Citigroup Inc. will shutter its municipal business, one of the most dramatic moves yet by Chief Executive Officer Jane Fraser as she seeks to squeeze better returns out of the Wall Street giant.

The bank decided the business, which has tumbled in the rankings for underwriting state and local debt, is “no longer viable given our commitment to increase the firm’s overall returns,” according to a memo to staff seen by Bloomberg News. Citigroup intends to complete the wind down by the end of the first quarter, which will mean most of the company’s municipal sales, trading and banking staffers will be departing the bank in the coming months.

“We have made the difficult decision to wind down our municipal underwriting and market-making activities,” the memo said.

The move affects about 100 employees, according to a person familiar with the matter.

Reports that Citigroup was deciding whether to exit a business it once dominated shocked the municipal market earlier this year. For decades, the bank was a powerhouse in the $4 trillion market for U.S. state and local debt, helping on landmark projects including the rebuilding of the World Trade Center site and the installation of 65,000 streetlights around the city of Detroit.

But the unit’s fortunes have turned in recent years, and the division didn’t fit with Fraser’s broader goal of making Citigroup the premier bank for large, multinational corporations. Texas politicians added another blow when they froze the bank out of a number of deals there because of its firearms policies. Texas is the No. 1 market for muni sales this year, so the moves crimped the unit’s revenue and overall profitability.

The decision comes after months of intense deliberations inside Citigroup, according to people familiar with the matter, who asked not to be identified discussing private information. 

On one side were top trading executives, including Andy Morton and Mickey Bhatia. They were keen to get out of the business because it was hurting the unit’s broader efforts to improve profitability. 

On the other side was Ed Skyler, a key lieutenant of Fraser and head of the firm’s enterprise services and public-affairs division. To Skyler, it was important for Citigroup to keep working on financings that lead to the building of bridges, roads, schools and hospitals across America. Not only did they help the bank make inroads with lawmakers, they gave Citigroup a tangible connection to the American public.  

Citigroup has spent years trying to convince Texas officials that its policies don’t violate state law, which punishes banks if they discriminate against the firearms industry. In August, Fraser and Skyler even traveled there to meet with Governor Greg Abbott about the bank’s continued commitment to the state, where the bank has 8,500 employees.

Ultimately, though, Fraser’s aspiration to reach Citigroup’s new financial targets—whatever the cost—won out. The firm has repeatedly abandoned or missed targets over the years, and Fraser is determined to restore investor confidence in the bank’s ability to set and meet guidance. The decision to shutter the municipal business comes after she already decided to exit more than a dozen retail bank operations in overseas markets. 

Historic Roots
Banks often point to their work raising money for cities and states when facing scrutiny from local and federal politicians, and Citigroup was no exception. 

At the New York-based bank’s annual shareholder meeting in 2018, which it held in Chicago, then-CEO Michael Corbat touted the fact that his bank had been a key underwriter on bond deals for the city’s O’Hare International Airport for decades. 

The company has also promoted its work as lead underwriter on $2.6 billion of bonds for the Port Authority of New York and New Jersey when it was building One World Trade Center in the aftermath of the 2001 terrorist attacks. 

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