WITHIN days of Citigroup’s bid for Schroders six years ago, a newspaper ran a cartoon showing the British bank as a tasty piece of cake being gobbled up by greedy American bankers.
Another had timid Brits cowering before thuggish Yanks wielding baseball bats.
Without exception, City pundits predicted the world’s biggest bank would chew up Schroders’ blue-chip clients and spit out its puny financiers for breakfast. How wrong they were.
By all accounts the merger with Schroders has been a stunning success and the jewel in the crown of what became SSSB — Schroder Salomon Smith Barney.
Neither the feared exodus nor the culture clash happened and Citigroup Europe, containing the old Schroders investment bank, is now the leading mergers and acquisitions (M&A) advisory house in continental Europe and second in Britain after NM Rothschild.
Citigroup itself is having a tougher time. Profits are still good but its shares are languishing as investors fear that the bank — under chief executive Chuck Prince — is losing its edge.
They are worried, too, by the string of recent legal disputes, ranging from the MTS scandal, when the bank was fined £13.9m for improper trading in Eurobonds, to the civil action being brought by liquidators of the Italian dairy conglomerate Parmalat for recovery of $10 billion (£5.3 billion).
One of its biggest shareholders, Saudi Arabia’s Prince al-Waleed bin Talal, is said to be unhappy with the bank’s performance while a tongue-in-cheek online survey called it the “Ozzy Osbourne” of the banking world — both are growing old disgracefully.
Breathing down its neck is Bank of America, which after more than 70 takeovers is closing the gap on its historic rival.
But Sir Win Bischoff, the former Schroders boss who is now chairman of Citigroup Europe and a member of Chuck Prince’s management team, is quick to defend Citigroup’s record.
“There’s so much more organic growth for us to gain from the financial-services market, which is growing faster than average GDP (gross domestic product). Prices are too high for acquisitions at the moment although people will always put us together with potential targets,” he said. “You can never say no.”
Some say Citigroup’s bid for Schroders was in fact a reverse takeover; the pukka Schroders culture having charmed into submission the trading beasts at Salomon — the bond house that spawned the book Liar’s Poker — and the wire-house boys at Smith Barney.
Bischoff said the merger had been so successful because Citigroup understood exactly what it was buying and why. “It takes two to tango and we really have worked well together,” he said.
“There was little overlap between the three houses which made up SSSB, allowing us to create businesses from new.
“Despite what many people would like to think, Citigroup bankers really did understand that investment banking is about relationships. In an odd way, we were also lucky that the markets were so ghastly in 2001, shortly after the merger.
It gave us all a chance to go out and talk to people, to explain what we were doing and build on our relationships. That paid off,” he said.
Bischoff and his bankers have been on a roll ever since. Schroders’ investment bank had an enviable client list in Britain — companies such as Pearson, Pilkington, Compass, General Accident and Bass — and nearly all have stayed. (Schroders’ asset-management division remained separate and independent.) Bischoff also brought with him strong ties with Europe, looking after the interests of Krupp, Munich Re, Bosch and Fiat’s Agnelli family .
When we meet on the 16th floor of Citigroup’s citadel, Bischoff is just back from New York, having slept only a few hours on the overnight flight. He does the Wall Street trip a couple of times a week; in between are the European forays — a recent week took in Spain on Monday, Paris on Wednesday and then Russia.
The pace would be gruelling even for the hungriest banker of half his 65 years. But he’s as fresh as a daisy — the only thing missing is the perma-tan of a globe-trotting “master of the universe”; a piece of cake he certainly is not.
Bischoff clearly loves every minute, to the extent that he rarely takes more than a week’s holiday at a time. “If you’re enjoying yourself, you don’t need to,” he said. “I have more than a year accrued — perhaps more. I doubt I’ll take it up.”
He comes across every inch the titled gent, more deal- designer than deal-breaker. The initials on his shirt give it away, though — Winfried Franz Wilhelm Bischoff.
Brought up in Germany, he went to South Africa when he was 13, later studying commerce at university before working for Chase Manhattan in New York. Moving to Schroders, his early career was spent in the Hong Kong office, making long-lasting contacts with local luminaries such as HSBC’s Sir William Purves.
When he took over in 1984, Schroders was worth £30m. By the time Schroders’ investment bank was sold for £1.3 billion, it was the only merchant bank listed on the FTSE.
With Citigroup’s fat balance sheet, it has been able to advise and finance deals that the old Schroders would not have peeped at.
Telefonica’s bid for O2, advising Ferrovial on BAA and the P&O/Princess deals are instances where Citigroup has been involved at every twist and turn.
Investment bankers are not renowned for their loyalty. However, nearly all of Schroders’ top financiers are still working for Citigroup. Bischoff’s trip to New York was to attend a brainstorming session with 90 investment bankers. “It was great to look round and see that at least 10 of the top men were from Schroders,” he said.
Juicy rewards may have helped — some £135m was said to have been paid to guarantee bonuses while Bischoff himself was given a £5m one-off gift by Schroders for the successful sale.
That was six years ago, so the lucrative lock-ups have long since expired. Even so, bankers such as Robert Swannell, David Wormsley and David Challen in the UK and Panfilo Tarantelli, a star in the Italian market, are very much at the top of the corporate and investment bank.
Swannell, who is vice- chairman, said: “You would need a lobotomy not to want to defend Marks & Spencer or put together the Telefonica offer for O2 in a matter of days. Everyone assumes that the Americans are more combative than the British bankers. It’s just not true — it’s simply a question of style.
“The culture issue was a misconception because most of us were every bit as competitive as our Citigroup peers and have loved being able to play on such a big platform,” he said.
Valued at $240 billion, Citigroup has assets of more than a $1,000 billion and a loan book in Europe second to none, lending to more than 400 of the Continent’s top companies.
Bischoff said: “We are doing deals that we never would have done before — it’s an exciting time.” He calls his investment bankers his “foot soldiers” — an advance guard marching into new territories and opening doors for the rest of Citigroup’s consumer services.
Big strides are being made in China, India and Russia while Citigroup’s franchises in Poland, Egypt and Turkey are all thriving, he said.
Since the merger, Citigroup has built up market share in equity and debt capital markets and is nibbling away at corporate broking. Citigroup’s poaching last year of top executives from ABN Amro’s Hoare Govett corporate broker was part of its onslaught.
Bischoff regrets that Britain does not have its own dominant investment bank. But he has always taken the view that City firms needed more capital — or access to the US market — if they were to survive. To his great chagrin, he accepts that Schroders tried and failed to expand in America.
He argues that the American players have not only saved the City but are bringing it greater power. Citigroup, for example, earns more than 50% of its revenues outside New York with much of it passing through London, while 80% of Citigroup Europe’s business, based at London’s Canary Wharf, is earned outside Britain.
And the City will become even more prominent, he said. “Proximity is the main reason. But also most people in the Middle East, India and Russia still prefer to do business here.” America’s tough Sarbanes- Oxley rules make the UK even more attractive.
And his own future? “We all live longer so there is no need to rush, is there? I’ll probably retire between now and 70. Luckily, the Americans are more flexible about these things.”
Relentless rise of Citigroup Europe
- It tops the continental European league table of mergers and acquisitions (M&A) advisory houses with 35% of the market. Adviser on $405 billion worth of deals.
- Citigroup Europe was fourth in the British M&A market in 2000 but is now ranked second (after NM Rothschild) with $78 billion of deals. o Globally, Citigroup is second — behind Goldman Sachs by $60 billion but ahead of JP Morgan by $40 billion.
- Citigroup’s corporate broking arm has grown from four clients in 2000 to 52 clients today, 16 of which are FTSE 100 companies, including Lloyds TSB, Pearson and Marks & Spencer.
- Citigroup ranks first in all euromarket debt issuance, all international bonds and all debt underwriting.
- Citigroup ranked first globally in equity capital markets in 2005 but is ranked second at present.
