Citi considering selling wealth business, Bank of America analyst suggests

“We see the affluent segment as needing the most effort,” wrote analysts at Bank of America Securities led by Ebrahim Poonawalla.

He pointed to the inefficiencies in the business, including a dismal 94% efficiency rating for FY2023, and uncertainty about wealth’s synergies and competitive advantages within the industry. The banking industry generally aims for low efficiency ratings to reflect how effectively it is investing capital and resources, with the average for the banking industry being around 60%.

“While the potential synergies associated with the corporate relationship should present opportunities, we would not be surprised if management ultimately pursues strategic alternatives, especially if peer-level profitability cannot be achieved,” the team wrote.

He sees that potential in City too.
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The U.S. consumer card business. A Citi spokesman declined to comment. Barons On Thursday.

“We expect current management will either improve profitability or pursue strategic options to maximise shareholder value as the next logical step,” Poonawalla, who has a buy rating at Citi, wrote on Thursday.

The proposal comes as Citizens are shedding other businesses and bringing in outside talent to improve performance, but axing asset management, or parts of it, would mark a major shift from what Mr Fraser has envisioned for City’s future.

Shares of Citi, the third-largest U.S. bank by assets, have risen 30% in the past year.

S&P 500.

However, the stock price has fallen 90% from its all-time high in 2006.

The bank has withdrawn from markets outside the U.S., including Australia, India and Indonesia, and Citi last year said it had agreed to sell its consumer asset portfolio in China to HSBC.
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Financial terms of the transaction were not disclosed, but the business has deposits and assets under management of $3.6 billion.

Citi last year hired Andy Sieg, the longtime head of Bank of America Corp.’s sprawling Merrill Lynch asset-management business, as head of its wealth-management division. Investors will hear an update on his progress soon: Mr. Sieg is scheduled to speak at a Morgan Stanley finance conference on June 12. Mr. Sieg was Citi’s wealth-management executive from 2005 to 2009.

“This is a time of massive global wealth creation and our business is uniquely positioned for it. Andy will ensure we are at the forefront of what’s happening in the world,” Fraser told analysts in October. He said the company “has not been happy with its performance over the last few years and this will be a really important driver for us.”

Fraser said in April that first-quarter asset management revenue was down but that fee income was up and the firm had added about $22 billion in net new assets over the past year.

Outsiders like Sieg and Vis Raghavan, who recently became head of Citi’s banking division after running global investment banking at JPMorgan Chase & Co.
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Poonawalla writes that banks could take a “no sacred cows” approach to turning around their banks, one that is open to outside input from successful companies. He sees this as a positive.

Bank of America analysts said the breakup of General Electric by Larry Culp, now CEO of GE Aerospace, was one example of a company that could provide a blueprint for what Citi could do.

Fraser’s biography on Citi’s website says he is committed to making Citi “a global leader in wealth management,” and investors will be keen to see updates on how his team executes on that vision.

Email Rebecca Ungarino at rebecca.ungarino@barrons.com