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Inside Citigroup’s Most Mysterious Deal
One of Citigroup’s oldest companies is finally ready for closure.
One of Citigroup’s oldest companies is finally ready for closure.
For decades, Citi Services has moved money around the world for companies and protected the assets of large investors. The division, one of five business lines, represents half of Citi’s total profits and is crucial to Chief Executive Jane Fraser’s turnaround plan.
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For decades, Citi Services has moved money around the world for companies and protected the assets of large investors. The division, one of five business lines, represents half of Citi’s total profits and is crucial to Chief Executive Jane Fraser’s turnaround plan.
Disclosing these deals may seem obvious, but they have long remained in the shadows of virtually everything else in Citi’s vast portfolio, from credit cards to bond trading.
And what they do is not easy to explain. At cocktail parties and investor meetings, executives tended to say “we oversee financial channels,” a slogan Citi is now eager to retire.
“Ah, the eternal question,” said Okan Pekin, head of one of the units, securities services.
For Citi and Fraser, the problem goes beyond just giving their stalwart plumbers their due. Investors never figured out how to value the trades she now put together at Citi Services. The more services are valued, the easier it will be for Fraser to argue that the bank’s shares should be higher.
Citi is trying to fix that this week.
Citi Services will hold its own investor presentation day on Tuesday. The day, conceived by Citi’s director of investor relations, Jenn Landis, will reintroduce to Wall Street a set of functions that most large companies could not do without. The last time Citi held an investor day, in 2022, Services had 20 minutes.
“The Services force has not always received the strength of participation it has long deserved,” said Shahmir Khaliq, director of Citi Services. “We are excited to finally step into the spotlight and pull back the curtain on our business.”
So what exactly are Citi Services units?
Liquidity and payments management: These businesses help companies open bank accounts around the world; pay your employees and suppliers; collect payments from customers; and advise them on where they keep that money.
Trade finance: This arm offers letters of credit that vouch for companies looking to buy or sell across borders; it helps establish supply chains in new markets and lends money to smaller local suppliers so they can fulfill orders from large companies like Apple or Procter & Gamble.
Securities Services: The Beijing group offers investment managers a place to park their assets and track the value of their funds and holdings. The unit also helps companies issue debt and equity securities.
Who do they serve?
Around 5,000 of the world’s largest multinational companies and investment managers. The business focuses on companies with operations spread across the world. It also serves the US government and its embassies.
At the base of most of these activities is a banking network with connections to 190 countries.
What is there to be excited about here?
Services are Citi’s “bright sun,” around which its other businesses orbit, said analyst Mike Mayo. He estimates it’s worth between $90 billion and $120 billion, while all of Citi is only trading at a value of about $114 billion.
The companies have remained relatively unfazed for two decades, even amid the Citi turmoil, and have continued to deepen their ties to the global economy. Citi executives say they still have room to grow and will benefit from the rise of digital payments and companies’ decisions to move their supply chains around the world.
Services have a steady stream of revenue from giant companies. Getting more of these customers to trade with Citi and turn to their bankers for advice is a key element in Fraser’s reform.
Once one of Citi’s biggest critics on Wall Street, Mayo has recently become more bullish on Citi thanks, in part, to Services. A few months ago, he started asking investors what they knew about Citi Services and its results. Not much, it turned out.
Many failed to peg annual revenue growth at 8%, or returns at over 20%, much better than all of Citi. And many didn’t know that Citi Services increased deposits by 20% during the 2008-09 financial crisis, even as Citi nearly went bankrupt.
“Even experienced investors will get these answers wrong,” Mayo said.
Write to Justin Baer at justin.baer@wsj.com
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