Citi Says Its Asia Equities Business Is Booming

(Bloomberg) -- Citigroup Inc. predicts its Asia equities business will post its best results since the financial crisis, which could help the global firm sustain flagging momentum.

Revenue increased 33 percent in the first half of 2018 compared with the previous year, and is on track for the biggest annual growth in a decade, Richard Heyes, the Hong Kong-based Asia Pacific head of equities, said in an interview. He’s betting that investments in technology made during years of rebuilding and recent senior hires at the unit will provide a boost even as markets worldwide get more challenging.

Heyes’s Asia equities outlook bodes well for the New York-based bank, whose trading results underperformed its U.S. rivals in the second quarter, mainly due to a drop in fixed-income revenue. The first half often yields the most overall revenue for U.S. banks, meaning it can get harder to improve performance as the year progresses.

American firms are also benefiting from difficulties at their European competitors and European Union regulations known as MiFID II that are pushing clients toward large brokerages that offer a wide range of services under one roof, according to Heyes.

“The operating environment, with a number of European banks struggling, has been a solid source for market share gain,” he said. “We are adding clients due to dislocation at some banks.”

Citigroup tied with Credit Suisse Group AG for third place last year in Asian equity trading outside of Japan and Australia, improving from fifth place in 2015, according to data from Greenwich Associates.

Top Five

Citigroup gained “significant” market share this year and aims to crack the top five in Asian equities, in line with a global pledge, Heyes said, without sharing more details on the ranking he looks at. The global firm spent three years -- 2012 to 2015 -- rebuilding under Chief Executive Officer Mike Corbat, who cut jobs and plowed millions into technology upgrades.

“They still have some work to do in order to be considered a top five player in Asian equities,” said Neil MacKinnon, a director at the Lawson Practice, an Asian search boutique focused on global markets and hedge funds. “However, it is fair to say the street recognizes that they are following through on their commitment to the business. This is reflected in the increase of interest in people looking to join Citi’s equity and prime finance business.”

Citigroup continues to invest in technology, MacKinnon said. Such investments have let the division automate some processes and cut costs by about 10 percent over the past three years, according to Heyes. His unit helped the firm’s global equities business generate the most revenue since 2010 in the first quarter, though overall second-quarter revenue came in lower than estimated amid what the bank called a “challenging” market environment.

Heyes’s division plans to meet its full-year forecast by boosting derivatives and prime finance offerings, after benefiting from a rise in block trades and initial public offerings that the bank worked on earlier in the year. Citigroup is ranked second in equity offerings in the region this year, its best showing since 2005. It was ranked fifth in 2017, data compiled by Bloomberg show.

The division is also hiring for senior roles. Some 30 executives have joined Citigroup’s equities business since last July, including four managing directors. While Heyes declined to share an overall headcount, the hiring contrasts with rivals such as Deutsche Bank AG, which has been cutting onshore sales and derivatives coverage in Asia Pacific, and Credit Suisse, which culled jobs in trading, sales and prime brokerage in the region as it completed its restructuring last year.

Heyes said Citigroup stands to benefit from changes occurring in Europe due to the MiFID II regulations, which among other things abolished internal trading venues used by banks to match client orders and forced investment firms to pay for research separately from brokerage fees.

The changes are pushing clients to work with fewer brokerages that offer a wide range of services, he said, and Citigroup’s global presence and relationships with hundreds of companies will help the bank win business.

“MiFID II will lead to consolidation, which I argue very strongly we’re extremely well-placed to benefit from,” Heyes said.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Jeanette Rodrigues

©2018 Bloomberg L.P.