingly. The group is to be involved in the provision of loan capital and in the active management of the loan portfolio, including loan sales.
Our principal objective in forming this group is to ensure that we optimize the rate of return on the use of credit for our corporate client base, the memo said.
Citi, like many other banking companies, is trying to balance its desire to cross-sell a range of corporate and investment banking services with client demands for financing. Analysts said Citi has not been as aggressive as some banks in offering investment banking clients the use of its capital.
Citis global wholesale loan portfolio totals $120 billion, about 50% of which comes from mostly investment-grade U.S. borrowers, according to research by Merrill Lynch & Co. Contrary to perceptions, Citi has not been aggressively taking on credit risk to win investment banking mandates, wrote Judah Kraushaar, an analyst at Merrill Lynch, in a research report this week.
Still, analysts said Citi has stepped up its lending in recent years to maintain its market share against the encroachment of investment banking competitors, such as Merrill Lynch.
The profitability of the lending business has also gotten more attention because of declining credit quality in the industry. Several banking companies in recent months, including Bank of America Corp. and Wachovia Corp., burned by some bad loan exposures, have said they would no longer lend for lendings sake, but instead rent out their balance sheets only to clients that use multiple products and services.
Analysts said J.P. Morgan Chase & Co. is among the larger banks in the syndicated loan business that originate and then sell off most of their exposure. Like Citi, Morgan Chase has avoided some of the bigger loan blowups in recent months, largely because of this practice.
Mr. Kraushaar said in his research report that the newly organized group will help Citi in its drive to reduce loans held on the balance sheet.
The formation of the group seems to be one of the last steps in the full integration of Citis corporate banking activities and Salomon Smith Barneys investment bank.
The loan group will report jointly to the global relationship bank, run by Alan MacDonald, and global fixed income, run by Thomas Maheras. It will draw staff from the global relationship bank, fixed income, and risk management, the memo said.
It is formalizing the one-stop shopping idea and leveraging their advantage in lending, said Andrew Collins, an analyst at ING Barings. This should have been done two or three years ago.
Analysts also noted with interest Mr. Jones origins as head of high-yield capital markets, a business that creates, or originates, products and sells them rather than holding them. It suggests a mindset, said David Berry, director of research at Keefe, Bruyette & Woods Inc. Corporate lending is becoming just another part of the fixed income product group.
Jim Zelter succeeded Mr. Jones as head of high-yield capital markets.