Citigroup (C) is shutting down its municipal bonds business, as leadership deemed the unit's economics are "no longer viable." Based on a memo from Head of Markets Andy Morton and Interim Head of Banking Peter Babej, as reported by several outlets, the full closure is expected by the end of the first quarter.
Yahoo Finance's David Hollerith analyzes the decision to part ways with the muni bonds group, framing it as part of CEO Jane Fraser's aggressive push to transform operations and boost profitability at the bank.
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Video Transcript
BRAD SMITH: Also, we're tracking Citigroup this morning. Citigroup shutting down its municipal bonds business. The bank told employees, in a memo that the business was no longer viable, according to several reports, aiming to complete the closure by the end of the first quarter. Yahoo Finance's David Hollerith has more on this. David, good to see you.
DAVID HOLLERITH: Hey, Brad. Yesterday, the bank's head of markets and interim head of banking said in this memo shared with us that the economics of the municipals business, the activities are no longer viable given their commitment to increase the firm's overall returns. So at a high level, this is right in line with or maybe just a piece of what Citi has been trying to do for years now since CEO Jane Fraser took over, which is a sweeping restructuring of the bank in order to return it to profitability.
Again, the municipals business is effective the business of banks helping local and state governments finance infrastructure projects like roads, bridges, and schools. And so in the Citi memo, the bank's had said that it will continue working with current municipals clients and it will also continue investment banking activities in private and public partnerships in sectors like transportation, and health care, and clean energy.
This decision comes after months review, the memo had said. And the municipals business in general is said to be ultra competitive and very dependent on timing with public policy. Generally, a tough place to make money from what I gather from other commercial bankers at a couple other big banks. So the wind down will be completed by the end of the quarter with employees in the municipal sales, trading, and banking unit set to leave in the coming months.
As Bloomberg initially reported, there has already been an exodus of bankers from the team to investment bank Jefferies. The move is reported to affect in the ballpark of 100 employees.
SEANA SMITH: Yeah, David, when we were talking about that this is just an area, the reason why it's so significant is because city really had dominated this market for years. So it is just in line or just another thing in terms of how the business is pivoting and how the bank looks so different under Jane Fraser. But talking about some of those projects there that you mentioned, what this division was used for, talk to us just about some of those famous projects that it helped paid for and the impact that this division has had over the years.
DAVID HOLLERITH: Sure, yeah. And this is kind of the conflict of what's going on here in the decision for Citi to get out of municipals is that for a while, you know, Citi, one of the biggest banks, was huge in this business. They were a part of helping New York City finance the bond-- or sort of, underwrite the bonds for the One World Trade Center in the aftermath of the 9/11 attacks. They also helped Detroit install streetlights across the city a couple years-- about a decade ago. And those, kind of, projects really stick out to the average American and show how banks can step in.
That being said, these projects aren't always positive. So they can come across as negative. Back in 1987, Citi got out of its lending business with the South African government under apartheid and they were one of the last holdouts. So it just goes to show this is really seeing a bank stepping in and being a part of-- taking a lot of power and, sort of, showing how they can work with governments. It's not always positive, but it does leave a big impact and impression to the average consumer on what they can do.
SEANA SMITH: All right, Dave Hollerith, thanks so much again. Citi exiting the muni market, a story that we are tracking here this morning. All right, David, thanks.
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December 15, 2023 at 10:14PM
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