Citigroup Looks to Reenter the Brokerage Space

Citigroup is planning to make a comeback as a small investor after leaving the brokerage scene over ten years ago, according to sources familiar with the situation.

CEO Jane Fraser’s strategy, which aims to transform the bank, involves significant restructuring, cost reductions, and new leadership. This approach seeks to better serve both retail and high-end clients.

In the past year, Wall Street has responded positively to Fraser’s initiatives, with the bank’s stock rising by 47%, far exceeding the S&P 500’s 15% gain. In comparison, shares of JPMorgan, led by Jamie Dimon, climbed 40%.

Before Fraser took charge, Citigroup struggled to compete against top firms in investment banking. If the bank can enhance its balance sheet and stock performance, it might consider merging with European banks, as suggested in recent reports.

Insiders indicate that the possibility of acquiring a brokerage firm has opened up, influenced by changes in the regulatory landscape under the Trump administration.

As the third-largest bank by assets, Citigroup has a small wealth management division buried within its expansive bureaucracy. Expanding this area is seen as a more stable revenue source compared to the more volatile trading and investment banking sectors.

Fraser has ramped up efforts to hire wealth advisors, also known as brokers, who typically work in teams and often take their clients with them when they switch firms.

There’s also consideration of acquiring mid-sized brokerage firms, with possible targets including Stifel, valued at around $11 billion, and Raymond James, which is worth about $33 billion.

Stifel has around 2,400 financial advisors—considerably less than the 16,000 at Morgan Stanley, the industry leader—but still gives Citigroup a foothold in the market. Raymond James offers a more substantial team with 8,000 advisors.

A spokesman for Citigroup has acknowledged aspirations to engage in securities trading.

“Citi is focused on providing high value to clients through a clearly defined strategy aimed at strong organic growth and enhancing returns,” the representative stated.

The near collapse of Citigroup during the 2008 financial crisis significantly contributed to the rise of Morgan Stanley as the biggest brokerage. Smith Barney, a former Citigroup broker, became a major player on Wall Street, an entity linked to Citigroup’s founder Sandy Weil and a young Jamie Dimon. They acquired it as part of their vision for a comprehensive banking conglomerate in the late 1980s.

Weil’s vision was to offer all financial services in one place for individuals and institutions. This ambition seemed to succeed in 1998 when he merged his brokerage and insurance companies, ultimately leading to the formation of Citigroup.

For a time, it reigned supreme among banks but later faced a sudden decline. Dimon was ousted by Weil due to various conflicts, including differing egos, while significant regulatory challenges further eroded trust among executives and investors.

By the time the financial crisis hit, Citigroup’s balance sheet was laden with bad mortgage debts and other risky assets. Federal government intervention was necessary to avert a larger economic fallout.

This led Citigroup to offload assets to stay afloat, resulting in Smith Barney being sold to Morgan Stanley for billions.

Under Gorman’s leadership, Smith Barney evolved into a wealth management powerhouse, providing a stable income that’s been beneficial for Morgan Stanley. Their model allows brokers to earn a sustainable income through client fees.

This drive to rejuvenate Citigroup is, perhaps, what Fraser hopes to achieve.