In October 2013, The Banker Magazine named Citi,
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Most Innovative Investment Team
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Most Innovative Investment Bank for Equity-linked Products
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Most Innovative Investment Bank for Equities and Initial Public Offerings
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Most Innovative Investment Bank for Prime Brokerage
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Most Innovative Investment Bank for Risk Management
A panel of industry experts decided the awards. The selection was based on innovation-focused criteria around transactions, products and strategy. Citi was praised specifically for focusing on delivering “cross-asset client solutions” and the breadth of its franchise enabling the bank to complete “breakthrough” transactions in new markets (The Banker Magazine, 2013).
As a proud alum of Citigroup, a private investor, and business leader, these awards are worth noting and discussion.
POWER BROKER. POWER BANK.
For 20 years, I have built my career in financial services working for some of the most venerable and profitable financial firms on the Global Fortune 500 List. As an alum of Morgan Stanley, Citigroup, JPMorgan Chase & Co., Bank of America, and Capital One Financial, I look to see what these firms are doing consistently to prove my hypothesis:
Creative Sales Strategy + Defining and Solving the Right Problems + Cascading Innovation + Building Brand Leadership + Winning Employee Engagement Creates Breakthrough Sales, Revenue, Cost Savings, Consumer Loyalty, and Value for Multiple Stakeholders.
I derive this hypothesis from experience. This is not an academic exercise.
My experience teaches me that power banks and power brokers establish sales leadership and win by injecting creativity in the midst of uncertainty to shape a reality that is filled with excellence and boldness.
CREATIVE SALES STRATEGY
The case study I am going to use for my article is the work Citi Investment Bank did to win the Most Innovative Investment Bank for Equity-linked Products global award.
Ken Robins, head of equity capital markets (ECM) for Europe, the Middle East and Africa (EMEA) at Citi and his team assessed the market landscape to answer the question – how do we differentiate ourselves and provide solutions to our institutional clients that are relevant, given continued low interest rates across the developed world?
Traditional straight debt issuance is appealing to companies for capital raising purposes in a low interest rate – low coupon environment.
However, why not introduce equity-linked capabilities, given the market has been subdued? Who would be receptive? What would be the pros and cons of such an action? What is the profile of the client that would benefit from this sales strategy in the short-term and medium-term? Are competitors doing this? Should we compete with our competitors or should we make them irrelevant, by charting a new course?
When designing creative sales strategy, these are just a snapshot of questions needing answers. Citi Investment Bank had to ask and get answers to these types of questions to be recognized by The Banker Magazine, a division of The Financial Times Group.
DEFINING AND SOLVING THE RIGHT PROBLEMS
Problem Set:
High credit-rated companies question the benefits of going to the equity-linked market when they could raise capital through straight debt issuance, given depressed interest rates in the developed world.
On the other hand, unrated companies seeking access to fixed income markets, companies seeking to diversify investor base, and companies with volatile stock prices were prime targets. The focus was on A and BBB rated companies that could get high exchange premiums and low coupons.
Ken Robins and his team defined the challenge this vertical segment faced, measured the impact creative solutions would present to the vertical segment, analyzed the market and industry dynamics to test for the efficacy of their solution, ensured the product capabilities improved the client situation and industry position, and followed simple control measures to ensure the solutions met the needs of Citi Investment Bank concurrent with the needs of the clients.
These are very crucial steps Citi must have taken in order to create the award-winning value in the market and for their clients.
CASCADING INNOVATION
Creating the new and the different is the focus of Citi Investment Bank. After defining the right problem to solve, Citi Investment Bank deliberately chose to focus on a narrow band of corporates that they felt could benefit from their equity-linked market capabilities.
Convertible bond issuance, although not new, was the sexy, relevant, and innovative solution the identified niche needed.
The power of convertible bonds are they offer benefits to the company, whereby the company raises capital through debenture issuance, the company minimizes potential negative perception of its corporate actions from the investing public by issuing convertibles bonds versus equities ( when public companies issue equities the investing public may infer the company leadership and stock holders believe the company’s current price is overvalued ), the company receives exchange premium – the amount of the common stock plus the exchange premium percentage the investor must pay if they choose to convert the shares, and the company maintains control by incorporating call features in the debenture capping upside price movement thus profits, and limiting downside risk.
The power of convertible bonds to the investor include 1) A coupon (despite a low coupon, it is a coupon the issuer must pay) 2) Control – the investor can convert the bond to stock at will and benefit from the company’s rise in equity prices 3) Conversion ratio – the amount one bond can be exchanged for X amount of stock, 4) Profit taking – since the convertible performs like a stock and follows the underlying stock price, the investor has the ability to convert the bond to shares at a price potentially below market value and profit from the spread, and 5) Conservative to moderate capital market instrument because convertibles offer par value if underlying equity depreciates in value severely, and limits up-side if underlying equity value appreciates greatly.
The benefits of cascading innovation are challenging clients to see the world through new lenses and delivering excellence at multiple points, turning clients into advocates and fans. Citi Investment Bank did this eloquently, when they secured $475 million convertible bond for Severstal in September 2012 with a coupon of 1% and an exchange premium of 45%, the highest any European company had achieved in five years (The Banker, 2013).
BUILDING BRAND LEADERSHIP
The awards and global recognition clearly build Citi Investment Bank’s brand image, perceived quality, and confidence clients’, investors’, and employees’ hold in the capabilities of the business. In addition, company chief executives talk to one another. When you delight an industry and company, you create the opportunity to repeat this because of the need of business to always be competing and seeking competitive and comparative advantage. Comparative advantage nowadays may be considered a loss art, but companies that do not give up on this important pursuit reap differentiate brand loyalty.
In the case of Citi Investment Bank, the competition – Deutsche Bank and RBC Capital Markets – could have done the Severstal deal. However, Citi found a way to sell the convertible story, attractively price it, and win strong sale margins by focusing on comparative advantage.
SALES LEADERSHIP AND WINNING
You can be as innovative you want to be. You can create the new and different all day and night. Nevertheless, without a truly engaged workforce, a winning business culture, and a business climate that supports creativity, success will be sporadic. Product innovation, in the case with Citi Investment Bank, has to yield better than sporadic success.
To establish sales leadership and to win, companies or teams focus on what can be controlled, focus on execution, focus on taking smart, calculated risks, and focus on beating their competition. I like the Citi Investment Bank wins because they represent the best in banking.
Banking is about being where the growth is taking place within industries, connecting people and business to opportunities, enabling business and people to thrive, enabling economies to prosper, helping business and people live their fullest potential, and realize their aspirations.
For this reason, I am a global banker, and will always be a global banker.
Congratulations Citi Investment Bank for your success in 2013. May you have many more.
Reference
Citi Investment Bank. (2013). Retrieved April 13, 2014 from, http://icg.citi.com/icg/global_markets/prime_finance/au/press_room/2013/2013_10_04.jsp
Kimble Lewis & Company 