Citigroup To Depart From Distressed Debt Trading Sector
Citigroup Inc. is set to exit the distressed-debt trading business, aligning with CEO Jane Fraser's strategy to reshape the company for improved returns.
As informed by individuals familiar with the matter, this move follows the bank's recent decision to withdraw from municipal bond trading and underwriting. Closing down the distressed-debt segment, overseen by Pat Kris and Joseph Beggans, will affect roughly 20 positions, said one of the sources, requesting anonymity as this information isn't public. A spokesperson for the company declined to comment.
Fraser had announced a significant restructuring in September to enhance efficiency by streamlining Citigroup's extensive workforce of 240,000 employees. The move aims to eliminate management layers and rejuvenate the firm's ability to set and achieve targets, addressing its history of missed objectives.
Distressed trading is known for its volatility, offering robust returns in some periods followed by leaner phases. Citigroup's distressed-debt business performed well in 2021 but experienced a notable slowdown in subsequent years, according to sources.
Bank of America Corp. and Goldman Sachs Group Inc. remain as key players in this market, which has seen a reduction in significant sell-side participants globally, sources noted.
Additionally, Citigroup has witnessed several senior exits from this business, including former co-heads Olaf Auerbach and Pete Hall.
The distressed-debt investment landscape involves seeking troubled borrowers whose bonds or loans have declined below 70 cents on the dollar. Thorough analysis of financials and legal agreements is crucial, guiding decisions on payouts during bankruptcy proceedings.
Traders and analysts specialising in distressed debt offer valuable insights to buy-side firms, aiding in determining when discounts merit the risk. During market downturns, these experts identify opportunities to profit from buying undervalued credit, assuming it doesn't deteriorate further.
Data compiled by Bloomberg shows around USD 260.4 billion of dollar-denominated corporate bonds and loans in the Americas traded at distressed levels in the week ending 15 December, marking a 5 per cent increase from the previous week.
Trading in illiquid company borrowings demands substantial capital, aligning with regulations ensuring banks' resilience against unexpected losses. Anticipated new rules may heighten the capital burden on such divisions.
With Fraser's restructuring efforts underway, Citigroup's strategic decisions reflect a willingness to divest certain competitive businesses in pursuit of aligning returns with major US peers. Previous moves included divesting retail-banking units outside the US and restructuring management accompanied by job cuts.
