ABFJ: What drew you to Citi Commercial Bank in particular?
JD: Citi being a very large, international bank, I felt that it was a good opportunity to start a platform on the middle-market ABL side. We could really use our brand awareness and our globality to make an impact for businesses in the U.S. and then businesses internationally as well in the middle-market to mid-corporate space.
ABFJ: Citi Commercial Bank is looking to enhance and expand lending to middle-market and mid-corporate U.S. businesses seeking revolving lines and term loans based on underlying assets. Can you talk about your plans with respect to this initiative and some of your goals in general for the ABL team?
JD: When Citi Commercial Bank was looking to expand, it looked at different areas where it felt there were gaps in its product offerings, and asset-based lending was one of them. So with that as a backdrop, the initiative started about two years ago with the formulation of our asset-based credit policy for the middle-market segment within Citi’s Commercial Bank. And from that, Citi was able to set up an ABL product. Next, we strategically decided to build a strong credit and underwriting platform before actively engaging in the origination of new loans. We accomplished this, as well as installed a Stocky-based operating system during the fourth quarter of 2012.
I joined in January of 2013 to start building out an originations team to complement what Miles McManus, our head of underwriting, and Rich Levenson, our head of portfolio management team, had set up in their functional areas. So we methodically started hiring business development officers in key markets to build the business and get new loans and new clients on the books. We’ve hired 14 ABL specialists and trained close to 100 commercial bankers throughout the country. That said, we have started to reap the rewards of all of that infrastructure build-out. The goal for next year is more of the same with regard to strategically expanding in cities where we have a large presence of commercial bankers. We’ll then add the ABL specialists into those markets to be the resident subject matter experts to complement the commercial bankers.
ABFJ: How will Citi Commercial ABL differentiate itself in the market?
JD: Our global offering is second to no one. We operate commercial banks in more than 30 countries. The corporate bank operates in well over 150 countries. We are very focused on helping companies that have global needs domestically and the desire to expand into international areas. The asset-based product has been in existence at our firm for over 25 years, so we are going to take the best practices used by our large corporate group and filter that down into a middle-market and mid-corporate clientele base.
ABFJ: Can you provide some insights into Citi’s go-to-market strategy?
JD: The asset-based group works as a product partner of the commercial bank, and as noted earlier, we have close to 100 relationship managers in key cities throughout the country. We would work with them to maximize clientele in the geographic regions that have a need for an asset-based facility. We’ll help identify those clients directly on behalf of the relationship managers, and the relationship managers may find opportunities that need an asset-based structuring and will call us. It’s a two-way street. On a go-forward basis, ABL manages the underwriting and the credit approval process, which is done by our people in the asset-based group because it’s a specialized need. So we seamlessly go from a new client origination to helping structure, underwrite and close the deal. Then the credit is managed by the ABL team in conjunction with our relationship managers who are in different cities throughout the country.
ABFJ: You will be working with Citi veteran Miles McManus, the ABL group’s national underwriting manager, and Rich Levenson, national portfolio manager, in addition to three new regional senior business development officers appointed to the expanded ABL team. What are some first steps you have planned for working with the new and long-time ABL team members?
JD: Miles, Rich and I have been working together at Citi for close to a year now. We worked together previously for a couple of decades as business partners at other organizations, so we’ve worked very well together for a long time. We see each other and engage frequently on the best alternatives for our clients. With the new originations team brought on this year, we’ve worked very closely on many deals already, and we’ve closed many already. So we’ve jelled very quickly. One of our longer-term goals — three to five years — is to continue the expansion under each functional team. Miles currently has the majority of people under him so we’ve already built a very strong underwriting team. We have expanded our portfolio management team under Rich in a very short period of time because the need arose from the new client acquisition activity in 2013. Next year we will be continuing to expand the originations team.
ABFJ: You have more than 30 years of experience working in the ABL industry. How will your past experience influence your new post heading up the ABL team at Citi Commercial Bank?
JD: I’ve been fortunate to work in many different areas in the asset-based field — operations, field examinations, underwriting, portfolio management, workout, underwriting manager, team leader on the portfolio side, heading up business development. So all of the experience over these years gave me great insight on what it takes to generate new clients and how to manage them going forward. It’s invaluable to have that knowledge and be able to take it to the next level. My leadership experience has been growing through the last three decades, and to take all of that into what we do for our clients is really what I’m trying to achieve. We want to be thought leaders for our new clients, existing clients and also for our organization as we continue to grow.
ABFJ: What lies ahead for ABL in 2014?
JD: In 2014, I feel that we are going to see a very similar playing field as we do today. The economy will continue its slow growth, albeit modestly better in 2014. That should equate into more opportunities for the asset-based product, as companies need to expand their inventory levels to meet higher sales demand. Those are the critical types of assets that we finance: trading assets. I think there should be additional M&A activity that does materialize in 2014, and that will be a positive impact for the asset-based lending community in general. For Citi ABL, this first year of our re-launch in this product area has been excellent. Next year, I feel that we’re going to continue to build on the momentum and expand into other areas that we have not really played in this year — industries such as energy, perhaps a little bit more into the aerospace and also further deepening into the retail side.
ABFJ: What do you see as challenges for the ABL industry over the next year and beyond?
JD: One is that general economic activity has been in a slow-growth environment. Another challenge is many new entrants in the asset-based lending field. There will continue to be an imbalance between loan demand and the supply of liquidity. These challenges will continue to constrain returns, as well as put pressure on loan structures. I don’t see these issues reversing or abating in the near future. One other aspect that’s important to note is significant new lending guidelines and requirements have come up from the regulatory bodies. These new guidelines and requirements will need to be interpreted and digested by regulated banks, and may result in another set of challenges for the ABL industry. The new guidelines and requirements may require holding more capital against loans and have an unintended consequence of favoring non-regulated institutions.
ABFJ: Is there anything else you would like to mention about your new post at Citi Commercial Bank or about the ABL industry in general?
JD: I’d like to reinforce the potential of the asset-based product as a great option for companies that have not been in this type of structure. ABL clients get a very efficiently priced alternative and can leverage their trading assets more in an asset-based facility than they could in a traditional bank facility. So as we move out of the post-recession economy we’re looking for further growth in the ABL industry. I see that the asset-based industry will come up with dynamic alternatives to serve companies for many years in the future, and continue to grow and prosper.
Jill Hoffman is editor of ABF Journal.