|DATABASE: CITIGROUP PRIVATE BANK JAPAN - PERIOD II
Prior to FSA Second Inspection
Relevant excerpts taken from the interview material of that period
|07 August 03
.....Citibank is concentrating on its "VIP" clients in the affluent class ie JPY100m plus of financial assets. They are offered a full range of Citibank on-shore products and the emphasis is on return not only for the clients - but also for Citibank by its generous commission and fixed charge structure to nickel and dime the clients quite satisfactorily - Citibank has been in Japan for a century and has localised exceptionally well: a fully Japanese product in all meanings of the term, yet while still trumpeting its "foreigness" - a very clever piece of marketing presentation. Even cleverer is the Citibank acquisition of the Diners Card Japan franchise. In Japan, Diners is at the top end of the card business: members have to be over 33, own a house, be at least a bucho in a listed company, have at least ten years management of an unlisted company etc.....will take in anybody off the street and then plays around with green, gold, platinum colours etc. However, there is just the one Diners card in Japan.....
08 August 03
.....Citibank as a foreign bank has promoted itself vigorously and uses a financial planning story also, but essentially just markets its own financial products using the Diners Card data base.....Crudely speaking among the foreign players, Citibank is just touting its in- house products to the Diners card client base complete with commissions hidden and otherwise. It is not clear that Citibank is making much of a show of offering even entry level private banking services such as estate planning. For so-called private banking, Citibank holds some remarkably public seminars.....
11 August 03
.....An old friend from Sanyo days is now doing something at Citibank in private banking which means apparently punting clients into SITs etc which is retail business. Any personalised off-shore private banking seems to be handled under the current regime out of Hong Kong. Citibank itself, like any foreign company, has blown hot and cold on Japanese private banking having put a lot of personalised clients underwater through unwise off-shore property schemes - Gold Coast, Hawaii etc - during the Bubble and its aftermath. Personalised private banking got transferred off-shore in the mid-1990s and private banking erased from the corporate history, only to be resumed again in the late 1990s as on-shore retail private banking.....The friend is probably as unsure of his future as anyone in financial services.....
14 August 03
.....Among the usual suspects, Citibank's apparent success is noteworthy: but for all the wrong reasons. A new hire has been decided from Citibank and this supports the Bank's story perfectly: the excellent man coming on board has been unhappy about the sell-side nature of Citibank. From the outside, Citibank does indeed look successful and is up there in numbers, results, seminars and general razzamatazz. However, from the inside there is clear client disquiet about it being localised as a Japanese-style securities house complete with shades of Japanese-style client churning and burning for commissions and other charges purposes. Fixed charges are strongly objected to and hidden commissions and turns are the Japanese way. The Bank is countering Citibank by a policy of total transparency in costs - cost accountability - and in the quality of the client carry service. There is a mix of SITs, hedge funds and private equity opportunities. There are no local funds. It is a clean on-shore client-oriented operation.....
20 August 03
.....Citibank had run an off-shore-style private banking operation on- shore Japan in Otemachi from the mid-1980s, but had managed to put a lot of clients underwater and the whole thing got closed down/moved off-shore ten years later. Then in a typically sudden foreign switch, and within a mere three years at that, it all got re- opened again as an on-shore-style operation on-shore Japan in the same Otemachi area: in fact diagonally across the big Eitai-dori crossroad from the prior location and just inside Marunouchi. Citibank is going for the top-end customer using the Diners Club member list. At the same time, several of the retail branches were closed and there was a surreptitious shedding of the low-end customer base. Citibank is clearly looking at the affluent base, fuyuso, and giving them favourable product terms. This is the petit rentier class the so-called puchi shisanka. No doubt Citibank on its home turf cannot pick and choose so easily and has to get involved with the US mass market and boring settlement business etc. Overseas it can pick and choose its strategic options and is so doing. Another example of foreign management blowing hot and cold in rapid succession is Citibank's entry into the housing loan market: at the same time as re-entering the Private Banking field, there was lot of the usual razzamatazz in the specialist press about Citibank entering the housing loan market honkakuteki/in a big way. This seemed to mean, in practice, Citibank starting buying market share by dumping housing loans in the late 1990s. Then suddenly after a mere three years again, it stopped and starting wrapping up the loans in securitisation packages and selling them off. It is now out of the home loans business.....
25 August 03
Foreign Private Banker
.....Coming in as an investment banker or as a Citibank is not private banking.....is offering high risk products to a selected few and Citibank is aiming at the retail market and offering middle risk products to the many and both are in their own ways confusing what private banking is in people's minds.....is very low profile now. Citibank remains excessively high profile. The various parts of Citibank fire off with their various products and it is a very localised operation: not much better than what the Japanese institutions are providing quite frankly. It is wise to stand back and look at the global trends of regulation: overwhelmingly the regulatory emphasis is on protecting the buyer of financial products in the reasonable assumption that the seller has the edge in sophistication and can exploit institutional credibility and standing. Therefore, and obviously, client-focussed Asset Protection Services offered through an account with a licensed on-shore trust bank are the way forward. While in Japan the matter is not being viewed systematically, the same forces are possibly even more extreme as disintermediation tips the ultimate investor out of bank deposits into securities and even worse into derivatives. Citibank is force feeding its clients its in-house products, not only is it like a Japanese securities house complete with sales targets, noruma, etc, but it has got the regulatory trend wrong as it is clearly emphasising its own interests so strongly. It is apparently successful as it has clearly isolated a moderately affluent class and big money is being turned over. It is a distortion of the concept of private banking and is little better than what the churn-and-burn securities houses offered: only the Japanese brokers at least tailored the product into a great variety of lot sizes for effective client segmentation. Neither Citibank nor.....is putting the trust bank at the centre of their private banking efforts: Citibank is just the Citibank catalogue of products as above and.....would appear to have an even weaker catalogue of products - deposits, forex and loans. Neither offer personalised services.....The trust banks offer seminars on estate planning, will trusts etc, but potential clients are wary about being seen at such gatherings as the word soon gets around that they are "in the market" and they then get pestered as listings get copied around.....Obviously Citibank product selling is part of the pestering problem. There is just a simple conflict of interest. There has been the Bubble damage done to private banking in Japan: Citibank was notably active in that market with at-the-worst forex unhedged oversea property acquisitions in Japanese micro-markets - Gold Coast, Waikiki, etc - funded on loans against Japanese property collateral that itself went South with the Bubble. Now there are the derivative products being sold to people who think they are getting a bargain, but are being locked into 15 year blocked products that will spell disaster when interest rates normalise. Once again Citibank is active so there will be unwanted private banking fallout. Customers are not sophisticated and do not understand the complexities of the hedge funds etc being offered. If one has been in finance for any length of time, then one develops a nose for what is reasonable. Immediately one is into stripped bonds and multiyear lockaways it is obviously fishy. The schemes are all the same. Isle of Man insurance bonds for the expatriate market are just one of many of these fishy products that are designed to generate high commissions for the seller and so inevitably have to squeeze the buyer.....
26 August 03
.....Private banking in Japan.....quickly becomes something like Citibank and the retail marketing of standard financial products to a moderately affluent customer base.....
27 August 03
.....Citibank is promoting its in-house SIT and derivative products pretty aggressively by all accounts. As the branch of Citibank NA which has a large balance sheet, fairly hair raising sizes of loans are also made to clients even to gear up on the SIT and derivative products. The loan business is particularly high margin and, while this kind of aggressive US-style private banking is profitable for Citibank, it exposes the client to massive risk. If interest rates were to normalise "accidents/jiko" would soon occur in Marunouchi. That is quite clear. Am very critical of what Citibank is up to. It is creating the makings of a lot of adverse publicity about private banking in Japan. This is playing into the hands of the NTA that wants to keep the extent of private banking activities restricted. Citibank has got Cititrust which used to do some private banking work for the largest clients, but that has been switched over entirely to wholesale and individuals have been dropped. Given the variety of services that can be conveniently offered through a trust bank, that Citibank decision tells a lot about the quality of Citibank private banking.....
29 August 03
.....There is Citibank that is trumpeting about private banking, but its business is at bottom just the worst of the noruma practices of the old brokers. It is a disgrace. The leveraged structured products will eventually blow up in any normalisation of interest rates scenario.....
29 August 03
.....The US-style of private banking really means churning the client for commission revenue purposes. There is a conflict of interest and calling it private banking is a cheek. Citibank writes it "private banking", but it is pronounced "securities marketing". They are aiming at the puchi puchi shisanka having financial assets of JPY30m/40m and working them on the old noruma, sales target, system. Know a fair amount about Citibank because several of the personal clients are families spread between Japan and the US and they have accounts with Citibank for purely JPY/USD bank cash card convenience. They are bombarded with product offers in their account statements. It is rather like the local supermarket and the special offers of the week stuffed into everyone's mailbox on a Monday morning.....
03 Sep 03
.....People are always looking for the Holy Grail of low risk/high return and complain when they don't get it! Citibank is pandering to that psychology with its structured products and allegedly principal guaranteed etc. Am very critical of the advertising that is leading people astray and will lead to large losses on any normalisation of the interest rate situation. There should be some financial equivalent of the medical concept of informed consent! Citibank benefits from the strength of its US name value among a certain class of people. It is the old story, that in the battle of vested interest which has been the Japanese system, the producer interest wins against the consumer interest every time. Citibank has a learnt a trick or two and joined them rather than fighting them!.....
17 Sep 03
.....It is a question of means and ends. The private banker should clearly see the ends of private banking as preservation of family wealth, preservation of reputation, control of family breakdown etc and the means of private banking that are the catalogue of products, services etc. It is an issue of professionalism and the "Doctor's Dilemma" as highlighted by George Bernard Shaw. Citibank private banking is under a man who is a go-getter type and reputedly comes from a securities background. A close friend from LTCB days is manfully working there, but personally would not view it as private banking as it should properly be understood. They are pushing product and are all means and no ends. It is a retail securities operation and it is difficult to believe that they have any real leverage over the decision making of any half-way intelligent "flow" wealthy individuals. It is easy to manufacture attractive financial products, if you put your mind to it, and then there is the interest in recouping the investment by pushing them.....There should be the readiness to outsource whatever the client requires: that is what is done at the Bank and is the so-called European approach.....As opposed to the so-called US approach of pushing your own in-house product a la Citibank.....
22 September 03
.....The foreign banks, notably the ever-high profile Citibank in its prior Otemachi private banking incarnation, had become also involved in these gearing loans and in the handling of the execution of general off-shore property investments, larger scale DOI Forex Act provision off-shore/off-shore gifting tax avoidance schemes, smaller scale gifting by-hand of bearer bank debentures etc. These foreign banks got cold feet about the reputational risks involved. Already there were negative vibrations by the early 1990s as on- shore property collateral values plunged. Then from the mid-1990s, slowly the NTA investigations about "missing" family assets on the passing of an estate started and there were also messy court cases brought by aggrieved clients placed under water. It was something of a nightmare for much of the foreign senior management. A very clear line was drawn. The accounts were either closed or moved entirely off-shore and placed at client risk. They were, and still are, serviced, if at all, by the "fliers" accustomed to handling such client risk accounts from the old pre-Bubble days. Private banking is now more sedate: the management of financial assets with estate planning, tax efficient structures, off-shore vehicles etc.....emphasis on absolute return and structured products is to avoid downside risk simplistically and is a retail approach to marketing on a one-off basis - it will not get anyone very far in the long run - it is the current positioning of Citibank. It is all about the product - the means - and not the process - the ends - of private banking and family wealth preservation etc. In the 1980s Citibank was marketing the one-stop banking idea in the US and failed and that is what they are now trying in Japan. There is the conflict of interest of moving the products that you have invested in yourself via their production etc. Private banking targets are at the top end of the education spectrum and are aware of the conflicts involved and cannot feel happy with such a retail service. Doubt will move to rejection after some bad experiences and/or bad publicity. In summary the leading foreign players are : Citibank retailing in-house product and hopelessly conflicted.....
16 October 03
.....Many of the products peddled by the likes of Citibank are structured and hedge products and there is the "informed consent" issue. The material pushed under the nose of the prospective client is some really badly translated version of some foreign language contract with a lot of small type, long convoluted sentences and let- out clauses. The whole thing blows up and the let-out clauses are suddenly made apparent. The client naturally feels he has been comprehensively bilked, kono yaro!/yarareta!!, but nothing can be done. There is not yet a sufficient number of people with the experience to build up a critical mass for the rumours to spread and become a social issue.....The attitude must be the long term relationship and that means a low cost relationship as otherwise product-pushing obtrudes. Given the poor trend of tax revenues, the overall impression is that the NTA has been getting more difficult rather than less. Specifically in inheritance tax things have recently got quite difficult with a filing that would previously have gone through without any investigation now leading to investigation and even audit. Possibly this is part of the general trend of the NTA getting more difficult and exacerbated by NTA concerns about the impact of the first round of cowboy private banking products now surfacing in inheritance tax filings as the estates start to pass. Citibank has a lot to answer for in that respect as is so widely known in the market.....
16 October 03
Foreign Private Banker
.....The largely unremarked oddity of the current piece is Pictet. It is a mere skeleton office in Tokyo and has near-zero market profile, but truly massive Nikkei etc media interest and coverage. Maybe the Geneva museum piece that is Pictet private banking has been selected in some strange bureaucrat decision to have Pictet as the acceptable face of foreign private banking: it is so small scale and so unthreatening. There is the implicit heavy criticism of the US- style with Citibank in the pole position running through the pro- Pictet articles. If the authorities were to move on Citibank big time, as they apparently had for.....small time, there would be the cover of Pictet to demonstrate that it is not just a prejudice against foreign private banking per se, but a reasonable prejudice against inappropriate products and inappropriate marketing and all in the interests of bona fide investor protection.....
31 October 03
Is it correct that the IAC-licensed private banking players such as.....are favoured over the bank-licensed private banking players such as Citibank?
There are no restrictions on the entrance of foreign financial institutions into the Japanese financial markets and so when a foreign financial institution enters it must choose whatever particular licensing form appears to suit its market strategy. Advising customers on their investment portfolios or undertaking discretionary fund management means an IAC licence II or I respectively, while actually soliciting for foreign currency deposits and purchase of financial products in concentrating marketing efforts on the wealthy means a banking branch licence. Which particular licensed form of operation chosen determines the relevant legal requirements and a fair and transparent supervision and inspection regime is maintained.
What would be the response to a SITMC + IAC licensed financial institution that marketed deceptive financial products?
Deceptive, gokai sareyasui, is rather a loose expression. If for example the registration documents and prospectus contained factual discrepancies with the actual products in question, penalties under the Securities and Exchange Act would be considered. If there were no such factual discrepancies, but if intentional loss were caused to customers, penalties under the SITMC Act or other relevant act for breach of duty to the customer would be considered.
What would be done if a bank were to market deceptive financial products?
Penalties using the Bank Act, Financial Products Marketing Act, which has provisions for alleviating loss, investor protection etc, and other relevant legislation would be considered. A record of pursuing banks that have marketed deceptive products under the Bank Act has been established with Business Improvement Orders, Business Suspension Orders, Bank Licence Revocations etc
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