The unit can trace its roots back to Salomon Brothers, the brokerage known for its willingness to take big risks that eventually became part of Citigroup. The firm’s bankers were often a fixture in high-profile municipal finance situations: For instance, in the 1970s, they helped New York City narrowly avoid bankruptcy.
For years, the business was led by Ward Marsh, who took the helm in 1991. He ran the unit until his retirement in 2019, turning it into one of Citigroup’s most successful trading desks along the way.
“They made the most money on the Street, and no one could keep up,” said George Friedlander, who spent 41 years in Citigroup’s municipal department. “They knew the market, had wonderful relationships and knew when to take risk and when to cut it back. It’s an amazing transition from there to imminently vanishing.”
The unit has been stung by departures in recent years. As concerns mounted about the future of the business more recently, a team of public finance bankers focused on health care even jumped ship to rival Jefferies Financial Group Inc.
Texas Problem
By early 2022, Fraser was one year into her role atop Citigroup. At an investor presentation early that year, the bank vowed it would renew its focus on higher-margin activities in its trading business. The company was also preparing to adapt to a slew of new capital requirements from regulators, which will also further weigh on the profitability of the trading unit.
Within weeks of the investor day, Citigroup started offering buyout packages to senior bankers, traders and salespeople in the municipal business, some of whom had decades of experience. The bank soon shuttered its muni proprietary-trading unit, which used the firm’s own cash to trade and invest in the debt.
Along the way, there was the bank’s growing Texas problem.
In 2021, Texas passed legislation that blocked government entities from contracting with banks that have policies that restrict business with the firearms industry.
Citigroup had previously instituted a policy that would prohibit retailers that are customers of the bank from offering bump stocks or selling guns to people who haven’t passed a background check or are younger than 21. The bank temporarily halted its municipal business in Texas while it evaluated the new law.
But by the end of 2021, Citigroup had returned, saying it believed its policies complied with the legislation.
But earlier this year, Texas Attorney General Ken Paxton’s office determined that the company “discriminates” against the firearms industry, halting the firm’s ability to underwrite municipal offerings in the state.
Being frozen out of Texas deals further crimped the unit’s revenue, hurting overall profitability. By November, Fraser had begun more seriously mulling whether it was even worth it for the bank to continue offering municipal bonds.
Citigroup will still work with transportation and health-care entities on public-private partnerships and it will also continue its work in the private-placement market. The public sector banking team will continue to work with clients to provide depository services, for example.
The bank will also continue to invest in muni bonds. The decision does not impact the Citi Community Capital team, which finances affordable housing projects across the U.S.
“We will continue to support our municipal clients on all pending capital issuances, including execution of pipeline transactions as well as transition to other underwriters as appropriate,” the memo said.
This article was provided by Bloomberg News.