Citi and UBS Financial Services Inc. entered a municipal distribution deal that will bring Citi's network of financial advisors to 17,000 brokers, and provide UBS's high net worth clients with access to Citi's new issue products.
The two companies have had a similar deal for secondary market trading for the past year. The additional primary market agreement means Citi will have access to the UBS Wealth Management Americas network of more than 7,000 financial advisors. The agreement is effective Jan. 16, the companies said in a press release Tuesday.
"Combining UBS's first class distribution capabilities with Citi's origination capabilities reinforces our open architecture strategy, which provides UBS Financial Advisors and their clients' access to a premium offering," Tom Troy, head of capital markets and sales for UBS Wealth Management Americas, said in a statement.
In June, Citigroup Inc. and Morgan Stanley completed a deal in which Citigroup sold its remaining share of a Morgan Stanley Smith Barney joint venture, relinquishing its hold on a wealth management business that provided Morgan Stanley with sole access to that group's brokers. The Citi-UBS agreement will give Citi access to new brokers in the retail investing space.
"More access to retail investors is always an important factor to our business," David Brownstein, co-head of public finance at Citi, said in an interview. "It's important to our issuer clients as we make sure they're accessing both retail and institutional investors, and the access to brokers allows us to have the most aggressive pricing when underwriting a new issue."
Prior to Tuesday's deal, Citi had access to the retail market through Citi Private Bank, Citi Wealth Management and TMC Bonds, an alternative trading system. Citi was senior manager to $26.6 billion of bonds by par amount by Sept. 30 of this year, claiming 11.2% of the market for underwriting, trailing only Bank of America Merrill Lynch and JPMorgan.
Retail investing in municipal securities and loans has fallen since 2009, with a dramatic drop from 2011 to 2012, according to Federal Reserve documents. Total assets in the household sector have fallen from $1.83 trillion in 2012 to $1.65 trillion in 2012. At the end of the third quarter of this year that figure was $1.64 trillion.
"We see retail demand in the market picking up," Brownstein said. "We still continue to believe retail order periods are an important component of a pricing, and that's part of what's driving this agreement."
Pricing a deal with a retail order period before institutional investors can claim bonds gives the market a chance to assess the value of the bonds, Brownstein said. The retail sale is helpful to a new issue's overall marketing process and gives investors time to review the bonds.