The New York Times, December 18, 1998
Puzzling it Out at Citigroup
Commercial and Investment Bankers Try Working
By Joseph Kahn
shaken by leadership turmoil in its early days as America's largest
financial services company, has sped up the integration of its banking
units in a headlong effort to prove that commercial bankers and investment
bankers can mix.
the weeks since the co-chairmen of Citigroup- the financial giant formed
by the merger of Citicorp and Travelers Group- ousted their heir apparent,
Jamie Dimon, from his post, the investment bankers from Traveler's Salomon
Smith Barney investment banking unit have been ordered to find a way
to merge most of their operations with the corporate banking side of
Citicorp. Michael A. Carpenter, one of the two people charged with leading
the combined bank, calls this "the third way, the Citigroup way."
certainly a new way. Investment bankers from New York to Sidney are
moving in with their commercial-bank counterparts, putting their product
lines together and making joint calls on corporate clients like the
News Corporation, the Seagram Company and the Monsanto Company. The
Citigroup merger became a formal reality two months ago, but executives
are already talking about 100 potential banking deals made possible
by closer cooperation between Citicorp and Salomon bankers.
appears to be happening faster and reaching deeper into the organization
than envisioned in the earliest days of the merger. Like fingernails
dragged across a chalkboard, the ouster of Mr. Dimon and one of his
chief deputies, Steve Black, has silenced the open squabbling that divided
Citibank executives from their counterparts at Salomon Smith Barney,
many at the bank said.
in the rush to meet a self-imposed year-end deadline to resolve outstanding
conflicts, the merged company had also muffled important questions about
how to balance vastly different commercial and investment banking cultures.
fast pace of unification has pleased some within the company, who said
they were surprised by how well the bankers from both sides had learned
to work together despite leadership turmoil. Spirits are also higher
as word filters out that Salomon bonuses, which many feared would be
slashed from last year's levels, will probably keep pace with 1997.
Others, though, said that the discord at the top confirmed their worst
fears about the financial supermarket envisioned Sanford I. Weill and
John S. Reed, the co-chairmen. Some predict that the forced-march cordiality
disguises smoldering battles, such as a continuing clash about the fate
of the entity's derivatives units. Many there are also consumed by nuances,
such as whether the London-based Salomon bankers will move to Citibank's
offices in Canary Wharf.
impression was that to make the firm a success, they would never try
to mush the two sides together," said Susan Webber, a finance
industry expert with Jaquish Advisors and a former investment banker.
"I am surprised they are trying to do it."
Berry, a banking expert at Keefe, Bruyette & Woods, said he saw
the pitfalls in a quick marriage of the banking divisions, but also
analysts said that the most obvious synergies in Citigroup were on the
consumer side of the business. The consumer banking, credit card, mortgage,
insurance and retail brokerage units do not overlap much and open the
possibility of cross-selling products through new distribution channels.
Mr. Berry predicted that successful integration of corporate banking
would initially add to Citigroup's profits faster.
big, new corporate deals would have an immediate impact on the bottom
line," he said. "If they can resolve the philosophical issues
about how to organize the group, I think it has real potential."
the outcome, Citigroup appears determined to challenge conventional
wisdom. The company is crossing one of the oldest fault lines in the
business, the one dividing banks that lend money to customers from banks
that help customers raise money in the financial markets.
two types are known generically as commercial banks and investment banks.
These days, those descriptions do not do justice to companies that fall
somewhere in between. But there are still many in the industry who think
of commercial and investment banks as East and West, the twain never
commercial banks provide loans and help manage their clients' capital.
Investment banks swoop in for big stock and bond offerings. Commercial
bankers get paid a salary each month. Investment bankers depend on annual
bonuses for most of their income. There is some overlap, but year after
year the biggest lenders are all commercial banks and the biggest underwriters
are investment banks. From the start, Citigroup had to confront those
doubts. But this merger seemed a better match than some previous ones.
The acquirer was Mr. Weill, the Travelers group chairman who grew up
on Wall Street.
saw Mr. Weill as unlikely to allow his company's freewheeling investment-bank
culture to be swallowed by the by-the-book traditions of the larger
Citigroup. The departure of Mr. Dimon, a protégé of Mr.
Weill for 15 years, shook that assumption.
former Salomon Smith Barney official described it this way: "In
the early days, the Citi people thought they had been bought. They were
the Russians when the Germans invaded. Then came the long hard winter.
Now the Russians are counterattacking."
senior Citibank banker did not disagree with this analogy. He said that
many at the bank believe they recently edged out longtime Salomon executives
in one subtle, but key contest: Citibank's relationship officers will
often take the lead in presenting a united face to their clients, offering
them a full range of services available from the combined entity, everything
from loans to advice on mergers and acquisitions.
they will often work side by side with their Salomon counterparts, it's
still an important victory. The Salomon bankers would have preferred
to forge their own relationship with the 1700 multinational companies
in Citibank's prized global relationship-banking list. That's because
the best-compensated investment bankers tend to be those with the tightest
client relationships. Salomon bankers say their worst fear is to become
merely "product providers" for Citibank clients.
distinction is blurring between Citibankers and Salomon people, that's
where we are going with this thing, " the Citibank executive, who
spoke on the condition of anonymity, said. "I am not saying that
there will be no distinctions. But the Solly guys who think they can
continue doing things the old way will be looking for jobs."
Carpenter and Victor J. Menezes, the executives named to manage the
Citigroup's corporate banking unit, dismiss such complaints. In a brief
interview in Citibank's hushed Park Avenue headquarters, the two said
they had taken a pragmatic approach .
one model prevails, they said, adding that the degree of integration
varies depending on the product and the geography. They would not impose
a solution on corporate consumers, they stressed, but allow customers
to decide how they want their bankers to deal with them.
Carpenter carries around a progress report on the merger. On the plus
side: A plan to unify the bank's trust businesses has been reached,
a compromise between Salomon's sales driven organization and Citibank's
big, but slow growing style.
the other side of the ledger, he acknowledged that resolving how to
combine Citibank's autonomous derivatives unit with Salomon, where derivatives
experts are meshed with the stock and bond teams, is proving politically
tricky. Still, he predicted a swift resolution.
two executives claim to get along famously. Mr. Menezes, a Citibank
career officer, is an avuncular Indian-American schooled in the bank's
textbook corporate culture. Mr. Carpenter, who briefly presided over
the failed Kidder, Peabody brokerage firm before joining Mr. Weill at
Travelers, is a London native who sat sideways on his chair in the library,
legs dangling over the arms.
scores of hours together, Mr. Menezes said, the two now think the same
thoughts. "We can finish each others sentences," a challenge
Mr. Carpenter took up by answering s question asked of Mr. Menezes.
The two sometimes commute together to Manhattan from their suburban
closeness is not just cosmetic. The two executives said Citigroup was
already generating more business than Citibank and Salomon Smith Barney
would have alone. One example is Monsanto, a longtime Citibank customer
for bank services, but a client of Goldman, Sachs & Company when
investment banking was called for it. It recently invited Salomon to
join Goldman in managing a $1 billion stock offering.
harmony extends to bankers on the front lines, people at the company
said. One unified team is the consumer products group, run by Christina
Mohr, a managing director at Salomon, and Natica von Althann, a managing
director at Citibank. "Our working relationship is seamless,"
Ms. Mohr said. Agreeing, Ms. Althann added that "we have been this
for a few months and already we have repeated successes."
two teams handle clients together as long as clients want it that way,
they said. They described a recent approach that led to business from
one big client, the Rite Aid retail drugstore chain. "It's a perfect
example of 2 + 2 + 5, how we can build on the strength of each relationship,"
Ms. Althman said.
other Salomon bankers describe the need for cordination as a distraction
from client work. Some said that the Citibank structure, in which the
people who handle clients are sometimes junior to executives who run
the operation from behind the scenes, results in regular mismatches
with Salomon's lead relationship bankers, who tend to be more senior.
in some industries, others said, a unified Citigroup team can be a big
disadvantage. Salomon investment bankers who work on deals for big commercial
banks that Salomon would keep client business secret form Citibank.
"Our new company is competing with virtually all our clients,"
one banker said.
perhaps the biggest problem is compensation. Salomon relationship bankers
say they often make two or three times as much money each year as their
Citibank counterparts a disparity that becomes more glaring as
the two gain the right to offer clients the same full line of Citigroup
some rival bankers regard compensation as the weak link when commercial
banks are merged with investment banks.
one has ever resolved this puzzle: How do you have high-priced bankers
selling low-margin products and ordinary bankers selling M&A advice?"
asked one executive at a competing bank. "It looks good on paper,
but it blows up when bonuses are paid."
official said they would resolve this issue as it arose, but played
down its significance. "If we are generating big new fees,"
one said, "how to divide them is a luxury."