Business News : Citi seeks its next act in wealth management

NEW YORK (Business News) - As Citigroup (C.N) prepares to exit its ownership in brokerage giant Smith Barney, the bank is on a hiring spree to build what it hopes will become a significant U.S. wealth management business centered around its high-end Citigold account.

The bank plans to hire 300 more personal bankers and brokers in the next two years, with a goal of reaching about 800 by 2014, Citigold Wealth Management President Venu Krishnamurthy told Business News.

"We have the capability for organic growth combined with a platform of high-end products and solutions," he said in a recent interview. "It's like picking from the world's biggest box of Lego pieces."

To support this expansion, Citibank on Tuesday hired veteran Merrill Lynch brokerage executive John Cummings as chief operating officer of Citigold Wealth Management, according to an internal memo obtained by Business News. The bank also hired Frank Consalo from PNC Financial Services (PNC.N) where he oversaw more than 300 advisers, as head of field management for Citi's broader personal wealth management business.

Citigold is the bank's latest effort to sell more personal investment services through its retail branches. It is a key strategy since Citi agreed to sell its brokerage unit, Smith Barney, to Morgan Stanley (MS.N) in 2009, needing to raise cash to offset losses from the financial crisis.

Until Citi sells its remaining interests in the venture, it has agreed not to compete in retail wealth management. After that, Citigold's U.S. ranks could grow to thousands, on par with Citigold in Asia, where the bank has about 2,000 advisers.

Big banks are promoting elite banking and investment management to attract customers who are affluent but not rich enough for private banking. These programs say they offer more sophisticated advice and drive traffic to branches, generating a new stream of revenue for the banks.

Rival JPMorgan Chase & Co (JPM.N) is also expanding. Its Chase Private Client group had 366 private client offices at the end of March, with a goal of 1,000 offices with 550 bankers and advisers over the next year. JPMorgan estimates the business eventually could generate $ 1 billion a year in pretax income.

Advisers employed by banks, though, account for a small portion of overall U.S. invested assets. Consulting firm Cerulli Associates said U.S. banks employed about 15,000 brokers overseeing more than $ 480 billion in assets at the end of March. The four largest brokerages had more than 55,500 advisers overseeing $ 5.6 trillion in assets.

By dressing up branches and offering white glove service, banks hope to attract a more affluent clientele that generate more income than mass-market customers, analysts say.

"The mass-affluent customer is a happy hunting ground right now," said Forrester Research analyst Bill Doyle. "It is an under-served market of investors who can't get the attention of a dedicated adviser."

But big banks have had mixed success drawing in affluent investors, analysts said. And whether wealthy consumers want to have a relationship with Citi remains to be seen.

Citibank must convince U.S. consumers it is a reliable partner four years after it received two taxpayer bailouts and overcome customer dissatisfaction. Citi also has long ranked among the worst in bank customer-care surveys, Doyle said.

"Most customers don't feel Citi has their best interests at heart," he said. "Trusting my investments with them, not just banking transactions, is a stretch."

COMEBACK?

In many parts of the world, Citigold wealth management has been available for decades and is well-regarded. In the United States, Citigold has been offered to wealthy customers as a high-end checking account offering higher rates, preferred treatment, waived fees and discounts.

A Citigold customer with $ 50,000 can earn 0.10 percent compared with 0.01 percent for a standard Citibank interest-checking account, according to Bankrate.com.

The expanded Citigold wealth management program targets those people with $ 500,000 in net worth, who will get a relationship manager to connect them with bank services and a financial adviser. Citigold customers with at least $ 100,000 can work with financial advisers, but not a personal banker.

People with $ 3 million or more qualify for Citigold Private Client and get a team of wealth managers and access to investments and ideas from Citi's Private Bank, which caters to families w ith $ 25 million or more to invest.

Citigold U.S. currently has about $ 100 billion in client balances; $ 20 billion is investment assets, Krishnamurthy said.

That's a fraction of the assets managed by rivals and what Citigroup had three years ago, before it agreed to sell Smith Barney to Morgan Stanley for $ 2.7 billion cash, plus a 49 percent stake in the joint venture Morgan Stanley Smith Barney. At the time, Smith Barney generated $ 8.5 billion in annual revenue and $ 1.7 billion in profit.

Citi put some of that cash into bulking up its private bank, which now has 1,000 bankers overseeing $ 250 billion in assets. In North America, the private bank generates about $ 1 billion in annual revenue, the company said.

Krishnamurthy, though, plays down talk that Citigold was the bank's comeback vehicle after Smith Barney. Cit igroup never gave up its branch-based brokers, a business the bank has been in since 1988, he said.

"I disagree with the notion we had something, we killed it and now we're starting over," he said. "We've had a something all along and we're giving it additional resources to create a program that distinguishes us in the marketplace."