Citi’s Public Finance Exit Is Warning for Muni Banking Industry

Municipal bonds, often marketed by US banks as a do-good line of business, are taking a hit as Wall Street looks to cut costs.

Last week, Citigroup Inc. announced it would shutter its powerhouse municipal-bond department, marking the biggest departure of an underwriter since at least the 2008 financial crisis. The firm’s exit came after years of pressures that had already forced out some small shops.

Higher interest rates are largely to blame. US banks are struggling with a massive slowdown in investment banking revenue after a boom in 2021. They have been in cost-cutting mode, and public finance departments ...