Some things are big because they are complicated, and some things are complicated because they are big. And some things -arguably, like Citigroup – are both. But the bet implicit in Jane Fraser’s restructuring plan has always been that it’s more the second than the first, that some of its historically Byzantine structure of overlapping responsibilities and committees has been unnecessary. That might mean that it’s possible to run things better, even at roughly the current scale, if they just cut out enough management layers so that Fraser and her top team can “run the bank like an operator versus the head of a holding company”.
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The assessment of many people interviewed for The Banker’s deep dive into progress so far seems to be that Fraser might have had a point. In particular, it seems that internal politics might have been an obstacle to getting things done at Citi in the past. All the regional heads and middle managers who were the target of “Project Bora Bora” were not just expensive headcount (both as individuals, but due to their habit of surrounding themselves with personal staff and retinue). They were powerful people who couldn’t be ignored and who needed to be brought on board for any new initiative. And that slowed things down, a lot.
Now, according to usually quite cynical bank analyst Mike Mayo, things are different. He says that thanks to the “elegant” new structure, “instead of a company being run by politics, it can be run more by economics, given greater ownership, accountability and transparency”. It’s obviously quite early days to judge whether this is really the case, but Citi has begun to claw back some market share in key investment banking markets and is well above its 2023 levels. One research group estimates that of the YoY revenue growth, about half is attributable to interest rates and the rest to “good core performance, improving client activity supported by deeper penetration of existing clients as well as adding new clients”.
It might not just be a matter of politics – the sheer number of middle managers makes a difference. No matter how much you try to stop them or disincentivise the holding of meetings, having meetings is what middle managers are for. And it’s reasonable to assume that the number of meetings will scale roughly with the square of the number of people who want to have them.
At Citi scale, this can become a significant drag just in terms of the cost of the coffee and doughnuts, let alone the opportunity cost of the time. Jason Rekate, the global head of corporate banking actually attributes his recent success with clients to this, saying that “I’m finding it’s easier to travel as I’m not missing lots of meetings that I am supposed to attend as a senior manager in the firm”.
Not everyone is convinced by the reorganisation; one shareholder pointed out that the market hasn’t really given them credit for it yet and says “if the share price goes above $100 I take it all back”. If it does, then maybe excess middle managers at other big banks ought to start worrying.
Elsewhere, some job moves make more noise than others, and the news that Jim “Espo” Esposito has shown up as President of Citadel Securities will have drawn gasps that might be audible several blocks away from Goldman Sachs’ offices. Back in January, Espo wrote to clients saying that he had “developed a feeling of going through the motions”, and that this just wasn’t “in my DNA, nor what makes this place [ie Goldman] special”. At the time he had “no formal plans for what comes next”.
And now he’s “excited to join Citadel Securities, a next-generation capital markets firm with world-class talent and cutting-edge analytics and technology”. Although presumably significant amounts of money will have been promised, it’s unlikely that Esposito could have just been bought – he must see something to work with at Citadel that’s a bit more mojo-restoring than simply being the friendly face of a lot of high-frequency server farms.
Possibly that extra something might be a chance to build a business and compete with his former colleagues. For some time, it’s been clear that Citadel Securities wants to move beyond its electronic roots and start taking more share in “high touch” trading and even investment banking. Now they might have taken a big step forward.
Meanwhile …
A slightly unusual kind of sell-side to buy-side move – Thomas Anglin, an MD in Goldman Sachs’ prime brokerage business, is going to an undisclosed role at Third Point. (Bloomberg)
Big moves at UBS as Rob Karofsky is promoted to lead the US business and co-head wealth management, while George Athanasopoulos and Marco Valla replace him as co-presidents of investment banking. It looks now like a two-horse race between Karofsky and Iqbal Khan to succeed Sergio Ermotti when he goes (back) into retirement. (Financial News)
Beth Hammack’s appointment to the Cleveland Fed marks another stage in the trend away from the PhD economists who used to occupy all the top jobs in the Federal Reserve system. On the other hand, she probably brings more direct market experience than any other Fed President ever, having worked up from a rates trading desk to co-head of Goldman’s global financing group and chair of the bond investors’ advisory committee. (FT Alphaville)
It seems like the personnel moves back in March were indeed related to trading losses; “sources familiar” are confirming that banks including Barclays and Citi have had bad experiences in Hungarian bonds. (IFRE)
Potentially a very bad indicator for the overall state of the tech hiring market; despite the AI boom, elite graduates of the Indian Institutes of Technology are finding it difficult to get jobs. (Bloomberg)
Bill Ackman has indicated that he will be backing Donald Trump in the US Presidential election and others have suggested “Wall Street is definitely swinging in Trump’s direction”. Unless anything interesting happened after 5pm Eastern Time yesterday. (FT)
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Source: efinancialcareers.com
