Citi for dinner, a duet and an alphabet of alphas

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By:
Abigail Hofman
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Citi is proof of the adage: “You can’t be all things to all men.” A mole confided: “I’m all for breaking it up.” In my first column, published in April 2006, I queried the strategy and investment validity of Citigroup. Eighteen months later, I’m still asking the same questions.

Citi’s lesson from history

Why weren’t you invited? In late November, a group of elite bankers slipped away from their desks to join my editor and me for lunch at the Caprice restaurant in London’s fashionable West End. Those present included one of the wealthiest men in England, one of the most powerful men in England, a senior American investment banker running a wealth management business, a Swiss gnome and a gorgeous girl who works for one of the world’s top hedge funds. “Business lunches are supposed to be work. This was fun. What an eclectic and fascinating group of people,” a guest enthused in his thank-you note.

The purpose of the lunch was to mirror the purpose of this column: to step back from the demands of the day and review key financial trends, peppered by the odd morsel of market gossip. It is rare that financiers from different disciplines are able to exchange views, but they were emboldened by the chastity belt of Chatham House Rules (nothing spoken about is attributable). To qualify for an invitation you must be interesting, articulate and I must like you (which narrows the field considerably). One guest enjoyed himself so much that he muttered to me as lunch drew to a close: “Abigail, why can’t we do this every month?”

Several topics preoccupied my guests. Would the US economy enter recession in 2008 (the majority thought it would, although there was one passionate dissenter)? Were the worst of the banking write-downs behind us? Here there was less unanimity: guests generally felt there would be more losses to come but perhaps not as hefty as witnessed in the third quarter. And finally we had a lively debate about the future of Citi: who was in the frame to be anointed as Citi’s leader – a recipe for either a miserable or magnificent life.

Ruling Citi would be like ruling the Forbidden City. There is so much breadth to the institution that it would be hard for any one individual to span the various sectors: investment banking, consumer banking, wealth management and retail brokerage. And as for structure, I’ve had mud baths that are more transparent. Having pored over the Citi website, I’m still bemused by the difference and/or overlap between its two wealth management channels: Citi Private Bank and Smith Barney.

Executive privileges

Citi is proof of the adage: “You can’t be all things to all men.” A mole confided: “I’m all for breaking it up.” In my first column, published in April 2006, I queried the strategy and investment validity of Citigroup. Eighteen months later, I’m still asking the same questions, while the share price has fallen by nearly 35%. Of course, there’s been a lot of turmoil as heads tumble. Chuck Prince, the former Citi chief executive, is no longer chuckling (or dancing for that matter); Tom Maheras the former co-head of markets and banking, has departed; as has his henchman, Randy Barker (co-head of fixed income). Chad Leat and Mark Watson, former co-heads of global credit markets, have apparently been sidelined.

The shooting star investment banker Michael Klein (once tipped as the next Citi chief himself) may also be disheartened. Former Morgan Stanley banker Vikram Pandit was appointed by Prince as chairman and chief executive of a new institutional clients group in mid-October and thus overtook Klein in the hierarchy. Maheras’s successor, Jamie Forese, had to report to Pandit. One mole murmured: “Klein reminds me of Icarus. He flew too close to the sun.” A well-connected chief executive at a rival firm was more ferocious: “It was an open secret that Klein and Maheras never got on. If they had united instead of squabbling like children, Citi would have been theirs for the taking.” Of course in mid-December Pandit was named chief executive of the whole Citi group.

The future direction of Citi lies with its board as well as with Pandit and the new chairman, Sir Win Bischoff. Indeed, some would say the current malaise of Citi is attributable to its board. In my last column, I discussed the drift of top talent away from investment banks. Commentators are talking about a lost generation: the bright bankers who turned their backs on Wall Street to start their own firms. Think Steve Schwarzman of Blackstone, Wesley Edens of Fortress or Guy Hands of Terra Firma. Equally, I feel I have identified another powerful trend – top-quality individuals do not want to sit on the boards of big banks. “Hassle and red tape,” a mole snorted. “Sinecures for those who want to feel important and fly in private jets but can’t make it on their own.”

This criticism is not necessarily applicable to the Citi board. But what I find worrying is that, before the elevation of Pandit and Bischoff, Citi’s main board was dominated by American men (Roberto Hernandez Ramirez, chairman of Banamex, is an obvious exception). Am I the only person who finds this bizarre for an organization that claims to be a global powerhouse? And by the way, Citi bought Banamex in 2001 and Ramirez sort of came with the deal.

Other Citi board members include the chief executives of industrial companies such as Alcoa, United Technologies, Dow Chemical, Time Warner and Xerox. How much do these individuals know about the technicalities of banking? Are these people qualified to deal with the horrors thrown at them by the credit crunch? I wonder if any board member – with the exception perhaps of Robert Ryan, chief financial officer (retired), Medtronic Inc – knew what CDO and SIV stood for six months ago.

The roll-call of the non-financial specialists on Citi’s board continues: Kenneth Derr, chairman (retired) Chevron Corporation, Judith Rodin, president Rockefeller Foundation, and Franklin Thomas, consultant, TFF Study Group. TFF stands for The Ford Foundation, which is a not-for-profit development assistance group focusing on southern Africa. TFF is obviously a worthy cause, but where is the synergy with running a global financial services firm?

I am intrigued by board member John Deutch, a professor at the Massachusetts Institute of Technology. Originally, I thought Deutch must be a business specialist but he is associated with MIT’s department of chemistry. So again, no direct banking expertise. However, Deutch was director of Central Intelligence in 1995–96. Was Deutch’s espionage background useful to Chuck Prince? After all, Prince did fire Todd Thomson, formerly head of wealth management, allegedly for seeing too much of the comely journalist Maria Bartiromo during office hours. How did Prince substantiate his facts – or was the “friendship” an open secret at Citi?

From the outside in

Corporate governance? The words ‘corporate genuflection’ spring to my lips. Remember that these individuals blessed Chuck Prince’s decision to purchase Vikram Pandit’s hedge fund Old Lane for $800 million last year. Old Lane was less than two years old and had provided investors with mediocre rather than meteoric returns. At the time, I tipped Pandit as a future successor to Prince overtaking (on the inside lane as it were) insiders Klein, Sallie Krawcheck and Maheras. If only, I could monetize my predictive powers.

As the new Citi chief executive, it is to be hoped that Pandit does better for shareholders than the deposed Prince. If Klein and Krawcheck are miffed by Pandit’s elevation, I can think of someone else who might also be disappointed about how the game played out at Citi. Anshu Jain, Deutsche Bank’s head of global markets, may be forgiven for giving a wry grimace. Jain’s boss, Josef Ackermann, apparently turned down the Citi job. That means Ackermann will not be quitting Deutsche and Jain won’t get the chance to step into the patrician European’s suede loafers any time soon. And to make matters worse, Anshu now ranks behind Vikram as the “Indian who has done best on Wall Street”. How galling!

The sound of a duet

In December, Barclays Wealth issued a survey stating that rich people want to buy luxury services to save them time and stress. Consequently, private jet use will increase substantially. Respondents in the US, UAE, Singapore, Hong Kong and Switzerland said they planned to fly privately rather than first class with commercial airlines. This is something I have known for a while. The world is divided in to the cool ‘Private jet set’ and the stressed-out rest of us, ‘Better off on a camel’ (and normally suffering from chronic attacks of tarmac rage).

This migration to private jet travel saddens me. I often encounter very interesting people on planes. In April for example, on my way to Geneva to meet the redoubtable Philippe Jabre, founder of Jabre Capital, I sat next to Alain Schibl. We fell in to conversation and the two-hour journey flew past. Schibl worked at Union Bancaire Privée for 11 years. His last assignment at UBP was as head of capital markets and trading based in London. In July 2002, Schibl, with his partner, Henry Gabay, started Duet Asset Management. The dynamic duo has grown money under management from a meagre $25 million to a plump $1.5 billion. The firm runs a mixture of hedge funds and private equity funds. Its flagship fund, Duet Global Opportunities (a market-neutral trading fund), is up 14% year to date (net of fees) and has not experienced a negative month for the past 17 months. I will be interested to see how Duet does this year. The more so since Schibl has a good feel for markets. When I called on him last July, he told me to be very cautious about investing in mainstream equity markets. Schibl is still cautious: “Let’s see what the first quarter of 2008 brings,” he said sombrely. “You’ve got a lot of question marks: a potential US recession, a disintegrating US housing market and probably further financial write-downs.”

Another charming individual whom I met last year on a plane was suave Simon Meadows, co-head of fixed income sales at Credit Suisse. Simon is a legend in the fixed-income market. When I requested an audience in November, he emailed me to say that he was happy to get together but he didn’t have a free evening before Christmas. Gazing at the acres of white space on my calendar, I immediately felt like a social pariah with a bad case of halitosis. A mole whispers that Simon might soon have a new assignment at the Swiss bank, probably in the foreign exchange markets. I wish Simon well in his new role.

Alphabet Alphas

And now here it is! As promised in my November column, I present below the Abigail with Attitude list of top London financiers. The chosen few are listed in alphabetical order as a numerical countdown might unleash a battle of the egos. This month we feature those with surnames A-H and next month we complete the alphabet.

Sir Win Bischcoff (66), chairman of Citi and thus on loan to Wall Street. As former chairman of J Henry Schroder & Co, Win negotiated the sale of the British merchant bank to Salomon Smith Barney in 2000. A patrician, well-mannered “old-school Brit”.

Damon Buffini (45), chairman, Permira. The only black man on our list, Buffini is the future of the City. Born on a gritty council estate but educated at Cambridge and Harvard. “Down to earth, all-round-decent bloke,” one mole mouthed.

Johnny Cameron (52), chief executive RBS corporate markets. Urbane and approachable, this year Johnny has been at the heart of RBS’s successful bid for ABN Amro

Russell Chambers(46), chief executive of Credit Suisse in the UK. Russell is famous for liaising between former prime minister Tony Blair and the City. Knows everyone, and is relaxed with it. Invitations to his country house in Buckinghamshire are highly sought after. Alternatively, catch him cheering on his beloved Chelsea football team in the dugout at Stamford Bridge.

Walid Chammah (53), co-president, Morgan Stanley. A relative newcomer to London as he was only posted here from New York in September. Originally from Lebanon, he is close to John Mack, Morgan Stanley’s chief executive. Delightful, but not to be underestimated.

Michel de Carvalho (63), vice-chairman, Citi. Married to Charlene, the Heineken heiress. Michel’s career has included stints as a Hollywood film star, Olympic skier and chairman of Nikko Securities. Dashing, with piercing blue eyes and unimaginably charming. Invited everywhere, so difficult to catch – try to wangle a breakfast slot. The youngest 63-year-old I’ve ever met or, as a mole puts it: “He’s a real babe!”

Peter Cruddas (53), chairman, CMC. Whether by luck or judgement, Cruddas spotted a niche in the FX market – retail – that had been largely neglected. He also realized that the internet was a cheap way to distribute his products, long before the big banks and other trading institutions woke up to the fact. As a result, he is now one of the richest men in the UK – and has just sold 10% of his business to Goldman Sachs.

Bob Diamond (56), president, Barclays, and chief executive, Barclays Capital. An anglicized American, Bob is highly charismatic. Inspires passionate loyalty from his staff. The question on everyone’s lips is what will be Mr Diamond’s next career move. Would seem to be blocked at Barclays by 51-year-old chief executive John Varley.

John Duffield (68), legendary fund manager. Duffield founded Jupiter (since sold to Commerzbank) and now runs New Star Asset Management. Was married to Vivien Duffield, the daughter of property tycoon Sir Charles Clore. Has made a lot of people (including himself) very rich. When Jupiter was sold to the Germans, even the secretaries received payouts.

Clara Furse (50), appointed as the first woman chief executive of the London Stock Exchange in 2001. Furse is famous for saying no, having rejected several bids for the LSE. Born in Canada to Dutch parents, Furse is related to the German Siemens dynasty and speaks five languages. Reluctant to feature in “top women in the City” stories, she is in the Margaret Thatcher mould of successful women (no nonsense, no flirting and quite frankly a bit boring – unless of course you’re a LSE shareholder, a group that have made out like bandits under her reign).

GLG partnersNoam Gottesman, Pierre Lagrange and Manny Roman (mid-40s). We feature the Israeli, Belgian, French triumvirate as one entry. GLG was founded in 1995 and now has $20 billion under management. Last June, GLG announced its intention of listing on the New York Stock Exchange by means of a reverse takeover of a special purpose vehicle. With hindsight, this event indicated the end of the bull market, although GLG’s emerging market fund was rumoured to be up 50% in 2007.

Johannes Huth (47), handsome head of KKR in Europe. A German national, Huth started his career at Salomon Brothers. An extreme skier who relishes danger on the slopes as well as the markets. Recently divorced, so probably the most eligible bachelor in town, although he has a reputation as a driven workaholic so may not have much time for romantic candlelit dinners.

Ian Hannam (51), chairman, JPMorgan Capital Markets. Hannam is a legend. In a world generally populated by boring stuffed shirts, he has a personality. Born without a silver spoon in his mouth, Ian had a career as a civil engineer in the Middle East before doing an MBA and joining Salomon Brothers in his late 20s. A renowned deal-maker, he has floated many of the top mining companies. Simultaneously, he had a dual career as a member of the SAS Reserves. Much in demand for his raconteur skills. Seen out and about at Notting Hill dinner parties with his glamorous wife, Debbie, who is a top head-hunter.

Chris Hohn (40), son of a car mechanic who founded The Children’s Investment Fund in 2004. Respectable poster boy for the hedge fund industry. Likes writing letters, especially to chief executives, telling them what to do. Effectively put ABN Amro in play earlier this year with one of his letters. Well know for charitable donations (he and his wife give millions a year to children’s charities). “Cerebral and shy, but can be intensely aggressive when it comes to business,” according to one source.

Alan Howard(43), the youthful founder of hedge fund Brevan Howard likes to keep a low profile. A former trader at Salomon and Credit Suisse, Howard formed his own fund in 2003. Returns have been solid rather than spectacular, although last year’s performance was excellent. In October 2007, sold a stake in Brevan Howard to Swiss Re. Highly rated by those who have the good fortune to know him.

...to be continued next month.


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