There are reasons people listen when the 800-pound gorilla beats its chest–it’s loud. The behemoth in the wealth-management industry is Citi Global Wealth Management, and all eyes are upon it. Revenues increased 41 percent year over year, as of the third quarter, as international revenues more than doubled and U.S. revenues grew 14 percent, due to double-digit organic growth and the bank’s majority shareholder status in Nikko Cordial in May. In fact, that Tokyo deal with Nikko, the third-largest wealth manager in Japan, helped push up transactional revenues an astounding 86 percent.
“This is a great business,” says Sallie Krawcheck, chairman and CEO of Citi Global Wealth Management. (Krawcheck also was ranked by USB as one of the industry’s most influential women in 2007.) The unit includes Smith Barney, private banking and research operations. With client assets of $1.8 trillion, the division represents seven percent of the giant’s total income, operates in 100 countries, and has 14,873 financial advisors and 585 private bankers.
“Citi’s private bank is the wealth-management firm of choice for the affluent overseas,” says Jamie Black Peters, an analyst with Morningstar in Chicago. “It is doing very well.” Though many Citi competitors have posted decent wealth-management gains, Citi has “taken greater advantage and been more aggressive” than its rivals, Peters says.
Smith Barney, which Krawcheck headed as CEO when she joined Citi in 2002, also had a stellar 2007: Record revenues driven by a 24 percent increase in fee-based and net interest revenues, reflecting a continued shift toward offering fee-based advisory products and services, and improved net interest margins. Assets under fee-based management increased 41 percent to $454 billion. Krawcheck credits a new compensation plan, anchored in September, for the team’s selling acumen, as well as the introduction of the Smith Barney Advisor Platform, which she called the fastest-growing product in the bank’s history. SB now boasts $40 billion in assets under management.
“Citi has focused quite a bit on their wealth-management business,” observes Alois Pirker, senior analyst for Aite Group. “And now they’re ahead of the game. It shows that they’re taking their clients seriously and spending money to retain and [capture] them.” The bank recently launched an advanced United Managed Account, an open-architecture platform; it is building more online planning tools for the self-directed investor with between $50,000 and $450,000 in investable assets; and it is designing a proprietary Relationship Report data-warehouse project valued at between $35 million and $40 million, according to Pirker.
“This business is about people and technology,” says Krawcheck, admitting that her first year in the job had its “organizational” challenges. “You have to get the right products with the right people in the right jobs. But I feel very good about our team.”
Internationally, China and India and the Mideast were key focuses in 2007, and will remain so in 2008. The bank will triple the number of private-banking offices in India from two to six, while Smith Barney, which handles clients with assets of at least $1 million, will expand from one office to 12 in a dozen cities. She frets about 2008, however. “If the subprime [problem] bleeds into the overseas markets, 2008 could be one of those ‘pause’ years in wealth management,” she says. If it doesn’t, opportunity remains ripe for double-digit growth in wealthy enclaves of Asia, Middle East, Latin America and Eastern Europe.
