Citigroup Loses Key Municipal Bankers to Jefferies Amidst Department Shakeup

A number of healthcare-focused bankers at Citigroup departed for competitor Jefferies Financial following discussions among the company's leadership about completely discontinuing the municipal banking division.

According to the story, which cited persons familiar with the subject, managing directors Brian Carlstead, Ben Klemz, and Katherine Meyers were among the roughly ten bankers who were leaving for Jefferies.

In response to a Reuters request, Citi did not respond. Jane Fraser, the CEO, has been considering closing the bank's origination and trading of municipal bonds.

The Texas attorney general has been investigating Citi's municipal offering business. In January, the attorney general suspended Citi's capacity to underwrite the majority of municipal bond offers in Texas, citing allegations that Citi had discriminated against the weapons industry.

A December Departure and Organizational Shifts

It is not common to hire a sizable team of bankers in December, one month before bonuses are distributed, as it is a costly endeavor. Ten bankers have reportedly left Citi for Jefferies thus late in the season, probably in part because Jefferies is eager to employ managing directors in large numbers and Citigroup is eager to get rid of them.

Why depart at this time? It might be related to Citi's reorganization. Specifically, it is most likely the outcome of rumors that Citi may eliminate its muni division, of which the team was a member, completely. Bloomberg revealed earlier this month that Jane Fraser, the CEO of Citi, had received a proposal from senior Citi officials to shut down the municipal bond division. There had been no choice made. It was thought that the organization wasn't lucrative enough.

Now the question is not if anyone wants them anyhow, but rather if more Citi muni employees would follow suit. Fraser should be happy that individuals are taking the initiative to close the company if she does decide to do so. She is losing bankers and co-heads for free without having to pay severance.

Last year, Citi shuttered its bespoke bond trading division for muni bonds and bought out the historic bonuses of over a dozen muni employees. In this sense, Jefferies takes full responsibility while Citi merely bids adieu.

According to Bloomberg, traditionally, when prices are low and there is less competition to buy assets, private equity companies have seen some of their highest profits during or after recessions. This may refer to 2024 or the years that will come after.

In contrast, it may take some time before those who switched to private equity in the last several years receive any carried interest. As Bloomberg reports, the internal rate of return for the 2021 vintage is now less than 5%. Between 2020 and 2022, private equity firms overpaid for assets, which they will find difficult to sell for a profit. Asset prices are still high at the time. That might soon change.