Morning Coffee: Citi’s most shiny division has jobs that look very precarious. UBS’s top bankers are facing irrelevance

A core belief, shared by all investor relations departments of the world’s biggest banks, seems to be that people hate banks and don’t want to invest in them.  Consequently, whenever you get the chance to present to investors, you have to pretend to be something else.  This is the likely source of the common delusion among bank management teams that they are “actually a retailer”, “actually a technology company” or “actually a utility”.  If you can fool the market that you’re not really in the unpopular business of banking (or even worse, investment banking), they might assign a higher multiple to your earnings and the share price will go up. ✨

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Citigroup seems to be very well bought into this thesis – even though its investment banking fees are likely to be up 50% for the second quarter, the main focus of its investor day yesterday was instead the “Citi Services” division, a collection of money transmission, transaction banking and securities services businesses which could be called basically technology, basically utilities or both. Apparently, this division has a return on equity of over 20%, annual growth in high single digits and accounted for almost half of Citi’s net income last quarter. 

It sounds almost too good to be true, and …. well, the allocation of divisional profits in banking groups is always a bit subjective.  And although it’s a tech company and a utility, the economics of Citi Services are very much driven by its ability to generate cheap funding through deposits for the rest of the bank.  Like Deutsche Bank’s Global Transaction Banking, it’s quite sensitive to interest rates and requires a lot of fixed costs and capex.

But is it a good place to work?  Well, it certainly is for Shahmir Khaliq, the Citi veteran who’s in charge of it, and who got a whole day in the sun to remind people that it’s not just the high-profile recent hires who have a shot at succeeding Jane Fraser.  If you’re further down the food chain, though, there’s a bit more uncertainty.

That uncertainty comes from the fact that if Citi Services is to maintain its returns and profitability, it’s going to need to continue to automate functions. So anyone planning a career there needs to be very careful that they don’t end up getting assigned to a project to code themselves out of a job, or to a business line where someone else might make them obsolete.

Instead, if you want to get promoted at Citi and you don’t mind a little bit of complexity and boredom, take a look at compliance and regulatory reporting.  Jane Fraser has committed to sorting out this long term sore point, but it’s clear that the problem has yet to be solved, and the bank supervisors aren’t letting up the pressure. Not only are these teams pretty much guaranteed employment and investment no matter what happens in the next few years, but once you’ve finished the job there you’ll have transferable skills to take to the next big turnaround story.

Elsewhere, UBS CEO Sergio Ermotti has given one of those “warnings of the relatively obvious” to the Swiss banking establishment.  As anyone who has been paying attention to trends in UBS’s strategy and hiring over the last decade might have suspected, Asian markets are at least as important as domestic ones to the wealth management franchise.  Ermotti specifically says that on current trends, and if policymakers overreact to the Credit Suisse collapse, Switzerland will lose its position as the UHNW capital of the world to Hong Kong.

Of course, if this happens, it’s unlikely to be unproblematic for UBS itself. Although the bank has made huge investments – almost every senior private banker in Asia is either a UBS employee or a UBS alumni – it’s still a Swiss bank.  As HSBC can tell you, having the centre of financial power and influence in a different timezone from the chief executive (and the main regulator) is not an easy situation to manage, and Fortress Switzerland is unlikely to give up its privileges lightly.  Whoever succeeds Sergio Ermotti is likely to have a big incipient management problem, and to spend a lot of time on aeroplanes.

Meanwhile …

UBS and Susquehanna reached the semi-finals of the FIDE Corporate Chess Championship, but Goldman Sachs didn’t and nor did BlackRock or Deutsche – basically Wall Street got smoked by Big Tech.  Although the overall winner was a company called “Chessify: The No1 Cloud Platform for Chess Training”, which feels kind of unfair. (Bloomberg)

This part of the industry cycle appears to recur ever more frequently – JPMorgan and other bulge bracket banks are trying to gain market share in the kind of mid-size corporate deals they haven’t historically bothered with.  (Financial News)

If you can’t decide whether you want to go into the graduate training scheme of a private equity firm, or try to become CEO of your own business, then why not join Alpine Investors and do both?  On the other hand, if you’ve ever worried about newly minted MBAs being pushed into top jobs with no experience, on the basis of “attributes” rather than any actual knowledge, you might want to stay away from this one. (Business Insider)

Although they got bragging rights on the Raspberry Pi IPO, Peel Hunt have lost some senior dealmakers recently; they are staffing back up, taking Dominic Convey from Deutsche Numis and Andrew Humphrey from Morgan Stanley to join their industrials team. (Financial News)

Students are refusing to work for Google or Amazon because of their cloud computing projects in Israel. (WIRED)

Bill Gross has been selling some of his famous stamp collection (which is big enough to have moved the entire philatelic market when he first took up the hobby), including the rarest stamp in US history, which fetched $4.4m (NY Post) 

Although private equity managers have historically grumbled about having to take out loans to co-invest in their funds, it seems they might have made the right move – proposed changes to the “carried interest loophole” in the UK won’t affect managers who have their own capital at risk. (Bloomberg)

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