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Citigroup (NYSE: C)
Q4 2023 Earnings Call
Jan 12, 2024, 12:00 p.m. ET

Key Highlights from Fourth-Quarter 2023 Earnings Call

Prepared Remarks:

Operator

Hello and welcome to Citi’s fourth-quarter 2023 earnings call. Today’s call will be hosted by Jen Landis, head of Citi’s investor relations. You may begin.

Jen Landis — Head of Investor Relations

Thank you, operator. Good afternoon, and thank you all for joining our fourth-quarter 2023 earnings call. I am joined today by our chief executive officer, Jane Fraser, and her chief financial officer, Mark Mason. I’d like to remind you that today’s presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And with that, I’ll turn it over to Jane.

Jane Fraser — Chief Executive Officer

Thank you, Jen, and a very happy New Year to everyone and I hope you all had a good break. At Citi, we’re back at it. And given the notable items and our new financial reporting structure, we’ve got a lot to cover today, so I’m going to get right to it. 2023 was a foundational year in which we made substantial progress simplifying Citi and executing the strategy we laid out at Investor Day.

With that said, the fourth quarter was clearly very disappointing. Today, I will provide a high-level view on our progress in 2023, discuss our Q4 results, and finish with our priorities for ’24. We know that 2024 is critical as we prepare to enter the next phase of our journey, and we are completely focused on delivering our medium-term targets and our transformation. So, turning to what we accomplished in terms of executing our strategy.

As you can see on Slide 5, in 2023, we saw a record year for services where we maintained our No. 1 ranking among large institutions in TTS, with client wins up 27% and a sustained win-loss rate above 80%. We’ve now gained over 100 basis points in share in security services since 2021. In wealth, we added an estimated 21 billion in net new assets during the year.

In USPB, we enjoyed our sixth consecutive quarter of growth, and we began to see the early fruits of our investments in key talent in banking. In September, we began the most consequential series of changes to the organization and the running of our firm since the aftermath of the financial crisis. We restructured around five core, interconnected businesses to align our organization to our business strategy and to provide greater transparency into their performance. You can now see in our financials the full-year returns and P&L by business.

While they are all impacted by investments and transformation expense, it is clear where we have work to do. The simplification of our organization structure will conclude at the end of the first quarter and will result in over $1 billion of run-rate saves from the net elimination of approximately 5,000 roles, mainly managers. As Mark will detail, this will contribute to the reduction of our expenses in ’24. Over the medium term, between simplification, benefits of the transformation, stranded costs, and other productivity efforts, we expect to eliminate 20,000 positions ex Mexico, resulting in over $2 billion in run rate saves.

Simplification is also enabling Citi to be more client-focused and less bureaucratic. Realizing the synergies between our five businesses is one of the key drivers to achieving our medium-term revenue target. With this new structure, I’m holding my business leaders accountable for enhancing connectivity across clients and products. In addition, having a chief client officer acts to ensure we’re disciplined in bringing the full power of our franchise to our clients.

We have now completed the divestitures of nine of our 14 international consumer franchises and have wound down nearly 70% of our total retail loans and deposits in Russia, Korea, and China. We’ve restarted the sales process in Poland and are well down the execution path for the Mexico IPO next year. We’re exiting marginal businesses such as munis and a subset of distressed debt trading to focus on our core strengths and allocate our capital with rigor. Now, without doubt, all these changes are difficult, but they are necessary.

At the same time, we continue to invest in our transformation, risk and control environment, and data architecture, and we were pleased to have closed the FX consent order with the Federal Reserve. We are committed to fulfilling the expectations of our regulators given the unique role we play in the global financial system. The modernization of our tech infrastructure is proceeding at pace, allowing us to deliver new capabilities to our clients. During the year, we consolidated trading and reporting platforms and retired 6% of our legacy applications for the second year in a row.

These enhancements dovetail with significant investments in our businesses, such as hiring commercial bankers to capture share, improving the digital payment capabilities we offer throughout our global network, and automating

Maintaining Steady Course Amidst Disappointing Fourth Quarter and Striding Toward Transformation in 2024

Our security services saw significant growth in 2023, thanks to share gains and client wins, but we couldn’t escape the impact of the Argentine devaluation. Despite a challenging period, the franchise managed to make strides with corporate clients and took strategic measures to improve returns.

While markets experienced a slowdown, the franchise showed a decent quarter in equities and witnessed growth in prime balances. Investment banking also made moderate gains for the year, positioning the company as the fifth-leading franchise. Despite this progress, there is an earnest aspiration to perform better in the future.

With increased CEO confidence and a promising pipeline, the company is poised to capitalize on the healthcare industry’s potential growth. Although wealth revenues saw a decline in 2023, the company is optimistic about the opportunities in wealth management, particularly in North America and Asia, where a substantial amount of wealth is yet to be tapped.

While reflecting on the year, the company acknowledges its role as a pillar of strength during volatile times in the banking sector and geopolitically. Looking forward to 2024, the company foresees a similar macro environment, with moderating rates and inflation. The management exudes confidence in navigating through the evolving capital and macro environments and leveraging its strengths to meet its medium-term return targets.

With a robust balance sheet, ample liquidity, and prudent risk management, the company appears well-prepared to support its clients regardless of the economic landscape. The upcoming year is regarded as a turning point, with the company gearing up to concentrate entirely on the performance of its five businesses and its transformation.

While the setbacks in the fourth quarter were painful, the company remains committed to returning capital to its shareholders. Despite the challenges, the company displayed resilience, and its focus is now on reaping the benefits of the actions taken through the momentum of its businesses.

Before delving into the financial results, the company disclosed some significant impacts on the quarter, including a substantial reserve build related to transfer risk and a negative revenue impact due to the devaluation of the Argentine currency. These factors contributed to a disappointing negative EPS for the quarter.

Despite the impediments, the company managed to show a 4% growth in revenues, excluding divestitures, for the full year in 2023. It also increased its CET1 ratio and tangible book value per share, showcasing financial prudence and growth. Furthermore, the company continued its commitment to returning capital to its shareholders through dividends and share buybacks.

With its sights set on 2024, the company is confident in its ability to adapt to the changing capital and macro environments. It remains steadfast in its pursuit of delivering returns to shareholders while focusing on the growth and transformation of its businesses. Overall, the company appears optimistic about its prospects, banking on continued revenue growth and the investments made in its transformation.

The Chief Financial Officer outlined the firmwide financial results, emphasizing year-over-year comparisons and detailing the notable impacts on the quarter. Despite these challenges, the company maintained a steady course and is poised to stride confidently into 2024.

The Battle for Growth: Financial Analysis for Fourth Quarter 2023

In the midst of a turbulent financial year, highlighted by a conflux of challenges, the fourth quarter financial results for the company provide a lens through which to evaluate the tumultuous conditions it faced. A net loss of $1.8 billion and a net loss per share of $1.16 on $17.4 billion of revenue delivered a startling blow to its shareholders. Challenges carried over from previous quarters plagued the company, with total revenues decreasing by 3% and expenses ascending to $16 billion, marking a 10% increase. As the company clings to buoyancy amidst stormy seas, an expert scrutiny of its financials are warranted.

Financial Results in Depth

Excluding divestiture-related impacts and the impact of the Argentina devaluation, revenues increased by 2%, propelled by strength in services, USPB, and investment banking, yet dwarfed by losses in markets and wealth management. The quarter witnessed total revenues coming in at $77.1 billion, lower than the projected $78 billion to $79 billion, a setback attributed to the thorny terrain of the Argentina devaluation, soft market performance in December, and losses on loan hedges. However, net interest income (NII) ex-markets remained constant at $47.6 billion, aligning with anticipated guidance.

Year-End Evaluation

Despite grappling with the tribulations of the challenging environment and the scourge of the Argentina devaluation, the company managed to eke out a firmwide revenue growth of 4% ex divestitures, aligning with the Investor Day target, a testament to the resilience of its diversified business model and strategic investments. Full-year expenses for 2023, excluding the FDIC special assessment and divestiture-related impacts, stayed within the boundaries of projected guidance at $54.3 billion. Notably, this feat encompassed restructuring costs amounting to approximately $780 million and additional severance costs around $730 million. Expenses surged due to transformation and business-led investments and volume-related expenses, offset by productivity savings and a reduction in expenses in legacy franchises within all other, showcasing the vast labyrinth of the company’s financial operations.

Technological Advancements

Over the last three years, the company has lavishly disbursed approximately $12 billion in technology, culminating in substantial investments in infrastructure, platforms, applications, processes, and data. Transformative investments were divvied up with a significant portion, nearly 30%, being allocated to technology. They witnessed a shift from consulting expenses to technology and compensation, indicative of the inexorable march toward execution of intricate transformations. These technological investments are not confined solely to transformation but also focus on digital innovation, new product development, client experience enhancements, and fortification of the infrastructure with cloud and cyber initiatives. Such input marks the company’s foray into uncharted realms to bolster its technological capabilities.

Quality and Resilience

Regarding key consumer and corporate credit metrics, within branded cards and retail services, nearly 80% of card loans target consumers with FICO scores of 680 or higher. As NCL rates reverted to pre-COVID levels, the company remains meticulously reserved, boasting a reserve-to-funded loan ratio of 7.7%. The corporate portfolio predominantly gravitates towards investment-grade, which materializes in its minuscule proportion of non-accrual loans at 63 basis points of total corporate loans. These indices bode well for the quality and the blend of the company’s portfolio, and furnish substantial reserves to weather the prevailing economic winds.

Balance Sheet and Resources

An imposing $2.4 trillion balance sheet, fashionably garnished with a well-diversified $1.3 trillion deposit base, underpins the company’s financial stature. With an abundance of institutional and operational deposits permeating across 90 countries, the company’s liquidity resources swell to $965 billion, revealing its robust financial moorings. The tangible book value per share at $86.19, flaunting a 6% rise, corroborates the company’s financial prowess. However, the liquidity coverage ratio (LCR) ebbed modestly to 116%, a minor blemish in an otherwise robust financial edifice.

Analyzing Citigroup’s Financial Results for Q4 2022

Seeing the Bigger Picture

In viewing Citigroup’s fourth quarter 2022 financial results, the 20 basis points increase in its Common Equity Tier 1 (CET1) capital ratio stands out. Although the company closed the quarter with a formidable 13.3% CET1 capital ratio, which is notably 100 basis points above its regulatory capital requirement, the underwhelming performance of its businesses is palpable.

Uncovering Service Sector Performance

In the service sector, revenue saw a 6% increase fueled by Net Interest Income (NII) across TTS and security services. This was partially offset by Non-Interest Revenue (NIR) due to the Argentina devaluation. A 20% surge in non-interest revenues (excluding the impact of Argentina devaluation) was recorded. However, expenses ballooned by 9% due to continued investments in technology, product innovation, and client experience.

Markets, Money, and Mixed Fortunes

Markets reported a 19% decline in revenues compared to a robust quarter in the prior year, primarily influenced by a fall in fixed income and the devaluation impact. The fixed income division also experienced a 25% decrease in revenues driven by marginally lower volatility in rates and currencies, particularly in December, and the impact of devaluation. On the brighter side, equities showed a 9% revenue uptick.

Spotlight on Banking

Banking witnessed a 22% revenue boost thanks to an upswing in investment banking fees and reduced losses on loan hedges, balanced by lower corporate lending revenues. Investment banking incomes surged 27% year over year mainly propelled by Debt Capital Markets (DCM) and advisory services. Although expenses surged by 37%, mainly due to the absence of an operational loss reserve release in the prior year, cost of credit stood at $185 million.

Evaluating Wealth

The wealth sector observed a 3% decrease in revenues due to lower deposit spreads. At the same, expenses climbed by 4%, largely due to investments in risk and control technology. The net income reached a modest $5 million, with client balances increasing by 6%. There was a flat average loan growth, while average deposits decreased by 2%.

The U.S. Personal Banking Arena

U.S. personal banking registered a 12% revenue increase, with branded cards and retail services driving the charge, benefitting from higher net interest margin and interest earning balances. Retail banking revenues also posted a 15% upturn.

As we turn the page on Citigroup’s financial results, it’s evident that the narrative is not as optimistic as one would expect. With expenses riding high, investment assets witnessing a fluctuating momentum, and market volatilities bringing about a mixed bag of outcomes, the company has its work cut out for it. Nonetheless, the potential for improvement in different sectors remains a possibility if Citigroup can realign its strategies and streamline its operational spheres.

Citigroup’s ability to navigate through the rough waters of the financial sector and emerge successful is a tale as old as time. Its resilience, adaptability, and evolution over the years have positioned it as a prominent force in the financial realm. In the wake of these results, it is the approach Citigroup takes that will define its future trajectory. As the adage goes, it’s not about the cards you’re dealt but how you play your hand. Time will reveal whether Citigroup can regain its footing and steer towards improved performance with resolve.

Financial Revival: Citigroup’s Quest for Improved Performance

Citigroup boasts of enhanced revenues, supported by higher deposit spreads, loan growth, and improved mortgage margins. The bank’s expenses saw a slight decrease, thanks to a mix of factors. Top-line growth is apparent, albeit accompanied by rising costs of credit. With a 3.6% Return on Tangible Common Equity (RoTCE) for the quarter, and an overall figure of 8.3% for the year, U.S. personal banking is making strides to achieve a healthier return profile.

Revamping Revenue Expectations

Despite a 17% dip in revenues, the bank’s trimmed-down Net Interest Income (NII) and higher non-interest revenue paint an interesting picture. Looking ahead into 2024, Citigroup projects a revenue range of $80 billion to $81 billion, hinging on key drivers like the sustained growth of client base and expanding relationships in commercial segments.

Curbing Costs and Rationalizing Expenses

On the expense front, a projected range of $53.5 billion to $53.8 billion is earmarked for 2024. Efficiency gains through organizational simplification, ongoing reduction from exit markets, and pivotal productivity savings affirms the bank’s resolve to create a leaner cost structure.

Strategic Headcount Reduction

Citigroup lays out a comprehensive plan to slash headcount significantly—by a net 20,000—while also aiming for a net run-rate save of $2 billion to $2.5 billion over the medium term. These measures, aligned with expense reduction, are critical steps in the journey toward enhanced performance and returns.

Outlook for U.S. Cards in 2024

With careful consideration of credit performance and allowance perspectives, Citigroup forecasts a rise in Net Credit Loss (NCL) rates, particularly in branded cards and retail services portfolios, likely peaking in 2024. The provisions made reflect a prudent approach in the face of economic uncertainty, ensuring a robust financial position moving forward.

Commitment to Shareholders

Despite prevailing challenges, Citigroup reassures shareholders of its commitment to returning capital. The bank anticipates a modest level of buybacks in the first quarter of 2024, underlining the management’s confidence in the resilience and long-term value of the institution.

Reaffirmed Strategy and Future Roadmap

In conclusion, Citigroup acknowledges the evolving landscape and shifting paradigms in the financial sector. However, the bank remains steadfast in its strategy and is resolute about delivering an ambitious 11% to 12% RoTCE in the medium term, underscoring its commitment to robust financial performance and sustained growth.

Questions & Answers

Operator

[Operator instructions] OK, our first question will come from Mike Mayo with Wells Fargo. Your line is now open. Please go ahead.

Mike Mayo — Wells Fargo Securities — Analyst

Hi. I looked in detail at the earnings presentation, especially Slide 4. And I think the question is on many people’s minds. I count 12 restructurings at Citigroup, and I count 12 restructurings that have failed at Citigroup.

You might disagree with the number 12. It could be five. It could be eight, it could be 12. It could be more.

But I’ve not spoken to one person of any investor who would say that Citi has succeeded on its prior restructuring. So, the question is, why is this time different? Number one, you know, who is this new and improved Citigroup? Number two, why aren’t expenses down even more, especially when few people that I talked to think you’ll hit your revenue target. And three, Jane, what is your conviction level of getting to that 11% to 12% RoTCE in ’25 or ’26? Thank you.

Jane Fraser — Chief Executive Officer

Well, thank you very much indeed, Mike. I’ll start with who is Citi. Citi is, I’m delighted to say, finally simple. At Investor Day, you know, I set out a vision to be the preeminent banking partner for clients of cross-border

The Transformation of Citi and Balancing Future Investments

CEO’s Vision and Priorities

A vision set in motion, relentless in ambition, guided by a deliberate path—this was the blueprint for Citi’s transformation. Over the course of three years, the company has undergone a remarkable metamorphosis. Citi now stands as five intricately linked businesses, no more, no less. With an organization that harmoniously converges with these five sectors, Citi is diligently focused on two key priorities.

Streamlining and Strategic Investments

Citi’s relentless pursuit of transformation has led to substantial developments over the past three years—backed by tough decisions and sweeping changes. The company has redesigned its strategy, fostering a significantly more focused business model aimed at simplifying operations and enhancing accountability. This overhaul, the most significant since the financial crisis, exemplifies Citi’s resolute movement and swift adaptability.

While propelling this effort forward, Citi remains steadfast in investing heavily in its transformation. These investments, primarily nourished by the impetus of consent orders, are anticipated to yield substantial benefits—automation, well-managed data, consolidated platforms—further bolstering the company’s position. A heightened focus on enhancing business capabilities, digital advancements, and talent infusion across various divisions parallels Citi’s unwavering commitment to long-term, sustainable growth.

Financial Management and Future Investments

With a diligently managed financial approach, Citi has been judiciously aligning expenses with investment imperatives for the franchise, transformation, and risk and controls. Notably, the company’s discipline in managing expenses has been underscored by its astute usage of freed-up resources to fund organizational simplification costs and future savings. A prudent strategy of maintaining expenses in tandem with revenue adjustments attests to Citi’s agile and prudent financial approach.

Strategic Investments and Sustainable Growth

Citi’s approach to balancing near-term profitability improvements with future investments is deeply anchored in aligning growth opportunities with resources allocated to leverage them. The company’s meticulous scrutiny of the prospects for each core business and the associated investment and growth returns reflects a finely-tuned balancing act. The dynamism exhibited in capturing growth opportunities while maintaining the acumen to dial back spending when warranted attests to Citi’s unwavering resolve to secure sustainable post-transformation growth.

Citi’s TTS Division: A Crown Jewel with Strong Growth Prospects, Chief Financial Officer Says

Citigroup’s recent earnings call featured insights from its top executives, Chief Financial Officer Mark Mason and Chief Executive Officer Jane Fraser, as they discussed the company’s growth prospects and financial strategy for the coming years.

Performance and Growth Prospects of TTS

Regarding the TTS (Treasury and Trade Solutions) division, Jane Fraser highlighted its exceptional performance, noting a 19% growth rate (excluding Argentina) due to a combination of rate changes and strategic business actions. She emphasized the division’s 22% average revenue growth from ’21 to ’23, surpassing the previously projected high single-digit growth. Fraser attributed this growth not only to the rate cycle but also to the focus on the free strategy, client engagement, market-leading solutions, and various growth initiatives. She stressed the importance of deposit optimization and acquiring new clients, with a significant 27% increase in new client acquisition and an 82% win-loss ratio on new deals across different client segments. Additionally, Citi has been investing in infrastructure, launching innovative products, and experiencing momentum from recent enhancements like Citi Token Services and Payment Express.

Investment in TTS and Security Services

Fraser affirmed Citi’s commitment to further investing in the TTS division, expecting strong client momentum even as the rate cycle cools. She described it as a “crown jewel” for the company. Fraser also touched upon the growth in security services, highlighting the increase in market share with U.S.-based asset managers from 2.6% to 4.3% since 2020. Notably, this growth has been driven by not only global network names but also by prominent players in the U.S. asset manager space, ensuring significant efficiencies for clients.

Capital Build and Transformation Spend

When questioned about the pacing of capital build and transformation spend, Mark Mason acknowledged the potential impact of Basel III proposals on capital management while emphasizing the disciplined approach adopted by Citi. He confirmed the active management of capital, generating earnings to contribute to growth. Mason also expressed a desire to buy back shares, balancing the needs of the clients with prudent capital allocation amidst uncertainties. Regarding transformation spend, Mason underscored the company’s commitment to continued investment in transformation and risk control to drive operational improvement and long-term savings.

The Struggle with Expense Saves and Revenue Growth

Building for the Future

As the financial world navigates a period of deep transformation, one global leader strives to maintain integrity in this endeavor. As this company looks forward to the long haul, it remains dedicated to delivering substantial benefits to shareholders amid multiyear investments in various aspects of their operations.

Realizing Transformation Gains

In a recent address to investors, a company spokesperson highlighted substantial accomplishments, such as the retirement of a significant portion of their legacy platform base – a clear indicator of the ongoing modernization efforts. Additional milestones include consolidating multiple cash equity and reporting platforms, along with automating price verification for fixed-income and equity securities, all of which have contributed to streamlining operations and boosting efficiency.

Furthermore, nearly all prioritized wholesale and consumer data has been successfully uploaded to authorized repositories, setting the stage for future benefits to unfold.

Challenges in Realizing Expense Savings

During a Q&A session, industry analysts raised questions regarding expense savings projections and the potential impact on cost reductions due to ongoing investments in risk, controls, and transformation. The company’s Chief Financial Officer addressed these concerns by emphasizing the interplay between revenue growth, volume-related expenses, and ongoing investments—a critical factor affecting the achievement of targeted expense savings.

Roadmap for Revenue Targets

While addressing revenue projections, company leadership emphasized a commitment to a 4–5% growth rate. Despite acknowledging the potential macroeconomic challenges, they remain resolute in their revenue outlook, expressing confidence across various business segments. Moreover, they assured stakeholders of their ability to utilize alternative levers to navigate through adverse scenarios, should those arise.

Balancing the Markets Business

Analysts also raised questions about the risk associated with the markets business potentially becoming too small and the company’s ability to maintain efficiency and relevance. Leaders acknowledged the headlines surrounding certain business units yet remained confident about their ability to navigate these challenges and maintain a balanced operations portfolio.

Citigroup’s Financial Strategy and Outlook: A Deep Dive

Market Leadership and Strategy

Citigroup’s market business consists of four primary segments, each with around $4 billion in size. The global FX network, rates, spread products, and equities together form the cornerstone of its FICC division. The company’s focus on enhancing its prime offering and building balances has resulted in appreciable growth in prime balances, driven by positive client momentum. Additionally, Citigroup prides itself on being a leading equities derivatives franchise.

Operational Excellence and Return on Assets

The distinct corporate client base and strong partnerships between Citigroup’s core markets, TTS, banking, and security services have given it a competitive edge in global FX, commodities, and rates. The company has displayed solid returns in the past and is confident that its ongoing strategic actions will drive returns in the future. Initiatives such as optimizing RWA and making significant investments in technology reaffirm Citigroup’s commitment to sustainable growth.

Net Interest Income Forecast and Strategic Outlook

Citigroup’s net interest income forecast acknowledges the impact of lower interest rates. The company anticipates three to six interest rate cuts, backloaded through 2024, thus accounting for a forecasted decline in NII. Despite the challenging economic environment, the company emphasizes its prudential positioning and resilience, ensuring that shareholders are well-informed about the rationale behind strategic decisions.

Business Downsizing and Employee Morale

While Citigroup acknowledges the impact of downsizing and business exits, the company remains mindful of fostering an environment of growth and development. The company strives to maintain transparency with its employees, acknowledging the human impact of such decisions, and is committed to communicating the logic behind its strategic moves.

Long-Term Financial Outlook and Shareholder Value

Citigroup’s leadership reiterates its deep commitment to enhancing shareholder value through buybacks. The company’s management is cognizant of the significance of ensuring buyback credibility and acknowledges the need for prudence in communicating its long-term outlook. With a steadfast focus on maintaining credibility and a cautious approach towards providing long-term projections, Citigroup aims to reinforce its commitment to transparent and sustainable growth.

Citi CEO Provides Strategic Insight and Financial Clarity for Investors

A Closer Look at the Net Investment and Corporate Dividend Exposure

During a recent earnings call, Chief Executive Officer, Jane Fraser, and Chief Financial Officer, Mark Mason, offered valuable insights into Citi’s net investments and corporate dividend exposure. Matt O’Connor from Deutsche Bank inquired about the firm’s remaining exposure and sought clarity on the risks associated with unremittable corporate dividends. Fraser responded by addressing the firm’s commitment to the countries in which their multinational clients operate and how this business model involves managing various risks such as credit, currency, and transferability of capital. She emphasized Citi’s strong track record in managing these risks and highlighted the conservative reserve profile.

Fraser also delved into the unique nature of the Russian market and the orderly wind-down executed by Citi in response to the Russia-Ukraine conflict. She stressed the firm’s ability to navigate the situation without incurring significant losses for clients or themselves. Additionally, Fraser shed light on Citi’s approach to de-risking its business model in Argentina, emphasizing their minimal credit losses in the country over a 10-year period.

Addressing Credit Card Losses and Confidence in Peaking

Furthermore, Matt O’Connor sought clarification on Citi’s outlook regarding credit card losses, which many peers anticipate to increase. CFO Mark Mason pointed out a dip in loss rates during the COVID period, attributing the forthcoming step-up in losses to a catch-up effect as portfolios mature. Mason expressed confidence that the losses would peak inside of ’24, based on the trajectory of early delinquencies and the maturation of new card loans. He reassured analysts that Citi hadn’t made material changes to its underwriting, while emphasizing the evolving mix of their portfolio.

Analyst Inquiry on Quantitative Tightening and Rate Exposure

Analyst Ryan Kenny from Morgan Stanley raised questions about quantitative tightening and Citi’s positioning if the Fed ends cuts early. Mason acknowledged the firm’s interest rate exposure, particularly in the context of a 100-basis-point move in a parallel shift, shedding light on the potential impact of rate movements on Citi’s finances.

In a candid and insightful manner, the CEO and CFO provided comprehensive responses, fostering a clearer understanding of Citi’s strategies and risk management practices, which are vital for investors to weigh their positions. Amidst the complex financial landscape, their transparency and strategic perspectives offer a beacon of clarity in the realm of investment decision-making.

Morgan Stanley’s Financial Position in 2024

Optimism in a Recovering Market

As Morgan Stanley held its earnings call, Jane Fraser, the Chief Executive Officer, expressed cautious optimism in response to a question from Ryan Kenny of Morgan Stanley, discussing the environment of reassurance and debate surrounding the rebound in capital markets. Referring to the conclusion of 2023, Fraser highlighted the market’s increased constructive nature, with interest rate spreads and volatility reaching their lows, and equity prices reaching their peaks for the year. She indicated that this optimistic environment forms a solid basis for an expected acceleration in activity throughout 2024, provided that these favorable conditions persist. Additionally, Fraser noted an improvement in the investment banking pipeline across M&A, ECM, and DCM, expressing confidence in their breadth, depth, and quality, stating that it was at a higher level than pre-COVID times.

Fraser elaborated on the positive momentum being observed within Morgan Stanley, citing growth in healthcare and technology sectors, as well as in traditional areas such as energy and industrials. She emphasized that the company is strategically positioned with investments in higher growth areas, striking a balance between their traditionally robust sectors and new, high-growth areas. Fraser remained carefully optimistic about the future, expressing confidence in the recovery of DCM and the beginnings of recovery in other areas.

Revenue Attrition and Expense Management

Responding to a question from Scott Siefers of Piper Sandler regarding potential revenue attrition due to a reduction in force, Fraser clarified that the organization’s simplification efforts mainly impacted managerial roles and organizational functions, and not the revenue-generating segments. She expressed a focus on streamlining bureaucracy and driving efficiency to preserve the front line and enhance revenue productivity. Fraser highlighted the strategic approach to empower the client-facing teams to deliver greater value to customers and emphasized the company’s aim to eliminate complexity and encourage revenue delivery.

Mark Mason, Chief Financial Officer, offered insights into the flow of expenses over the year, expecting an initial uptick in the first quarter due to expenses associated with the organizational simplification, followed by a downward trend through the rest of the year. Mason’s perspective showcased an intention to adapt and optimize expenses in alignment with the company’s strategic objectives and market dynamics.

Further Strategic Actions and Savings Expectations

Vivek Juneja from J.P. Morgan sought clarifications regarding Morgan Stanley’s net interest income assumptions and the anticipated impact on revenue due to headcount reduction. Mark Mason addressed the modest declines expected outside of the U.S., reaffirming the company’s strategies to manage variations in different markets. Fraser iterated the details of the ongoing and planned reduction in force, highlighting the expected run-rate saves and the areas targeted for expense optimization, encompassing divestiture-related costs and right-sizing core expense bases.

Fraser provided a comprehensive outlook on the ongoing efforts, accentuating the planned elimination of stranded costs, aligning core expenses with business requirements, and establishing unified operational utilities. She emphasized the strategic orchestration under the leadership of Andy Sieg in the wealth segment and the forthcoming fundamental realignment in various operational aspects. Fraser underlined the discipline inherent in the company’s approach to restructure, streamline, and optimize expenses, showcasing a long-term commitment to operational resilience and financial efficiency.

The Medium-Term Outlook for Financial Transformation at Citigroup

During a recent conference call, leadership from Citigroup shared their outlook on the future direction of the company, focusing on efficiencies, revenue adjustments, and expense growth. This insightful discussion provided investors with a window into the company’s strategy for achieving an 11% to 12% Return on Tangible Common Equity (RoTCE) target by 2026. The call covered various key financial areas, providing valuable insights for analysts and investors alike.

Revenue Guidance and Transformation Initiatives

Mark Mason, the Chief Financial Officer of Citigroup, addressed several questions related to revenue guidance, particularly concerning the impact of credit card late fees on overall revenues in Europe. While not providing external guidance on the specific impact, Mason indicated that the revenue forecast includes assumptions regarding the adjustment of late fees, emphasizing the presence of offsets and mitigating factors.

In addition to the revenue guidance, Citigroup’s executives mentioned ongoing transformation efforts aimed at optimizing the company’s operations. They expressed the intention to create efficiencies and consolidate functions to achieve their medium-term RoTCE target.

Insights on Net Interest Income (NII) and Revenue Composition

Steven Chubak from Wolfe Research sought clarity on the contribution of rates and volume to the 50-50 NII split. He expressed difficulty reconciling the NII growth of 3 billion with essentially flat year-on-year average loans and deposits. In response, Mason highlighted various factors at play, including the U.S. versus international mix and deposit fund transfer pricing, offering to provide further details offline.

Medium-Term Outlook and Clarifications

Mike Mayo from Wells Fargo sought clarification on the timeline associated with employee reductions, expense savings, revenue targets, and the 11% to 12% RoTCE goal. When prompted, the executives confirmed that the medium term referred to the year 2026.

Closing Remarks and Future Engagement

The call concluded with closing remarks from Jen Landis, Head of Investor Relations, expressing gratitude to the participants. She encouraged further engagement for any follow-up questions.

Overall, Citigroup’s leadership conveyed a mixed message of acknowledging the challenges related to expense growth and restructuring, while also expressing confidence in the company’s ability to achieve its long-term financial targets. The call provided crucial insights into Citigroup’s proactive approach to addressing revenue adjustments and the ongoing transformation of its operations.