Citigroup has decided on closure of its distressed debt unit, according to people with direct knowledge of the move. Global distressed debt unit of Citigroup Inc. has decided to shutdown or exit business. This being the latest retrenchment in Chief Executive Officer Jane Fraser’s effort at Citigroup global financial restructuring in pursuit of higher returns.
Citigroup distressed debt unit closure, described by people briefed on the matter, as removing one of the key players in distressed-debt markets, and follows a recent decision by the New York-based bank to get out of municipal bond trading and underwriting.
Implications of Citigroup distressed debt unit closure
Citigroup distressed debt unit closure, run by Pat Kris and Joseph Beggans, will impact roughly 20 positions, as per a source. Though a company spokesperson declined to comment.
Fraser announced in September that Citigroup global financial restructuring is the biggest undertaking in decades to make the company more efficient and eliminate layers of management within the bank’s 240,000-person workforce. Citigroup has repeatedly abandoned or missed targets over the years, and Fraser is determined to restore investor confidence in the company’s ability to set and meet guidance.
Citigroup distressed debt trading exit
As per sources close to the matter, distressed trading can be volatile, with outsized performance one year potentially followed by leaner times. The business at Citigroup outperformed in 2021 and slowed significantly in the two years after that.
Other distressed franchises
Bank of America Corp. and Goldman Sachs Group Inc. are among the other participants in the market known for their distressed franchises, a field that’s dwindled to only a few big sell-side players globally, the people said.
Citigroup also has seen a number of senior exits from that business. That included the two former co-heads, Olaf Auerbach, who left last year, and Pete Hall, who departed earlier this year.
Citigroup’s broader financial strategy and goals
Citigroup distressed debt closure for all businesses with poor returns to bolster the bank’s odds of hitting Fraser’s performance targets. This move is in align with Citigroup’s broader financial strategy and goals. Fraser announced the latest overhaul of the third biggest U.S. bank by assets in September, and has since moved to trim executives and pare back businesses. Internally, the effort is known as Project Bora Bora.
Last week, Citigroup announced distressed debt trading exit of municipal-bond operations, a once-thriving business with about 100 employees that had fallen on hard times.
The distressed debt Citigroup, which trades the bonds and other securities of companies in or approaching bankruptcy, employs about 40 people, said the people, who declined to be identified speaking about strategic moves.
Market perception after Citigroup distressed debt closure
Traders and analysts specializing in distressed debt are a key resource for buy-side firms, often providing advice on when a discount is enough to warrant the risk. In a market selloff, so-called bargain hunters can profit from buying credit for cheap, as long as it doesn’t go further south.
About $260.4 billion of dollar-denominated corporate bonds and loans in the Americas traded at distressed levels in the week ended December 15, a 5% increase from a week earlier as per analysis.
Trading illiquid company borrowings is also a capital-intensive business under regulations aimed at ensuring banks can withstand unexpected hits. New rules are likely to impose a greater capital burden on such units.
Implication on Citigroup stocks
Citigroup also carries the tag of being the only major U.S. bank whose stock is trading below where it was five years ago. The collapse in the firm’s price-to-book ratio to 0.5 signals investor concern, showing shareholders value the company at about half of what its accountants say it’s worth.
Future of Citigroup
As Fraser’s restructuring of the embattled bank takes shape, the decisions show Citi’s willingness to part with certain franchises, even if they are competitive, in the pursuit of lifting returns in line with major U.S. peers. Some of the other moves have already included offloading retail-banking units outside the U.S. as well as embarking on a major restructuring of management accompanied by job cuts.
