When Citigroup (C 0.39%) launched its major strategy overhaul more than two years ago, a big theme management laid out was divesting businesses that did not have enough scale and investing in areas the bank already excelled in or that could eventually obtain enough scale.
One area that management planned to emphasize was global wealth management. Wealth management has become a popular business among large banks because it is less capital-intensive than some other banking activities and can generate strong returns.
So far, Citigroup's global wealth efforts are off to a slow start, although there have recently been some signs of life. Let's take a look.
Global wealth ambitions
Part of Citigroup's big transformation was divesting its international consumer banking franchises but also establishing four big private wealth centers in London, Singapore, Hong Kong, and the United Arab Emirates. Citigroup serves three main client segments in its wealth business: affluent and high net worth individuals, ultra-high net worth individuals, and global wealth solutions for employers.
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Citigroup has various brands under its wealth umbrella for each client segment but the bank offers a wide array of products including personal banking, investing capabilities, financial planning, custody and trust, and institutional products. Roughly half of Citigroup's wealth clients are in North America, while 34% are in Asia, and 13% are in Europe, the Middle East, and Africa.
At its investor day last year, Citigroup set a goal for wealth management to generate compound annual revenue growth in the high-single-digit- or low-teens percentage range during a three- to five-year period. So far, the results have been underwhelming. In the first quarter of 2023, global wealth revenue fell 9% year over year.
Some evidence of progress
Citigroup Chief Financial Officer Mark Mason attributed the declining revenue to higher deposit costs in the private bank and difficult market conditions, which have made clients reluctant to invest. But Mason said he believes Citigroup's wealth business is well positioned for when the market recovers.
Notably, the bank hired Andy Sieg as its new head of wealth management. Sieg is considered a big fish for Citigroup to land; he previously headed Bank of America's Merrill Lynch Wealth Management, which has $2.8 trillion of client assets compared to Citigroup's $759 billion.
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Key Data Points
Looking at progress in the wealth business, Citigroup increased client advisors by 3% year over year in the first quarter and the bank leveraged its retail banking unit for 13,000 referrals to the wealth department. Additionally, Citigroup's Asian wealth management revenue rose 20% from the prior quarter. Citigroup has big ambitions for Asia when it comes to global wealth management and the bank is already a top-three wealth manager in the continent.
A key part of the business to watch
Although it's not Citigroup's crown jewel, the bank's global wealth and private banking ambitions are a very important part of Citigroup's strategy refresh. In 2021, Citigroup's wealth management and private bank generated a 13% core return on tangible common equity (ROTCE). The bank's medium-term target is 16% to 18%.
Investors like strong wealth management businesses in large banks because they consume less capital. Banks that have succeeded in scaling their wealth businesses have been rewarded with higher valuations.
With a strong leader like Sieg and the broadest global presence of any money-center bank, Citigroup definitely has some good things going for it. The success hasn't shown up in the numbers yet but if market conditions improve and the bank can execute its strategy, I would expect investors to take notice.
