If Muwaffak Bibi is in charge of your money, then you’re sitting on at least $25 million. The regional head of Citi Private Bank recently sat down with Executive to discuss where he would put that tidy sum and how the demands of high net-worth investor’s are evolving.
E What kind of presence does Citi have in Beirut?
We have had a presence since the 1950s and are mostly focused on corporate banking and investment banking. We cater to governments, to banks and to large multi-nationals and large corporations. We cover private banking also and we work very closely with the branch here, but we cover it mostly from offshore centers.
E How are high net-worth individuals (HNWIs) faring in the region?
This region in particular created a lot of excess wealth in the last 40 years as the oil boom started, and that has been reflected within the GCC but also [throughout the Middle East].
I would say that the growth in high net-worth individuals has been more significant in certain years than others. There is a new report by [Capgemini Worldwide], who consolidates all this information, and they showed a growth in 2009 of about 7 percent in high net-worth individuals in the Middle East versus in Asia, which was higher at 15 or 16 percent. So it fluctuates, but the most important thing is that the growth continues and it is sustainable because [it is tied] to oil wealth.
Our business is to be the window for investors globally. There is always excess liquidity that needs to be deployed in the international market, depending on where those opportunities are, and we would like to present ourselves as the bridge to those international opportunities.
E Are HNWIs increasingly choosing to be single-banked as opposed to multi-banked?
Not really. Our experience with HNWIs is that the usual average is four to five banks. Some might have more, some might have less, but I really find it very unusual [for HNWIs] to have only one bank.
E Why so many?
To get different ideas from different thinking. Usually they would like to deal with a Swiss [bank], to deal with an American [bank], to deal with a UK bank, so it is very typical that you have four or five banks in a portfolio.
E What sort of client base have you found in Beirut?
We have a large client base in Beirut as well as in the region. And obviously these days in Beirut there are a lot of the regional visitors coming in so we also meet a lot of our clients from the region in Beirut. People get bored on holiday and they want to think of ways to make money, so we’re there.
E How has the relationship between the HNWIs and the banks changed in the last two years?
I would say that given the depth of the crisis which all the financial institutions have gone through, and the decline that happened in different asset classes across the world — and I stress the word “across” because everywhere there was an impact, the magnitude differed, but everywhere there was an impact –– I would say a lot of the trust between clients and financial institutions has been impacted and I think we are now in the healing phase.
There was a schism that was created in that trust. I think people are coming back to see where the blame is. Is it really the banks to be blamed or is it the system? Of course, we think it is a bigger issue than just blaming the banks — not that the banks didn’t have a role to play.
Our clients… are coming back with more demand for information. [They are] looking at banks and saying “I want to know exactly what I am investing in.” [They are looking for] maybe a little more simplicity: a lot of fixed income and lot of direct equity investments are being proposed rather than funds per se.
But, bit by bit the appetite is coming back. Given that the interest rate environment of close to zero percent does not excite people to [keep] money as cash, everyone is looking at other alternatives. But they want to know exactly what those alternatives are and to be careful about who’s behind them.
E Are investors more interested in real assets as opposed to investment products and funds?
It depends on the client. We have seen clients buying more gold. We have seen clients being interested in real estate — that’s another important aspect if you are talking about inflationary fear, which we are not worried about immediately. But, if there are inflationary fears, real estate is a good hedge against that.
E Where is real estate still a viable investment?
The United Kingdom is a very common area that our investors look at [for real estate], particularly central London. We’ve done many deals there. The United States is now coming up in terms of opportunity because we think that commercial real estate has come down dramatically and continues to do so as we are talking. I think we’re starting to come up with ideas as to how to capture that for investors.
E Is it worrying that everyone seems to be turning their attention to UK real estate?
I don’t think so. There is no doubt that there has been an adjustment. If you took a property in Mayfair [an exclusive neighborhood in London] in 2006 or 2007 at the peak [of the crisis] and then looked at it in June of 2009 you probably had a 15 to 20 percent decline in value, but the surprising thing is between June 2009 and September or October, we saw the yields pick up dramatically because money started flowing in.
We think the reason our clients like London in particular is [because] it is very foreign-investor-friendly; the tax laws are very straight forward and more importantly, you have a lease structure of long-term leases of 15 and 20 years. For a lot of our investors this is like buying a bond with an underlying coupon with an appreciation in the capital value because London is limited — you don’t see cranes, you don’t see more buildings, there are a lot of building controls.
E How do you perceive Citi’s US government bailout and what is the status of repayment?
We looked at that as something that was fortunate for us. I always say it: if we were a bank that was incorporated in Iceland, we would not be sitting together now and having this discussion. We would have disappeared.
The government stepped in and supported us with the TARP money, [along with] 10 other institutions, because that was a very, very difficult and challenging time. We are fortunate and grateful to the taxpayers for the US support we got.
I am very pleased to say that we have paid back the TARP money as of the end of December and more importantly, the government had 27 percent ownership as common stock in Citi as of April and they have designated Morgan Stanley as an independent party to sell off their shareholding.
Their entry point is $3.25. The sale continues as we talk and we expect that by the end of the year the government will have sold for profit — which is good for the taxpayers — their share in Citi. But we are very, very grateful that we got that support.
E Do you feel that there is increasing competition in this region among banks competing for market share in private banking?
There is no doubt in my mind that during the past four or five years, even before the crisis, that a lot of institutions discovered the Middle East. And without naming institutions, without being derogatory, putting [signs] up and saying “I have opened a private bank for the Middle East” doesn’t mean you have a private bank.
Going and opening an office in the DIFC and saying “now we have Middle East representation” does not mean you are present in the Middle East. It takes a lot of years. We have had footprints for 50 years in the Middle East and it didn’t come easy. It came with a lot of work.
I’m not trying to be arrogant. I respect competition and I think it makes the best out of any institution. But, I can tell you, a lot of them are here for a very short period and they are going to disappear. It takes a lot of commitment and effort to stick around.