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”

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.