If you’re not on Citi’s fa­vored-client list—well, you’re no­body

A shrink­ing list of top traders gets all of Wall Street’s at­ten­tion “It’s a dog-eat-dog world. It’s tough, but that’s just how it works”

Bloomberg Businessweek (Asia) - - CONTENTS - −Laura J. Keller and Dakin Camp­bell Edited by Pat Regnier Bloomberg.com

There’s a se­cret client list that

Cit­i­group keeps in its equity re­search group at its cam­pus in TriBeCa. And if you’re not on it ... well, you might as well be no­body.

At the very top are five hedge fund gi­ants, known by some as the “Fo­cus Five,” which gen­er­ate the big­gest trad­ing com­mis­sions for Citi: Mil­len­nium Man­age­ment, Citadel, Sur­veyor Cap­i­tal, Point72

As­set Man­age­ment, and Carl­son Cap­i­tal, ac­cord­ing to some­one with di­rect knowl­edge of the list. Th­ese prized firms get pretty much what­ever they want from the bank, part of a move on Wall Street to pri­or­i­tize the most lu­cra­tive clients. Citi of­fers them its best ideas for trades, hours­long phone calls with its an­a­lysts, in­ti­mate soirees with ex­ec­u­tives of com­pa­nies Citi cov­ers, and cus­tom­ized trad­ing mod­els, say peo­ple with knowl­edge of the bank’s prac­tices. An­a­lysts must keep in touch with th­ese cus­tomers reg­u­larly.

In all there are fewer than 100 firms on Citi’s list, ranked by how much each con­trib­utes to the New York­based bank’s rev­enue, says the per­son fa­mil­iar with the ros­ter, who asked not to be iden­ti­fied dis­cussing in­ter­nal mat­ters. The list was win­nowed down ear­lier this year. An­a­lysts are dis­cour­aged from spend­ing time with firms that aren’t on it. A Cit­i­group spokesman says the bank doesn’t com­ment on its re­la­tion­ships with clients.

Citi’s not alone. Strug­gling for prof­its as they man­age stricter reg­u­la­tions and rock-bot­tom in­ter­est rates, in­vest­ment banks are fo­cus­ing their busi­nesses around the wealth and in­flu­ence of the world’s ul­tra­elite—call it the 1 per­cent of the 1 per­cent. Even on Wall Street, the di­vide be­tween the priv­i­leged few and ev­ery­one else is grow­ing.

One man­ager at a Wall Street firm, who de­clined to speak pub­licly for fear of reprisals, says she doesn’t even bother call­ing up top an­a­lysts at ma­jor banks. She’s come to un­der­stand that her com­pany doesn’t have the pull to get her calls re­turned, even though it man­ages bil­lions of dol­lars.

The fa­voritism isn’t lim­ited to eq­ui­ties re­search. Citi keeps lists of ac­counts across its busi­ness, ranked by as­sets or trad­ing value, says an­other per­son with knowl­edge of the bank’s prac­tices. Some fa­vored clients are iden­ti­fied by “plat­inum,” “gold,” or “sil­ver” sta­tus. The credit re­search desk has a pri­or­ity list of ma­jor fund com­pa­nies that buy bonds. In a postearn­ings con­fer­ence call in Jan­uary, Chief Ex­ec­u­tive Of­fi­cer Michael

Cor­bat said Citi was fo­cus­ing more on “tar­get clients.”

At Deutsche Bank, co-CEO John Cryan said late last year that the bank will cull its client list by half in cer­tain busi­ness lines. Bank ex­ec­u­tives have also spo­ken of tar­get clients in the divi­sion that han­dles trad­ing, where some 500 cus­tomers gen­er­ate 80 per­cent of rev­enue.

Gold­man Sachs Group’s equity re­search team has also di­rected its re­sources to­ward heavy-vol­ume hedge fund shops, ac­cord­ing to some­one fa­mil­iar with the bank’s poli­cies. Rep­re­sen­ta­tives of Gold­man Sachs and Deutsche Bank de­clined to com­ment.

Even smaller re­gional banks have lists, with Stifel Fi­nan­cial dub­bing a ros­ter of 21 tar­get clients its “Black­jack” list, ac­cord­ing to a per­son fa­mil­iar with the mat­ter. CEO Ron­ald Kruszewski says he’d be “sur­prised at any firm that is try­ing to sell a prod­uct that didn’t have a list.”

This chase for a few prized clients has been spurred by dwin­dling rev­enue in some bank busi­ness lines. Post-cri­sis reg­u­la­tions have made it harder for banks to make money by forc­ing them to hold more cap­i­tal against risky as­sets. In this en­vi­ron­ment, “ev­ery­one is talk­ing” about how to boost prof­itabil­ity, says Greg Braca, head of U.S. cor­po­rate and spe­cialty bank­ing at TD Bank.

To make the cut for Cit­i­group’s fa­vored list, firms typ­i­cally must gen­er­ate $2 mil­lion an­nu­ally in trad­ing rev­enue with the bank. Each of the Fo­cus Five firms trade mul­ti­ple times that amount. Rep­re­sen­ta­tives of all five de­clined to com­ment.

“It’s a dog-eat-dog world,” says Kevin Kelly, the chief in­vest­ment of­fi­cer for Re­con Cap­i­tal Part­ners in New York. “Its tough, but that’s just how it works.” Some say the odds of suc­cess on Wall Street are tilted more and more to­ward those with the deep­est pock­ets. Says Jeff Sica of Cir­cle Squared Al­ter­na­tive In­vest­ments in Mor­ris­town, N. J.: If you’re not a big client, it’s be­come “a ma­jor dis­ad­van­tage.”

The bot­tom line Cit­i­group and oth­ers on Wall Street have fo­cused their busi­nesses on the care and feed­ing of a smaller num­ber of top clients.

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