Citigroup Inc.'s municipal-bond business has seen a wave of high-profile departures as the bank restructures parts of the group.
The bank has stopped using its own cash to trade and invest in munis as part of a push to focus on providing more of its balance sheet to larger, institutional clients, according to people familiar with the matter. Rivals moved quickly to steal talent after Citigroup offered buyouts to more than a dozen senior traders, bankers and salespersons.
Since 2015, the New York-based lender has been the nation's second-biggest municipal underwriter, but has fallen to fifth this year. The ranking would be Citigroup's lowest since 2012 if it holds. The personnel changes and rejiggering of trading offerings have caused concern that the bank is taking a step back from its once-storied public finance business.
Mark Costiglio, a spokesman for Citigroup, said in an email that the bank is confident about retaining its position as a market leader.
After holding an investor day in March, executives at Citigroup promised to look for ways to better cater to the unit's largest institutional and corporate clients. As Citigroup faces higher capital requirements, it's going to be harder to improve profitability.
Paco Ybarra, head of the firm's institutional clients business, told investors that their direction was to increase relevance to their clients. We want to retain our leading position and growth share, but only while keeping a close watch on returns.
The bank began quietly offering buyout packages to senior bankers, traders and salespeople within weeks of the investor presentation.
A person familiar with the situation said that Citigroup didn't need as many senior staff dedicated to the business as in the past. In the last few weeks, there have been more retirements and departures at Citigroup than in the past.
Citigroup's ranking has dropped in the state and local debt market.
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A strong show of institutional support is what Citigroup is trying to achieve. One of the people familiar with the matter said that Jane Fraser stopped by the muni desk as part of her regular visit to the trading floor. In the last few months, top trading executives have told team members that the bank isn't cutting risk limits for the business.
The muni investment-banking and trading arms have seen a number of departures recently. Jamie Doffermyre is the head of muni sales and was a co-captain of the US Naval Academy football team. Two traders, a managing director and a former chairman of the National Association of Securities Professionals were among those who left.
According to a person familiar with the matter, Citigroup has added 15 people across its muni group, most of whom have joined in the banking business, and the firm still intends to be a top three muni underwriter. About half of Bank of America Corp.'s tally is attributed to the bank's handling of long-term municipal deals.
Lorza and Doffermyre didn't say anything. Some people didn't respond to requests for comments.
Morgan Stanley bought Smith Barney from Citigroup in the wake of the financial crisis. According to people familiar with the matter, it had a separate culture from the one that dominated the broader trading and investment-banking division.
For a long time, executives at Citigroup were allowed to operate the business as a separate entity.
That didn't stay the same in 2018? Credit markets, municipal securities and securitized markets were combined into a single unit called global spread products. Two people were chosen to lead the group.
The new structure was hit by high-profile departures, including the retirement of the unit's long-time chief, Ward Marsh, after 45 years there. Geraci, who has worked at the bank for 24 years, decided to leave last year.
The year for the muni market has been bad. The bonds are on track for their worst year of performance since the 1980s as they have lost almost 8%. With interest rates rising, state and city issuance has fallen.
The revenue from trading spread products and other fixed income at Citigroup dropped by more than 10% last year. The unit's revenue has fallen in the first half of the year.
Citigroup has sought to focus on larger muni transactions and advisory services in recent years. The deals are more profitable due to their complexity.
Republicans in Texas wanted to punish Citigroup for changing its policies for lending to gun retailers. The state's second-biggest market for muni deals was reopened in November after a months-long pause. It has seen bankers leave there.
The business of arranging financing for the nation's municipalities is often relationship driven with local finance officials tending to tap bankers that they've worked with for years on bond sales The loss of senior bankers with decades of experience may make it difficult for Citigroup to climb back up the ranks.
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