Citi has its eye on the clock.
At its investor day Wednesday, the bank touted new targets for return on tangible common equity (ROTCE), revealed that it could lose up to $4 billion from its Russia exposure, and detailed a revamped five-business strategy to take it into the coming years. Executives also made a plea for time and patience.
"Everybody listening today knows this isn’t a quick fix,” CEO Jane Fraser told investors and analysts, according to The Wall Street Journal. “This is a multiyear journey.”
If the word “multiyear” sounds familiar, it’s been in the Citi playbook since the end days of the bank’s previous CEO, Michael Corbat.
As rumors swirled in September 2020 that the bank would face regulatory action over its aging risk management infrastructure — exemplified by a manual transfer of $900 million that went undetected by human safeguards — Corbat, in a memo announcing his retirement, said: "This will be a multiyear effort, and I believe it is best for the firm for my successor to lead this important work from the beginning.”
At the same time, Wednesday’s investor day — the bank’s first in nearly five years — was not an exercise in kicking the can down the road. CFO Mark Mason acknowledged some challenges “we need to urgently address right now.”
That label could apply to any of the major prongs in Citi's strategy. On a geopolitical level, that could be the bank's $9.8 billion exposure to Russia, which it detailed to investors Monday in a filing.
Mason said Citi could lose “a little less than half of that” under a “severe stress scenario,” according to the Financial Times.
But that figure also depends on how the country’s invasion of Ukraine — and the world’s response to it — resolves. “We’ve been managing ... very proactively to bring that number down,” Mason said.
Top of mind for investors, to be sure, is returns. Citi is the only U.S. bank of its size that trades below book value. It also, however, has a history of missing previously announced ROTCE goals. The bank said in 2017 it was aiming for a 14% return on tangible common equity. That’s the same figure Goldman Sachs targeted by 2023 at its own investor day in 2020. Goldman reported a 24.3% ROTCE last year; Citi reported 13.4% — but that measure, for the fourth quarter, was 7.4%.
Citi adjusted expectations Wednesday, setting a 11% to 12% ROTCE goal over the next three to five years. “Our maniacal focus right now is on getting to these medium-term targets and building credibility with you along the way,” Fraser said, according to the Financial Times.
In the short term, however, the bank expects a significant uptick in expenses — 10% to 12% over the first quarter, due to bolstered hiring in wealth management and other areas. The increase will level off to 6% over 2022 as Citi aims to double its regulatory spending to $3.5 billion and boosts its focus on its treasury and trade services unit.
“We need to make up for the past underinvestment in our businesses,” Mason said, according to American Banker.
To that end, Citi said it would restructure around “five core interconnected businesses”: treasury and trade services, global wealth management, corporate and commercial banking, markets, and U.S. personal banking.
Fraser pitched a “high-returning, capital-light investment-banking business” for Citi’s future, eyeing growth through targeting “new-economy companies.” She also emphasized a focus on higher-returning businesses, seizing on growth opportunities in services, commercial banking and wealth management. Citi aims to capture more share in the markets, banking and U.S. personal banking businesses, she said, alongside digitizing and automating the bank’s operating model.
In her first year as CEO, Fraser had already begun some restructuring — putting Citi’s U.S. consumer and global wealth management division under one umbrella, breaking its institutional operations into three units — trading, investment and corporate banking, and services — and creating a “legacy franchises” segment to house assets from which Citi is exiting.
“Today’s our opportunity to show you that we’re determined to drive that change,” Mason told investors Thursday, according to Bloomberg.