Awards for Excellence 2017
Running a global markets business at a leading investment bank has, since the financial crisis, been one of the toughest jobs in the industry. So the fact that Citi’s Paco Ybarra has been in that role since 2008, first as co-head and then as sole head from 2011, then adding responsibility for securities services in 2013, tells you he must be doing something right.
Over the last decade, revenue pools in both equities and fixed income have declined dramatically. Regulation has torn into large parts of the business, making old and profitable business lines either obsolete or uneconomic. New, non-bank players are nibbling away at the big banks’ lunches. At the same time the need to invest in technology is greater than ever, while the costs of maintaining a truly global franchise have led many firms to give up and retreat to a smaller scale.
Amid all that, Citi still has the best overall global markets franchise in the industry. No other firm can come close to having trading floors in more than 80 countries and clearing and customer networks in over 60. There are no geographic gaps in its coverage. It has a presence in almost every large city around the world.
The challenge, of course, is to make that network deliver. And in fixed income, currencies and commodities Citi is doing just that. It ranked top globally in FICC for the second year running by Greenwich Associates in 2016.
|Paco Ybarra, Citi|
Citi continues to lead the benchmark Euromoney FX survey, but its lead in market share in 2017 narrowed to just 40 basis points over JPMorgan, while its 10.7% share of the global market was the lowest by a winning bank since 2003. Does Ybarra worry about what that means for profitability?
“The important thing today is to find the optimal balance between volume and revenue share,” he says. “FX is still very profitable, but a lot of it has been automated. It is no longer about price discovery.”
Ybarra says that in this respect FX is starting to resemble the transaction services industry.
“The two go together increasingly closely,” he says. “You will lose market share if you are sub-standard in either business.” Citi is also Euromoney’s best bank for transaction services this year.
In rates, once one of the most-challenged parts of the business, Ybarra says Citi “has had a great performance in the past 12 months, across all regions. We’re connected to customer volumes across both institutional and corporate clients; and able to price correctly in derivatives where you have to use significant amounts of capital, while becoming more efficient in how we use that capital.”
In credit, Citi continues to increase market share, especially in derivatives, and is one of a few big banks that continue to act as primary market participants in the purchasing of legacy credit default swap portfolios form other dealers.
“Buying these portfolios is a sign of our long-term commitment to the market,” says Ybarra. “We’ve built a very strong structured credit book and can add assets to our existing portfolio and optimize capital.”
In commodities, Citi has bucked the trend with its expansion into a business that a number of other banks have retreated from, and now ranks as one of the top three global banks in the market. Total commodities revenues are five times higher than they were in 2012.
The sub-scale part of Citi’s business is equities, where it ranks just outside the top five firms globally. This is a highly competitive business, which is getting tougher all the time. Total wallets have been shrinking, driven by many factors: the impact of Mifid II, the secular move to more passive investment, extreme cost margin pressures and an overall decline in activity. It is hard to grow your slice of a shrinking pie unless you are in a leadership position.
Ybarra admits there is still much work to do, but he is confident Citi can move up a level.
“We’re making progress in equities,” he says. “Our aim is to be consistently profitable. We took out a lot of expense, which to some extent disrupted our revenue base, and we’ve made big investments in technology.
“Now we can concentrate on growing share and, at the same time, improve margins. And we’re moving in the right direction.”