Citi rolls out retention bonuses amid rush to revitalize wealth unit

Citigroup Inc. was preparing to declare its wealth business a key piece of the bank’s growth strategy, but behind the scenes technology kept stirring up trouble.

Ultra-rich clients complained about outdated platforms that didn’t stack up against competitors, and relationship bankers privately agreed. Again and again, a pair of Dallas-based tech executives sought to assuage those concerns, flying to New York to give presentations on how much they were going to achieve with two years and more than $1 billion.

But to the annoyance of senior managers, little was delivered.

In the midst of that dysfunction, Chief Executive Officer Jane Fraser resorted to the rare step of recruiting a top executive from outside the bank, assigning him to lead a newly independent wealth division and report directly to her. A year after his arrival, Andy Sieg — a tall Pennsylvania native who ran Bank of America Corp.’s Merrill Lynch wealth brokerage — has since fired managers, filled senior posts with external hires, pressed clients to bring in more of their wallets and renewed the push to upgrade tech.

This year, his team also greenlit special retention bonuses for dozens of personnel, trying to stanch departures during the turnaround. Recent results, he said in an interview, show it’s starting to take hold. 

“This is a growth strategy — make no mistake,” Sieg, 57, said in an interview. Before his appointment, “there wasn’t a unified wealth strategy, there wasn’t necessarily an operating philosophy about what we were trying to get done.”

One senior executive in another part of Citigroup compared Sieg to the arrival of cavalry in battle, suggesting he has a more sophisticated vision than predecessors. It was an unusual move: a jump from one of the country’s largest wealth franchises to an industry laggard.

Citigroup’s wealth business has trailed behind its main banking rivals since the aftermath of the 2008 financial crisis, when it agreed to sell its Smith Barney retail brokerage to Morgan Stanley, now the leader among big US banks.

Sieg first met Fraser for breakfast at Citi’s headquarters less than a month before handing in his notice to Bank of America in early 2023. Since arriving, he has taken stock and publicly claimed his new franchise has the potential to become the best in the world.

“I came into this role with eyes wide open about where the business was and with the utmost confidence in our ability to make this business successful,” he said. “I’m even more optimistic today than the day I started.”

His mission is key to Fraser’s own legacy. She’s running the only major Wall Street bank whose stock trades below where it was five years ago. To grow revenue, she wants Citigroup to leverage its relationships with corporations around the world, handling more of their cashflows and deals, while helping their founders and executives tend to their burgeoning wealth. 

Fraser has set an ambitious target for wealth — a three-part division that includes the private bank she once ran. The goal is to produce a return on tangible common equity, a metric of profitability, of 15% to 20% by the end of 2026. That would be a big lift, up from 8.5% in the third quarter.

On her third-quarter earnings call with analysts in October, Fraser touted rising client assets at the bank and said she was excited by “the sheer potential of our franchise.”

It’s a ferociously competitive moment for talent and clients in the wealth industry. Virtually all of Citigroup’s main US rivals are investing heavily. In September, Goldman Sachs Group Inc. CEO David Solomon said the main constraint on his wealth business was being able to hire enough advisers.

“Wealth is a battleground,” said Wells Fargo & Co. bank analyst Mike Mayo, adding Citigroup’s returns have been “abominable” compared with rivals in recent years. “It’s only getting harder for Citi at a time when they’ve already fallen short.”

Sieg held more than 350 client meetings since joining the bank last October, dropping into Hong Kong, Riyadh, Paris, Florence and elsewhere. He also set up a 26-member advisory board of executives from around the world so that they can move faster on honing strategy and tackling problems.

Citigroup has an edge over US rivals in reaching entrepreneurs and billionaires in Asia, where it has more reach. Already, about half of the division’s revenue is from outside of the US — predominantly Asia and Australia.

One of Sieg’s top initiatives is persuading the private bank’s clients to shift more of their investment assets to the firm. 

That includes drawing a harder line on those wealthy enough to qualify for the top tiers of service but who keep much of their wallets elsewhere, according to a person familiar with the matter. They may end up getting their perks downgraded as they’re potentially shifted to another segment of the business.

At the same time, the bank has slashed how long it takes to set up accounts to days from weeks. When some colleagues mentioned they were having trouble with DocuSign Inc., Sieg spoke with its CEO. The software was soon updated.

“We drove the strongest quarter in years in investment flows,” Sieg said.

His abrupt personnel changes rankled some executives, prompting bankers to defect. In response, Citigroup offered dozens of retention bonuses to staff, particularly in the Wealth at Work unit and to some in the private bank, rewarding them for staying into next year, according to people familiar with the matter.

That move followed the exodus of about 20 people from Wealth at Work, which caters to clients in professional services such as law firms. Their leader, Joe Ryan, was named interim head of the franchise after the unexpected resignation of his boss, Naz Vahid. But Ryan jumped to BMO Financial Group after he wasn’t interviewed to replace her permanently, a person briefed on the matter said.

The private bank, serving the wealthiest clients, has lost about 10% of its most senior bankers in North America over the past year, reducing its fleet to about 120. Departures included top rainmaker Luke Palacio, who catered to Florida’s billionaires. He joined Bank of America, which announced two more hires from Citigroup late last week.

Even some new arrivals didn’t last long. Just four months after Sieg named Don Plaus, his former deputy at Merrill Lynch, to replace Halé Behzadi as head of private banking in North America, Plaus left for what the firm called personal reasons.

Lower down, the bank is hiring more brokers to its entry-level wealth segment, Citigold, sweetening pay deals and improving the online self-directed investment platform.

“It doesn’t have the capabilities a Schwab may have, but that’s in the plan,” said head David Poole. Assets invested through that platform were up 70% this year, he said.

Wealth at Work head Kris Bitterly is looking to expand in the United Arab Emirates, Singapore and Hong Kong, and to smooth cumbersome processes. “There was a bias in the past to everyone wanting in-person, white-glove service,” she said. “But clients want to be able to choose.”

Attempted Upgrades

Technology and data remain headaches.

Citigroup’s systems have been outdated for years. But as client investing boomed during the pandemic, a pair of executives in Dallas — Japan Mehta and Shadman Zafar — promised managers that a new suite of tools was in the works. The pair had previously worked together at Verizon Communications Inc., Barclays Plc and JPMorgan Chase & Co. before landing at Citi.

Bankers and their managers welcomed the pair’s presentations in New York, eagerly awaiting a replacement for clients’ In View desktop portal and an app to streamline processes. The desperation grew so acute that one team even held its off-site meeting in Dallas to make sure technologists couldn’t forget them.

As time passed, wealth executives winced at how costs quoted to them would balloon with little to show for the increase, prompting jokes about “T-shirt sizing,” the buzzy Silicon Valley approach to budgeting, according to a former banker.

Meanwhile, risk and compliance teams spotted deficiencies in pricing, portfolio performance calculations and tax data, a group of former managing directors wrote last month in an unsigned letter to the board, describing a range of problems at the firm. Bloomberg hasn’t been able to verify the identities of all the authors of the letter, which Citigroup has disputed as inaccurate with “a range of misguided statements.”

In the end, the promised projects didn’t materialize. Pressures from shareholders to keep a lid on companywide costs and from regulators demanding quick fixes to internal systems didn’t help. 

Mehta has since moved to another part of the bank, and Zafar is now co-chief information officer for the whole company. The wealth division has since assigned Joe Bonanno and hired JPMorgan’s Eric Lordi to oversee data and technology platforms. The firm says it has already started streamlining those operations to create better desktop and mobile app platforms.

Still, regulators’ demands that the bank fix broader data and risk controls are dragging on growth initiatives. For the wealth division, that means more than $100 million of its discretionary budget for next year is being diverted to fix such problems, according to people familiar with the matter.

“I’m comfortable we have ample tech dollars to execute our strategy,” Sieg said. The mantra, he added, is “no hobbies” — no distractions from the company’s core business. Cuts have so far included canceling a planned UK debit-card rollout and selling the bank’s trust business.

‘Pep in Their Step’

Many who remain are hopeful Sieg’s push to focus on clients will pay dividends. Insiders say he encourages clients to communicate their needs and pushes staff to talk with one another and other divisions.

“It’s been a past few years of not so much fun for folks in the wealth division,” said Dawn Nordberg, a former Morgan Stanley executive hired by Sieg to build “connective tissue” to other parts of the firm, such as offering advice to investment banking clients with newly earned riches. After posting third-quarter gains, her colleagues seemed more optimistic, she said. “We’re seeing a bit of pep in their step.”

It’s still hard to assess how much of that improvement can be attributed to Sieg. Much of the industry reported higher client balances. Observers including Mayo are watching to see if Citigroup can narrow the gap.

“There’s nowhere for Andy Sieg to hide,” Mayo said. “Either he’ll be yet one more wealth manager to fail at Citigroup, or he’ll be the equivalent of Houdini.”