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October 17, 2011

Nous of Fraser

By Spear's

She rebuilt Citi on the rock and roll of the credit crunch and now leads its private bank. Jane Fraser talks to Josh Spero about Greece, China and her half-pregnant rivals

She rebuilt Citi on the rock and roll of the credit crunch and now leads its private bank. Jane Fraser talks to Josh Spero about Greece, China and her half-pregnant rivals
THE GAP BETWEEN the lightning and the thunder was a matter of milliseconds, which meant that the storm was right above me. As if the speeding sheets of rain pummelling Canada Square and the gusts threatening to lift my phone out of my hands (I really can’t go without Twitter even while getting an apocalyptic drenching) weren’t signs enough, I could see the lightning cracking down above the tip of Canary Wharf. If Jerry Bruckheimer were to direct an English summer storm, this would be it.

The view from Jane Fraser’s office on the 42nd floor of the Citigroup Centre was no brighter and if anything more worrying for being closer to the clouds. But the storm was, at least, outside. Not so three years ago, when Fraser was part of the team which had to attempt to turn Citi from a fallen giant, rescued only by the US government’s $45 billion bailout and its $130 billion capital raising, into a bank which could function on its own, then and for the future.

Citi was only one thunderclap among many, of course. When I ask if she stood by her window and stared at London stretching for miles beneath her and considered that the financial system might go down, she says: ‘It did go down.’

The trauma of that period, when Fraser led the company’s re-engineering and ran the divestiture programme which sold off one-third of the company, is not hidden within Citi, even as bravado has reappeared elsewhere and most bankers ignore their own toxic liabilities and gleefully pile on to European nations. Were there moments of terror? ‘Yes!’ she says forcefully. ‘Absolutely. At times it looked like the financial system would not recover. Until we had some of the basic frameworks put in place, there was a long period of time, even though it wasn’t that long in terms of days — each day was a dog year — that there was terror, there was real fear.’

What didn’t kill Citi, of course, has made it much stronger. Instead of staying as a bank which pumps out products from its investment arm to its private-client arm, it chose to sell its asset-management business and give Citi Private Bank an open architecture platform to take advantage of its global reach and service its clients, who include a third of the Forbes billionaires.

Fraser is amused at the predicament this puts her rivals in: ‘Most of the market are sitting half-pregnant — and that’s very uncomfortable — because either you’re distribution for your asset-management business or as a private bank you’re the icing on the cake.’ So new regulation separating banks and ring-fencing deposits holds no fear? ‘The Dodd-Frank, the Volckers, the rest don’t cause issues for the private bank at all, I’m glad to say. If anything they’re a competitive advantage for us. It’s a way of building trust with clients — you’ve got to eliminate conflicts. We’ve got rid of all of our compensation structures where anyone was paid on a formula and we now use a score card. If you don’t have your own products on a platform, you’ll tell a client when to sell, not just when to buy.’

Fraser has the evangelical air of a recovering sinner (not personally, you understand, but corporately). Too many other banks, she says, are ignoring past vices: ‘There were a lot of things swept under the carpet in Europe, pretended not to be a problem, that are still there to be tackled. There are a lot of assets sitting on the balance sheet that were not marked to market, or they’re at a price that’s unrealistic, or they weren’t restructured.’ But Citi did. ‘It’s so nice to come to work and know that the restructuring phase is done, it’s behind you and you can look at the future.’

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But what about the clients — are they looking to the future or are many still aggrieved? This year’s Capgemini/Merrill Lynch World Wealth Report had the frankly incredible figures that 98 per cent of HNW clients have trust and confidence in their financial advisers and 88 per cent in wealth-management firms. These absurd figures make more sense when you see that the question was asked of financial advisers themselves.

When I put them to Fraser, she is derisive. ‘Delusional! It’s delusional. You can’t regain trust in that short a period. It takes a long time and it needs an awful lot of nurturing. If you go out and ask the man in the street, do they trust the banks? No.’ What about the man on Sloane Street? ‘The man on Sloane Street as well. [People’s wealth] was threatened very significantly in the financial crisis and it will take more than three years for people to feel that they can truly trust financial institutions and their advisers again.’ Individuals may have served their clients well, she says, but institutions are leagues behind.
THIS TALK OF disaster and renaissance fits well with the other half of our conversation, about China’s rise and Europe’s crises. When we meet, Fraser has returned from a trip which took in Chongqing, with its 29 million people, Chengdu, Beijing, Athens, Brazil and Chile, a global span of growth hotspots and strife-ridden flashpoints.

Although Citi has been in China for over a century, only recently has it proved a boom market. Its clients outside Beijing — 35-45, mainly Mandarin-speaking, running large businesses — ‘have got richer faster than they could imagine, they’re riding a labour price arbitrage beyond anything we’ve ever seen before. It feels a bit like the internet boom in the States in the late Nineties, when by the time you’d shaved you’d made your first $20 million. China has that same excitement about it.’

The excitement, though, is not free from concern. The annual churn in China’s ten wealthiest individuals, as reported by Hurun magazine, is astonishing, and HNWs who become too overbearing or politically active may wind up in jail or be deprived of their businesses (see Spear’s issue 17). Mainland Chinese now try to ensure 15-20 per cent of their wealth is held offshore, frequently through an IPO in Hong Kong — just in case. It is not fear but caution, Fraser says.

There is plenty of ambition, too, in certain parts: ‘You tend to see in north Asia there is still a trading mentality and so there’s much more of a drive towards taking risk and playing in the stock market and participating that way. South-East Asia is more conservative.’ The risk-taking is contrasted not just with the rest of Asia but with America too, where wealth preservation, rather than creation, is now key, especially as family businesses have generally long since passed into public hands. Chinese businesses, on the other hand, are frequently still run by the founding entrepreneur.

China may continue its climb up the GDP table, but it will suffer from some of the same problems the West has if social inequality grows. It is not enough that the wealthy get wealthier: everyone’s standard of living has to rise at a similar rate. ‘You see this everywhere: Saudi, all around the world. Where the standard of living is rising, where you’re seeing good growth into the middle classes and a fair access to jobs for the middle class rather than the few, which was the problem we saw in Egypt, you tend to see greater stability. When that equation starts getting awry is when you see problems.’ (see Stewart Lansley’s article on inequality)

There is a certain self-interest in Europeans wishing for Chinese growth. After all, China seems willing to swallow the debt of certain European countries which is making our bankers bilious. But that is not the answer: Europe must grow its way out of its problems, says Fraser. So what would she do if made president of Europe tomorrow? ‘I would suggest young talent left the region immediately for Asia. I am incompetent to answer that question because it is so hard.’ (One could argue Europe’s current leaders are incompetent to answer it too.)

But she does go on to draw on her own experience at Citi, which went through the sort of painful restructuring Europe’s leaders are now pretending they can avoid: ‘We did a very radical restructuring of our bank, but we were able to do so by selling large parts of it. It’s a lot easier to restructure a company than it is to restructure a country, and it’s very hard to restructure a country when the currency is in effect someone else’s currency. You’ve got to have people who are in a tough economic position bailing out those in an even tougher one, and I think electorally it’s going to be very challenging indeed to get that through. It’s going to take a heck of a long time.’

Fraser, who is fond of polite swears such as ‘heck’ and ‘damn’ (‘We’re working damn hard to make sure we never do anything like that again’), is concerned both for her clients, whose wealth may be severely affected by another recession or even a depression, and for the rest of the populace, especially the middle classes in the developed world. If our middle class and the recently revolting underclass keep seeing the wealthy race ahead, Fraser’s concerns may be further justified.

A CONTEMPORARY BANALITY of the credit crunch was that Lehman Sisters would never have collapsed because women manage risk in a very different way. Although Fraser dismisses this (‘If you’ll pardon the expression, it’s a load of rubbish’), she concedes that women do approach things differently. ‘Do I think there are some skill sets that women tend to have more developed? Yes. Do I think that means Lehman Brothers wouldn’t have gone down? No. Many of our top professionals are women because you put them into some of the tough situations, family dynamics which are very contentious, the same as in some of the negotiations that we had to go through in the M&A world and restructuring Citi, and there’s an ability to take some of the male dynamics out of the equation.’ A broader diversity is key, though, and Fraser points to a company run by Vikram and Jane and Brian and José and Shengman.

She does say that being a woman in banking can make you more noticeable. Especially, I observe, in a bright pink dress like the one she is wearing. ‘I find it soul-destroying. You come up in Canary Wharf tube in the morning and everyone’s in black, so I always think, “Bugger that, I’ll wear something cheery.”’ Fraser has certainly earned her cheer.

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