NEW YORK – Citigroup has decided to exit the distressed debt trading business, the latest retrenchment in chief executive Jane Fraser’s effort to reshape the firm in pursuit of higher returns.

The move, described by people briefed on the matter, will remove one of the key players in distressed debt markets, and follows a recent decision by the New York-based bank to get out of municipal bond trading and underwriting. 

Closing the distressed debt business will impact roughly 20 positions, one of the people said, asking not to be identified because this information is not public.

A company spokesperson declined to comment. 

Ms Fraser announced in September that she is undertaking the biggest restructuring of Citigroup in decades to make the company more efficient and eliminate layers of management within the bank’s 240,000-person workforce.

The firm has repeatedly abandoned or missed targets over the years, and Ms Fraser is determined to restore investor confidence in the company’s ability to set and meet guidance.

Distressed trading can be volatile, with outsized performance one year potentially followed by leaner times. The business at Citigroup outperformed in 2021 and slowed significantly in the two years after that, two of the people said. 

Bank of America and Goldman Sachs Group are among the other participants in the market known for their distressed franchises, a field that has dwindled to only a few big sell-side players globally, the people said. 

Citigroup also has seen a number of senior exits from that business.

That included the two former co-heads – Mr Olaf Auerbach, who left in 2022, and Mr Pete Hall, who departed earlier in 2023.

Distressed debt investors often hunt for troubled borrowers whose bonds or loans have fallen to below 70 cents on the dollar.

Most credits require deep analysis, understanding both the financials and legal agreements that can determine who gets paid what in the event of a bankruptcy proceeding.

Traders and analysts specialising in distressed debt are a key resource for buy-side firms, often providing advice on when a discount is enough to warrant the risk.

In a market sell-off, so-called bargain hunters can profit from buying credit for cheap, as long as it does not go further south.

About US$260.4 billion (S$346.4 billion) of dollar-denominated corporate bonds and loans in the Americas traded at distressed levels in the week ended Dec 15, a 5 per cent increase from a week earlier, Bloomberg-compiled data showed.

Trading illiquid company borrowings is also a capital-intensive business under regulations aimed at ensuring banks can withstand unexpected hits. New rules are likely to impose a greater capital burden on such units.

Citigroup also carries the tag of being the only major US bank whose stock is trading below where it was five years ago.

The collapse in the firm’s price-to-book ratio to 0.5 signals investor concern, showing shareholders value the company at about half of what its accountants say it is worth. 

As Ms Fraser’s restructuring of the embattled bank takes shape, the decisions show Citi’s willingness to part with certain franchises, even if they are competitive, in the pursuit of lifting returns in line with major US peers.

Some of the other moves have already included offloading retail-banking units outside the United States, as well as embarking on a major restructuring of management accompanied by job cuts. BLOOMBERG