Deal Would Fill Key Gaps at Citi, Bisys: Bank Catches Up in a Growth Line; Vendor Rounds out Its Menu

By Bills, Steve; Mazzucca, Tim | American Banker, May 3, 2007 | Go to article overview

Deal Would Fill Key Gaps at Citi, Bisys: Bank Catches Up in a Growth Line; Vendor Rounds out Its Menu


Bills, Steve, Mazzucca, Tim, American Banker


Bisys Group Inc.'s deal to sell itself to Citigroup Inc. illustrates something many in the industry have already concluded: Offering fund-servicing capabilities has become the province of diversified financial services companies.

Couple the $1.4 billion deal Citigroup announced Wednesday for Bisys with its deal last month to buy Old Lane Partners LP, and it's clear the nation's largest banking company intends to establish itself as one of those companies, and one that has a far deeper penetration into the broad business of serving hedge funds.

Citi is making its push into alternative investments, both as provider and servicer, as investors pressure the $2 trillion-asset company to boost revenue. It is an area where Citi is playing a bit of catch-up to JPMorgan Chase & Co., and both commercial banking firms lag the investment banks like Goldman Sachs Group Inc. and Morgan Stanley.

JPMorgan Chase purchased the middle-office and back-office operations of the Greenwich, Conn., hedge fund shop Paloma Partners Management Co. last year and the Irish hedge fund administrator Tranaut Fund Administration Ltd. in 2004.

Those purchases, along with the Bisys deal, are "clearly an indication" that big banking companies "see a huge amount of opportunity in the hedge fund administration business," said Matthew Nelson, an analyst in the investment management practice at TowerGroup, a Needham, Mass., independent research group owned by MasterCard Inc.

Though buying Bisys would lift Citi's technology and services capabilities, the deal also is a way out for Bisys, which by its own account had been struggling to generate account growth.

Robert J. Casale, Bisys' chairman and interim president and chief executive officer, acknowledged in a conference call Wednesday that his company's fund-servicing business, one of the two operations that Citi plans to incorporate into its own investment services operation, is "experiencing weaker performance year-on-year." He also said margin pressure has driven down both revenue and profits.

In the alternative investment business, the other one Citi plans to absorb, "new client growth is currently slower than it would normally be," Mr. Casale said, and the new revenue the business is generating comes largely from current clients. (Citi said it would sell Bisys' retirement and insurance services divisions to J.C. Flowers & Co. for $800 million.)

William P. Neville, the president of Bisys' alternative investment business, said Citi's breadth of services could make a difference in returning to a better pace of client wins.

"We're fund accountants and fund administrators," he said. "What Citi provides is all the ancillary services that we cannot provide to the fund world."

Citi is approaching the hedge fund industry from both sides - improving its own funds' size and performance, along with selling products and services to other fund managers. …

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