LONDON – Citigroup will shutter its municipal business, one of the most dramatic moves yet by chief executive officer Jane Fraser as she seeks to squeeze better returns out of the Wall Street giant.

The bank decided that the business, which has tumbled in the rankings for underwriting state and local debt, is “no longer viable given our commitment to increase the firm’s overall returns”, according to a memo to staff seen by Bloomberg News. 

Citigroup intends to complete the wind-down by the end of the first quarter and “as a result, most of our municipal sales, trading and banking colleagues will, unfortunately, be leaving Citi over the next few months”, Mr Andy Morton and Mr Peter Babej, the firm’s top trading executives, said in the memo. The move affects about 100 employees, according to a person familiar with the matter. 

Reports that Citigroup was deciding whether to exit a business it once dominated shocked the municipal market earlier in 2023. For decades, the bank was a powerhouse in the US$4 trillion (S$5.3 trillion) market for US state and local debt, helping on landmark projects including the rebuilding of the World Trade Center site.

But the unit’s fortunes have turned in recent years, and the division did not fit with Ms Fraser’s broader goal of making Citigroup the premier bank for large, multinational corporations. Texas politicians added another blow when they froze the bank out of a number of deals there because of its firearms policies. Texas is the No. 1 market for municipal sales in 2023, so the moves crimped the unit’s revenue and overall profitability.

The decision comes after months of intense deliberations inside Citigroup, according to people familiar with the matter, who asked not to be identified discussing private information. 

On one side were top trading executives, including Mr Morton and Mr Mickey Bhatia. They were keen to get out of the business because it was hurting the unit’s broader efforts to improve profitability. 

On the other side was Mr Ed Skyler, a key lieutenant of Ms Fraser and head of the firm’s enterprise services and public affairs division. To Mr Skyler, it was important for Citigroup to keep working on financing that leads to the building of bridges, roads, schools and hospitals across the United States. Not only did it help the bank make inroads with lawmakers, but it also gave Citigroup a tangible connection to the American public. 

Citigroup has spent years trying to convince Texas officials that its policies do not violate state law, which punishes banks if they discriminate against the firearms industry. In August, Ms Fraser and Mr Skyler even travelled there to meet Governor Greg Abbott about the bank’s continued commitment to the state, where the bank has 8,500 employees.

Ultimately, though, Ms Fraser’s aspiration to reach Citigroup’s new financial targets – whatever the cost – won out. The bank has repeatedly abandoned or missed targets over the years, and Ms Fraser is determined to restore investor confidence in its ability to set and meet guidance. The decision to shutter the municipal business comes after she already decided to exit more than a dozen retail bank operations in overseas markets. 

Citigroup will still work with transport and healthcare entities on public-private partnerships, and will also continue its work in the private placement market. The public-sector banking team will continue to work with clients to provide depository services, for example. 

The bank will also continue to invest in municipal bonds. The decision does not impact the Citi Community Capital team, which finances affordable housing projects across the US. 

“We will continue to support our municipal clients on all pending capital issuances, including execution of pipeline transactions as well as transition to other underwriters as appropriate,” the memo said. BLOOMBERG