Citigroup’s management window dressing

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It could be that the bank is simply too large, and only disposals can change the culture. But the recent changes are, to date at least, a missed opportunity.

Reorganization of senior management and capital markets business is a missed opportunity.

Citigroup demands a much greater degree of attention than almost any other financial institution. At times, Chuck Prince must wish it didn’t. But such scrutiny is justified.

Why? First, because of what Citigroup was meant to become. Go back to the start of the decade and Sandy Weill’s vision of the world’s financial supermarket had everyone trembling. The unstoppable force that Citi would surely become struck fear in the hearts of other bank CEOs and changed the banking landscape. Would JPMorgan/Chase/BankOne exist today if it hadn’t been for the threat of Citigroup?

Of course the reality has been somewhat different. And the main reason for the level of scrutiny of Citigroup is that its share price hasn’t moved for five years, despite a period of unprecedented growth and profitability for the financial markets.

Still, the bank remains one of only two main reference points for the industry. The other is Goldman Sachs. Ask any investment banker which firm he most admires, or knows he is most likely to lose business to, and Goldman’s name is at the top of the list. Similarly, ask any banker which firm he most fears and the answer remains Citigroup, albeit with a recurring caveat – “if they ever got their act together”. But many doubt it will ever happen. Citigroup is simply too large. It is unmanageable. Even loyal insiders compare the bank to a supertanker – impressive, huge, powerful, but takes an age to turn round.

A flurry of changes within Citi’s senior management at the end of 2006 hinted that the bank had at last grasped the nettle. In fact, they amount to window dressing.

First came changes in the capital markets business run by Tom Maheras. Citi followed where first Goldman and then other US investment banks led with the creation of a fixed income, currencies and commodities division. Look behind the garbled memo announcing the changes (”As we continue with the build-out of our product initiatives, we want to closely align our enhanced product platform with our unparalleled global distribution footprint”) and you’ll see this is a clear attempt to play to Citigroup’s strengths in emerging markets. Officially the move combines global fixed income with emerging market sales and trading. It will be jointly run by Randy Barker, Geoffrey Coley and Paco Ybarra.

It’s easy to see why some insiders say it is effectively a takeover of the capital markets business by the emerging market divisions. Readers of Euromoney won’t be surprised by this. In March 2006 we detailed Bob Druskin and Michael Klein’s plans to be the number one investment bank in all areas of emerging markets, as non-US business accounts for more and more of the bank’s revenues.

At least this strategy would be preferable to Citi’s seeming obsession with being top of the league tables. It is just about the only bank to continue to seek such dominance in market share, as if to justify its sheer size.

And there are changes too for Druskin, who remains CEO of the corporate and investment bank but also takes on a new role as chief operating officer for the whole bank. This gives more responsibility to Klein and Maheras, who effectively now run the CIB as co-presidents.

And herein lies Citigroup’s perennial problem. In a reorganization designed to create a more streamlined business, it has actually created a more complicated management structure.

Of course it can’t have been easy for Prince. Both Klein and Maheras are hugely talented and successful bankers. The former has a vision for global banking; the latter is one of the savviest market operators. How do you choose between them? But sometimes those tough choices have to be made.

Take a step below that and you have three co-heads of FICC. Go on down the chain of command and an excess of senior managers and circular reporting lines remains Citigroup’s main problem.

It could be that the bank is simply too large, and only disposals can change the culture. But the recent changes are, to date at least, a missed opportunity. Until there’s a steady stream of disgruntled former managers looking to pastures new, victims not of their lack of performance but because someone else has been given the clear management responsibility that they once shared and always coveted, Citi’s problems will remain.