Citigroup Inc. at UBS Asset Gathering Forum - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

GLENN SCHORR, ANALYST, UBS: All right. We'll get started with the presentation. So you'll know, we have Todd Thomson here, Chairman and Chief Executive of Citigroup's Global Wealth Management team. We all know him as Citi's CFO. So it's nice to see Todd has his P&L and he's all excited to talk about it. Todd is in charge of the private bank, private client business and, of course, equity research which we can't wait to hear about, so why don't we get started. Todd.

TODD THOMSON, CHAIRMAN, CEO OF GLOBAL WEALTH MANAGEMENT, CITIGROUP INC.: Thanks, Glenn. That's a rousing introduction. It's good. I'll get him back for that some day. This is just a reminder of what goes around comes around, now that I'm on the other side of the table from Sally and she's pounding the table saying, why can't you get your costs down, why can't you make your budget. It's good, though. It's good. I'm excited about it. I see a lot of actually good friends in the audience. It's good to see everybody again come up for air from working on the business and get a chance to talk about it a little bit.

I know that you guys have spent a day or two talking about this industry and so you know it's a large fragmented industry. You know that it's 20% of financial services revenues today. It's a big piece of what the opportunity is because the demographics are very attractive. I think the demographics of this part of the financial services industry are more attractive than any other part of the financial services industry which is one of the reasons why I'm so excited to be leading Citigroup's efforts in wealth management. And that makes it attractive growth opportunity for us. I'm going to go through why I think that is.

At Citigroup, this is an $8.5 billion revenue business. About 1.5 billion of net income normalized. We have over 7.5 million client accounts, we have over 1.3 trillion in client assets and our equity research division coverage is over 2500 stocks, the vast majority of the major indices around the world. It's less than 10% of Citigroup's income. Again, 20% of the industry's income, revenues, less than 10% of Citigroup's income so clearly this is an area where we have a lot more opportunity to grow this piece within Citigroup.

We are, along with UBS and Merrill Lynch, the leaders in this industry globally. Obviously Merrill and UBS play very differently here, UBS primarily they're international private bank, with the old Paine Webber business here in the U.S. Merrill Lynch primarily U.S.-based, private client focused. And Citigroup a good mixture between our global private bank and our Smith Barney business but the three of us are really the leaders in this industry today. You've got below that Schwab with a lot of assets but a much lower return on assets than most of us. As you work your way down the page, you've got JP Morgan, which is primarily a private bank, with a little bit of brokerage now that Bank One is part of that institution, then Morgan Stanley which is all really a private client business. You've probably seen enough news about them recently.

I want to -- do want to point out down at the end of the page here, B of A and HSBC, although they're relatively small compared to us in this industry, are very focused on growing this part of their business, and they do have the advantage of being resident in a lot of places. Obviously B of A with a lot of branches, HSBC with retail operations around the world, and so although they are down at the end of the page here, I do think they're two of our competitors that we have around as we look out to grow this business in the future.

My business is -- consists of Smith Barney, the Citigroup private bank, and Citigroup Smith Barney equity research. Smith Barney has an incredible legacy. This is really the business that began from the very beginnings of Sandy Weill and corned beef and lettuce, as it used to be called, Cartabulin for a while and eventually has now worked its way up through a number of mergers over time into what is today called Smith Barney. It's over 12,000 financial consultants together with Merrill Lynch, the largest financial consultant force here in the U.S. We have 520 offices, over a trillion in client assets and we've been the leader for a long time both in managed accounts as well as margins. It's an incredibly well run, tightly run business. The attrition of our brokerage force is below and in some cases substantially below most of the competitors. The experience base of our financial consultants tends to be higher than the competitors, so it's an extremely strong brokerage business that I think we're going to focus on growth going forward.

The private bank is a business that is smaller and more global. So 477 private bankers and 288 product specialists. So less than a 1,000 really front facing client people as opposed to 12,000 financial consultants in Smith Barney. It also serves 700 law firms. It has a -- in addition to its high net worth practice, which is focused on families of 25 million and above it has a law firm practice which serves 70% of the large law firms in this country. Fabulous practice it allows us to help leverage those firms for referrals into high-net-worth clients.

It was recently ranked quite well globally as well as in the Americas, not ranked quite so highly in Japan right now. Smith Barney global equity research as I mentioned before, one of the leading research houses out there, one that in my view obviously next to UBS is one of the best out there in uncovering insights and is very much focused on making sure we're providing real value to our clients both the institutional clients as well as the retail clients and research as we continue to see this change in evolution of research as a business. And I'll talk a little bit more about that more later on.

These businesses, the two revenue generating businesses we have here private bank and private client, again, less than 10% of the total income of Citigroup but the two highest return businesses we have at Citigroup. And so again one of the reasons that I'm excited to be running these moving from the CFO position is that these are businesses that are very high return, we're under represented in Citigroup, we have lots of opportunity to grow these businesses so it's going to be a focus for us to invest to continue to grow these businesses at Citigroup. I'd like to see us get more toward 20% of the total income of Citigroup over some reasonable period of time. I think we have a lot of support from Chuck Prince, our CEO, and Bob Willumstad our President to make sure that we are investing in these businesses.

So high return businesses, good businesses to be in, and Citigroup, at least as I think about it, has some very significant advantages to continue to build these businesses. I sort of put them into three categories. We have the scale, as I mentioned before we're -- along with Merrill and UBS, the largest out there. We also have the scale that we can leverage of Citigroup, which makes a big difference. Secondly we have the smarts and we're focused on making sure that we're bringing the best thinking of all of Citigroup, the best thinking of third parties and the best thinking through our own research in things like asset allocation to our clients. And we have the stability. Especially for ultra high net worth families. If you're a $100 million or $1billion or $2 billion family, finding another 20 basis points return on your assets is not foremost in your mind. Foremost in your mind is making sure that you have a partner that is going to be with you for generations to come when you're setting up trusts for your families that this bank is going to be around supporting you. And a lot of places around the world we've been there for 100 to 200 years. We've been in Asia and Latin America for 100 years.

Obviously we're the highest rated bank out there today. Over $100 billion in capital and trust preferred securities. So when families today think about a partner that they want to have for the long term and they want their children and grandchildren to have for the long term, it's very helpful to be carrying a Citigroup card.

The businesses we have today, the private bank and private client business are two of the best run in the industry today. The private client business of Smith Barney has traditionally been the highest margin business in the industry. We run the business very carefully, very well, very high productivity, per broker. We try very carefully not to spend money where it's not useful. You see some Smith Barney ads. You don't see a huge number of Smith Barney ads because for the clients that we try to attract which is people with really over $500,000 of investable assets with us up to really an unlimited number of assets, they don't typically look for, you know, an ad on CNBC and start moving their assets around. It's really a personal business. They get to know their broker, and then they start deciding to do business with them. So we would rather invest in our brokers than we would invest in advertising. Although we do a little bit of that.

On the private bank as well, our pretax earnings per advisor are higher than anybody else out there. I'll be honest with you. One of the reasons for that is we find it very hard to get the kind of advisors that we need to be able to work with the families we work with. And, in fact, we've pretty much stopped going to the competition to hire them because we can't get the quality people we need from the competition. To do the kind of sophisticated solutions that we put together for our clients this isn't walking in doing asset management for them this is often walking in and doing a combination of derivative asset management, alternative investments, providing liquidity against their business that they have or their real estate that they have in a very sophisticated fashion, very much like investment banking.

And so our approach now we realize we have to grow our own and we go to the Whartons of the world, we go to the Columbias of the world and we hire business school students out of there and train them and we're in competition with our own investment bank for those same people. That's the quality of people we need to have to be able to work with the sophisticated family offices …