Private Banks Put Clients First… After Products
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| Associated Press |
| Sallie Krawcheck |
Private banks like to say they put their clients first. But the resignation of Sallie Krawcheck from Citigroup shows that products often get first priority.
An article in today?s Wall Street Journal by my colleague David Enrich says Ms. Krawcheck–probably the highest-ranking woman on Wall Street–resigned over a spat with Citigroup CEO Vikram Pandit. Ms. Krawcheck was a fierce advocate for her clients, demanding the Citigroup reimburse wealthy clients who were sold bad investments like Citigroup’s in-house hedge funds and auction-rate securities.
“Ms. Krawcheck grew frustrated with Citigroup’s efforts to push the investment bank’s products through Smith Barney and the private bank, according to people familiar with the matter.”
Her opponents say Ms. Krawcheck was too provincial, focusing too narrowly on her own clients at the expense of the larger bank. And Citigroup has been better than many firms in reimbursing clients for their losses from hedge fund investments and purchases of auction-rate securities. At a time when Citigroup’s balance sheet is stretched, such measures are especially praiseworthy.
But the choice between clients’ and the bank’s interests shouldn?t be a choice. Wealth management remains one of the few stable and profitable areas of banking. The key to keeping rich investors as clients is to take the long view, accepting the occasional missed trade today for 20 years of steady fees later.
The “jam and cram” school of investment banking–pushing a financial product that the bank needs to sell rather than one the client needs to buy–is profitable in the short term. But it can be deadly in the long term.
It is no wonder that multifamily offices and wealth-management boutiques are thriving. In the coming months, wealthy clients are going to be on a rampage because of the poor performances of many of their investments. Many will rightly blame the conflicts of interest between in-house product manufacturing and distribution to wealthy clients. The wealthy have plenty of choices when it comes to their business.
And with all the independent wealth-management firms looking for client-centric executives, Sallie Krawcheck probably won’t have a tough time finding a new job.
Tags: ranking, Hedge Funds, Vikram Pandit, Investment Bank, Balance Sheet, Poor Performance, Hedge Fund, Lame
