Consistency with quality
A broad product range, market longevity and an experienced team make Citigroup the challenger. Sailaja Maganti reports.
Market veteran of 21 years Colin Withers, managing director and head of short term products at challenger Citigroup heads all commercial paper business outside the US, which includes the UK, Hong Kong and Australian businesses. His team includes three traders and five salespeople in London, two salespeople and traders in Hong Kong and one in Sydney.
"We pride ourselves on consistency and longevity, our team of 14 personnel has over 230 years of experience in the money markets between them," he says.
With 579 dealerships and over 700 counterparties in 68 different countries, Citigroup is a formidable challenger.
"Even going back 15 years, we've always been a top two dealer," says Withers. "We've a broader client base, write a broader range of tickets and therefore take the top slot for client satisfaction. We provide an all-round global service, with consistency and quality. It is something we have been doing since the market started in 1985, ensuring both issuers and investors are happy."
Revenue is expected to be an average spread between 1bp to 2bp on turnover of about $95bn-$97bn.
Withers says one area where Citigroup has dominance is in the overnight business, with up to $1.5bn traded a day, accounting for 40%-50% of the market on some days.
He says Citigroup also gives clients a general service at the short end, anything from overnight to 12 months.
Last year witnessed the emergence of Middle Eastern issuers in the EuroCP market, alongside other emerging markets players.
"We'll be looking more to the emerging market area, the Middle Eastern banks have been on the radar screen as there have been three or four programmes from the region come to the market and one or two issuers from Russia and eastern Europe," says Withers.
"We still think there is interest in the non-investment grade as well, but it takes some convincing, as a lot of our money market funds have become more sophisticated in their credit analysis."
Withers says with the ever-increasing and changing structures in the asset backed CP area, there is more interest and variety alongside conduits and traditional structured investment vehicles. The market has experienced the evolution of repo arbitrage-type vehicles, some of which are put together by hedge funds. However, the market is concerned this has created a bubble which could burst.
Looking forward, Withers says the focus will be on new structures, bringing more innovation to investors and more impetus in smaller currency issuance.
Withers says many investors, particularly in the Asia Pacific region place large deposits with their local house banks and are looking for higher yield alternative investments, which is generating more interest in CP.
An issue which continues to plague the market is overcapacity, with banks struggling to justify their business to senior management.
However, Withers believes the market is set to grow quickly. "The EuroCP market has grown considerably to around $570bn in volumes, but is still junior compared to the $1.7tr US domestic market," he says.
"If you look at the volume of short term cash moving around the world it is greater than in the US. Logically our market should exceed the US market; there are a lot of upsides, it is just a question of when it happens."
Key staff: Colin Withers (head of short term products), David Hayes (head of London trading), Simon Fraser Allen (head of sales and investor marketing)
Front office headcount: 12
League table positions (2001-05): 1, 2, 2, 2, 2