Citigroup plans to increase its commodities staff by 40 percent next year to double revenues from the business, which it admitted it had failed to develop.
Thomas Maheras, head of the bank's global capital markets division, said in a conference call last month outlining the U.S. bank's growth plans to investors: "We have not attained a top-tier position in the fastest growing products partly due to lack of investments and we are shifting the mix to attack these gaps."
He said commodities and structured credit were growth areas for the corporate and investment bank.
Maheras said commodities revenues, excluding proprietary trading, had grown from nothing in 2004 to $135 million, which the bank aimed to double as it increased staff by at least 40 percent next year. The bank had also started oil and metals trading, opened a trading operation in Calgary and would expand in London and Singapore.
John Casaudoumecq, global head of commodities at Citigroup, said in May the bank would nearly double the number of commodities traders to 150 by the end of this year.
Maheras said a new management team had been hired for the structured credit business, including four managing directors and more than 40 staff to increase revenues to $750 million this year. It will continue to expand its teams in Europe and Asia and look at new asset classes, such as commercial mortgage real estate collateralised debt obligations and real estate long/short funds.
At the bank's third-quarter results last month, Charles Prince, chairman and chief executive, demanded an improvement in the capital markets business after lower fixed-income trading and equity underwriting revenues dragged down net profits from corporate and investment banking by 4 percent. He said: "Results from our capital markets-related businesses fell short of my expectations and I expect improved results from these businesses."
Corporate and investment banking was one of only two Citigroup divisions where profits fell in the last quarter, although Prince said the division had record pipelines.
He has come under pressure from shareholders, including the group's largest investor, Saudi Arabia's Prince Alwaleed bin Talal, to improve performance.
Jeff Harte, an analyst at Sandler O'Neill Partners, said Citigroup needed to do catch-up spending after years of acquisition-led growth. He said in a report: "Offering credit derivative capabilities and an integrated U.S. consumer client experience are areas in which Citigroup could not afford to lag long term."
Separately, Citigroup has closed its defined benefit pension fund for 150,000 U.S. employees ahead of an upcoming requirement that pension obligations must be accounted for on the bank's balance sheet from the end of December.
To compensate staff for terminating the defined benefit plan, Citigroup will match employee contributions to a defined contribution pension by up to 8 percent for those earning less than $100,000. The bank previously matched only 3 percent of contributions, according to Bloomberg.
The Financial Accounting Standards Board announced the change in September, which means U.S. companies will next year need to record the funded status of their defined benefit pension plans on their balance sheets. In an SEC filing made last Friday, Citigroup said the accounting change would lead to a reduction of approximately $2.2 billion in Citigroup's year-end stockholders' equity.