(DENNIS B MALLARI)
Confidence in the integrated model of global banking has been severely tested over the past four months in the sub-prime crisis, and the global giants have been forced to go cap-in-hand to sovereign wealth funds to obtain equity injections, or emergency rights issues in all but name, to shore up their balance sheets. But there is a positive side to this deluge of negative news.
Instead of seeing Abu Dhabi Investment Authority’s (Adia) $7.5 billion (Dh27.54bn) purchase of an equity interest in Citigroup late last year as just an emergency capital-raising exercise, this can also be seen as a vote of confidence in the future of the bank from the UAE. That might be a source of some comfort to the bank’s rapidly expanding customer base in the UAE, now along with the Middle East a growth priority for the group in these more difficult times for global banks.
“We recognise that Adia is an extremely astute investor,” said Mohammed Azab, who became Executive Director and Chief Officer-UAE at Citi Private Bank last September. “Citi has been active in the UAE for more than 50 years, although a major point of differentiation with our competitors is that we actually operate in more than 100 countries and can bring that global experience to our customers locally.”
In fact, the bank has had a tough time in the Middle East. After the 9/11 attacks on the United States, the bank took tens of billions out of Bahrain as a temporary emergency measure in the regional panic that followed the tragedy. The bank also sold its stake in Saudi bank Samba. But in the past few years, Citi has moved its headquarters to Dubai from Bahrain. Operations have more than doubled in size and expansion is now very much to the forefront of management plans.
The expansion of Citi Private Bank should be seen in this context. But the most exclusive section of the bank has been benefiting from the influx of oil wealth and money returning to the region since 9/11.
In order to qualify as a target customer, you need to be an individual with investment funds in excess of $10 million. There is also a $100m-plus category for ultra-high net worth individuals and a $500m-level for mega net worth individuals.
“We have Middle East customers in all these categories, including mega net worth,” said Azab, whose early career in Citi was interspersed with substantial periods with Arab Bank in Dubai and the Bank of Bahrain and Kuwait, first in Bahrain and then Dubai.
Ironically, given the legendary obsession of private banking clients with secrecy, Azab concedes that these days many clients want to be more open and transparent with their finances and this has benefited Citi to the detriment of the Swiss banks, for instance. The post-9/11 era for private bankers is clearly a different one.
So how does Citi Private Bank go about assessing the right investment requirements for clients matching these elite criteria, and how does the bank differentiate itself in the increasingly competitive world of investment banking?
“To start with, we have to get a full understanding of the customers both in terms of their assets and liabilities,” said Azab. “This is distinct from the traditional private banking approach, which is focused only on the funds available or assets for investment. We think a holistic approach works best and take a more balanced view. Our advice is then objective. We are not interested in selling particular products and have an ‘open architecture’ approach to recommendations, which allows us to source the best products for the client whether or not they come from Citi.”
The days of men with briefcases landing in Dubai with their own set of investment products seem a long way away from this approach, which is in tune with the best global practice. Azab said: “The actual process can be quite a lengthy one. We have to look at the asset position, risk tolerance, financial objectives, time horizon, liquidity and income requirements, and tax. There will be one or two sit-down meetings to discuss investment objectives.
“Then we produce an individual investment strategy that delivers the most rewarding portfolio to meet the set of investment objectives, and come up with the right risk balance and asset allocation. The final stage is to execute the strategy and then monitor performance and report back to the client with whatever desired frequency: monthly, quarterly or annually.”
Globally, Citi Private Bank has more than 26,000 customers of whom more than 1,000 are in the Middle East, making it the second largest global wealth manager after Swiss rival UBS. Clearly establishing the correct asset allocation is a crucial determinant to the short- and long-term performance of an investment portfolio. “These decisions are taken by our investment experts and include local, regional and global investment considerations,” said Azab.
Overseeing Citi Private Bank’s investment approach is Chief Investment Officer Jeff Applegate, who will be in the UAE early next month to present his investment outlook for 2008. Readers of The View, the monthly newsletter from Citi Private Bank, will have some clue about what to expect. Its authors strongly recommended gold stocks last
autumn, just in time to catch the gold rally, and have remained relatively upbeat about the outlook for US stocks despite the talk about a recession.
Last November, Citi also announced the establishment of a brand new equity research team for the Middle East and North Africa based at the Dubai International Financial Centre. “This team produces buy, hold and sell reports on local equities and came in response to institutional client demand for this service,” said Azab. “It is a matter of developing a position in the local capital markets and to act both onshore as well as offshore as an integrated global bank.”
Will this mean that Citi Private Bank clients allocate more of their capital to local markets? Azab is far too discrete to comment, but it would be fair to conclude the firm would hardly take the considerable expense and trouble of researching Middle East and North Africa equities if it did not see them to be a good investment for its clients in the future.
“There are more than 55,000 dollar-millionaires in the UAE,” said Azab. “The Citi Investment Research team was launched at a time of renewed interest in the local stock markets, and it is a sign that the UAE now ranks very highly in the bank’s priority markets.” That is certainly a big change since the bank almost abandoned the region after 9/11 and an indication that Citi is now set squarely on a path of expansion reinforced by the presence of Adia as its biggest shareholder.
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