Citi’s Marc Luet banks on Aussie mergers and acquisitions, energy transition

Citi Australia chief Marc Luet has had a good week. Friday’s $21bn Santos and Oil Search merger will bump up the bank in Dealogic’s M&A rankings.

Marc Luet at home in Sydney this week: ‘We want to invest where we think we can win a disproportionate share of business.’ Picture: John Feder/The Australian

Citi Australia chief Marc Luet has had a good week. On Friday the $21bn Santos and Oil Search merger was sealed. Citi is advising Santos, which means a success fee handsome enough to trigger a loud ping back at headquarters at the Traveler’s Building in Lower Manhattan.

The deal will also bump up Citi Australia from its current fourth position in Dealogic’s M&A rankings.

Since his arrival in mid-2019, Luet has been on a path to reshape the bank under a global directive to be fit for purpose in the busy Australian market.

The Santos deal puts Citi exactly where the long-time Citi banker wants to be: at the centre of M&A activity and at the centre of energy transition finance.

In August Luet agreed on the sale of Citi Australia’s consumer banking business of credit cards and mortgages to NAB, a $1.2bn deal leaving it to focus on its institutional business, where it has 1500 clients.

Driving the deal is a strategic refresh under global CEO Jane Fraser announced in April. The group will continue to invest in the consumer end only in the US and Mexico and in global wealth out of London, Dubai, Hong Kong and Singapore.

“We are disengaging from the consumer in certain markets because globally we want to invest where we think we can win a disproportionate share of business,” Luet says. NAB will pay net assets plus a $250m premium for the consumer business.

“We are very pleased with the economics and this is someone who valued the entirety of our consumer franchise. It is not about selling a bit to someone and another bit to someone else.”

Luet says NAB’s reputation also brought confidence in execution of the deal, an important factor in the transfer of all the staff in the consumer business.

The deal is subject to regulatory approval, however, and the ACCC’s Rod Sims flagged in April that he would closely scrutinise a sale to one of the big four. Citi is the fifth largest issuer of credit cards. “There is a wide range of opinions out there thinking this deal will go through, but it’s fair to leave the ACCC mandate to look at the data and look at it thoroughly,” he said. If approved, the sale will close by the end of the first quarter 2022.

It will leave Citi Australia fully focused on the institutional business where it offers a smorgasbord of services from advisory and capital markets to FIG business and securities trading. Increasingly the bank is targeting medium-sized businesses with turnovers between $75m and $1bn, many of which Luet says want to expand internationally. There are now 200 clients in Citi’s Commercial Bank.

“They are looking for a bank that is able to serve them across these geographies for their everyday needs, trade services and transactional services. But it could be advisory as well and we are able to accompany them across the spectrum of activities.”

An 11-year Citi veteran, Luet has run some exotic country clusters including Russia, Ukraine, Kazakhstan, Poland, Turkey and Israel. “To me Australia is exotic,” he said. “I’m not saying being stationed in Russia for three years wasn’t exotic, especially because it was at the time of the annexation of Crimea and the US sanctions. It was a really difficult time.”

Arriving in Sydney in 2019, Luet says he caught the tail end of the royal commission, then bushfires and Covid. He holds ‘‘moderate’’ assumptions for the economy in 2022 with growth next year of 3.2-3.3 per cent. “The only question I have is, after so many false starts, whether consumption is going to rebound so forcefully.”

Where the action is hot is in mergers and acquisitions, fuelled by deal flow and the churn of aggressive players fighting for mandates. “The market has been buoyed in 2021 by some very large transactions,” says Luet. “If you look at the number of jumbo deals they run at twice the historic average, lifting the entire M&A market. I can see that continuing in the first part of 2022. People have sat on the sidelines for about two years and now conditions are right for these transactions.”

Investment banking in Australia has been in flux with banks like Lazard and Investec withdrawing and new businesses Jarden and Barrenjoey on the scene, bringing a frenzy of top talent poaching.

“Australia is a very lively market from that standpoint – always has been,” he says. “That’s why it’s one of the most important markets from an advisory and investment banking standpoint.”

Marc Luet has avoided any hollowing out of talent by the boutiques. Citi’s Alex Cartel, who led the Santos/Oil Search merger deal, was poached from Deutsche Bank to run investment banking in August 2020.

In June this year, Luet hired Jon Gidney from Greenhill (and earlier Caliburn) to run the Financial Institutions Group. Citi did lose head of research Craig Woolford to MST but replaced him with Paul McTaggert, who was head of metals and mining research at Citi and earlier head of research at Credit Suisse.

“I certainly respect Jarden and Barrenjoey for the quality bankers they have,” Luet says. “We have our own and they are equally as good locally, I like to think better, but we also bring the rest of the world to our clients. And that is something that I don’t think boutique funds can match.”

The Citi chief pitches the global connection the group offers clients, its big balance sheet for transactions and the expertise that can be drawn on from Citi offices around the world. “There might be global investors willing to invest in companies in Australia, or where there are assets available around the world, an idea we can bring to our Australian clients. What we bring is idiosyncratic to Citi and what we have built around the world,” he says.

Energy transition is today’s big theme. Because of its sheer size, some of the world’s largest carbon emitters are Citi clients. The group has a target to finance $250bn of transition investment from 2020 and 2025, building on its $100bn investment in the previous five years. In November CEO Jane Fraser will be at COP26 in Glasgow pushing climate finance.

In Australia, Citi’s ESG plays include funding listed miner IGO into Lithium, advising Woolworths on the Endeavour Drinks demerger and the Santos/Oil Search merger, where it argues scale will allow investment in CCS and the transition to hydrogen-based fuels.

“It’s about helping companies that want to transition and finding the global investor base that is going to fund their transition pathway,” he says.