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Citi takes aim for prime brokerage breakthrough

After nearly two years reinforcing its prime brokerage team and ensuring its technological infrastructure is state of the art, Citi is now equipped to compete for business with the established giants of the industry, according to European head of prime finance Nick Roe.

Since Roe left Deutsche Bank, where he was global head of prime services, to join Citi in October 2005, he has been engaged in a recruitment campaign to strengthen all areas of the team and overseeing a wide-ranging investment in the European prime brokerage operation. Now, he says, that intense effort is starting to pay off.

'When I took over, there were 52 people on the platform in Europe,' he says. 'Throughout last year we've gone through a series of upgrades across the desks, hiring more than 30 people, and we now have more than 80 in Europe. As you can imagine, I did a lot of interviewing last year!'

Roe's arrival heralded an about-turn in Citi's approach to the prime brokerage business, which had previously been run within its fixed-income operation, a position that was reflected in its client base.

All that has now changed following a series of top-level hires designed to put Citi's prime brokerage offering in the top rank in terms of experience and expertise. Nigel Pepper came from Lehman Brothers to run risk management, while Tara Westbrook came from hedge fund DKR Capital to kick-start Citi's capital introduction service.

Neil Swinburne, who ran securities lending in a 15-year career at Goldman Sachs, arrived at the same time with a couple of members of his team to become head of stock lending. Lee Brock came from Merrill Lynch to run the swaps desk and soon added former colleagues then with Bank of America and Lehman, while Nick Jarrett came from Deutsche to take charge of product development for the equity finance business.

'We've strengthened the entire team,' Roe says. 'Obviously the three main product areas are securities lending, synthetic equity swaps and prime brokerage, and around them we have developed businesses such as middle office, capital introduction and risk management.'

It was vital, he insists, that Citi built up its capabilities, in both personnel and technology, before making an ambitious foray to boost its market share. 'We didn't want to fall into a similar situation that other prime brokerages had fallen into, of building your house on sand,' he says.

'You don't want to build a fantastic front end and have great product people without dealing with the downstream issues, or to create a nightmare for ourselves from an infrastructure perspective. So we spent an enormous amount of time dealing with the technology and infrastructure as well as getting the right personnel - it continues to be a focus for us.'

Ensuring the technology platform was capable of handling the expansion of the business has absorbed the lion's share of Citi's investment. Says Roe: 'We have pretty much rewritten every platform across the equity finance area, and developed the swaps platform and the prime brokerage technology.

'We've added various different enhancements to risk management, capital introduction, client relationship management and the securities lending platform - which was actually a very credible and stable platform, but we've continued to enhance it.' This year, he adds, the focus has been on improving customer-facing systems such as web technology.

The result of this thorough remaking of the equity finance business, Roe believes, is that Citi is now capable of going head-to-head with the industry leaders. 'I would already put us up there with the top five in terms of product standing and our capabilities as a prime broker,' he says. 'By the end of this year, once all the technology's been rolled out, I would put our technology and infrastructure against any other prime broker in the market.'

The improvements to the platform are already allowing Citi to win larger and more sophisticated hedge fund clients. 'When I arrived the client base was predominantly equity long/short and fixed income, but moving the platform on has enabled up to take on a lot of multi-asset, multi-arbitrage, multi-strategy funds, which is the way the market is developing,' Roe says.

'Today there are fewer boutique-style hedge funds set up with three men and a dog and a single strategy. To access those larger hedge fund clients, we have to offer the full gamut of equity finance and prime brokerage services. We have a number of clients that are very large counterparties and with whom we rank as no. 1 or no. 2 prime broker over the past year, precisely because we've been able to develop the platform so much over the past 12 months.'

The fruits of these efforts were already becoming evident last year, which saw revenues grow by 68 per cent, while business volumes and client numbers more than doubled. Roe also notes that Citi 'came from nowhere' to rank sixth in Eurohedge's survey of prime brokers servicing new hedge fund start-ups in Europe, and overall 'we've probably gone from last place, because we were tiny a year ago, to somewhere in mid-table'.

But the group's ambition is to break into the top three, and better. 'People see Citi prime brokerage as very hungry and aggressive, able to do virtually anything that people need, and with aspirations to become one of the top two prime brokers. Citi doesn't go in with this sort of investment without the ambition to be one of the top two.'

That's not to say that Roe underestimates the competition, but he says the business can bring to the challenge both experienced and well-connected industry specialists and the Citi name. 'There is the quality of personnel we've brought in, recognised people within the market who have relationships with well-established hedge funds, ands we're benefiting from deep relationships,' he says.

'In addition, you can't overestimate how much value you can get by walking into a meeting with Citi on your badge - we will always get a meeting. In addition, Citi is well known for its emerging markets coverage, so a prime broker we can cover 73 markets, many more than our competitors. We've seen tremendous growth in eastern Europe, in particular Russia, as well as in the Middle East, where we're seeing enormous demand for Shariah products.'

Meanwhile, Roe says, there are still challenges to meet. 'There's no reason why we shouldn't continue to grow at 50 to 100 per cent for the next few years. Our perceived strengths in certain areas, such as fixed income, will naturally draw clients toward us. However, branding is important in the prime brokerage space - we need to keep a high bar on client service. The best salesperson is a happy client.'

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