As part of Citi’s biggest restructuring in a decade, the bank will remove layers of management and consolidate finance operations under the company's top CFO in an effort to realize efficiencies across the organization.
Citi CFO Mark Mason is now taking on finance responsibilities previously held by multiple CFOs within individual groups, he said Wednesday at Goldman Sachs’ U.S. Financial Services Conference.
“Before we announced the reorg, I had an institutional clients group CFO, and a personal banking and wealth management CFO, and a Latin America CFO, as well as [a Europe, Middle East and Africa] CFO and an Asia CFO, and underneath them, they all had CFOs for the five core businesses,” he said. “By eliminating those roles, those businesses are now sitting at my table.”
Eliminating the CFO positions, as well as the support for those roles, will result in savings in addition to enabling the company to be run more “effectively,” said Mason, who in June pinned headcount reductions on an ambitious technology transformation initiative coupled with its plan to exit 14 countries.
Citi is on track to complete its restructuring effort by the end of the first quarter of 2024, he said.
The milestone is the culmination of a wide-ranging restructuring effort announced by CEO Jane Fraser in September which scrapped the bank’s two-division structure and replaced it with five units whose leaders report directly to Fraser. The plan includes headcount reductions, including 10% of the management level that sits two levels below the CEO’s executive management team.
“We have been very deliberate at not just doing it at the top of the house, so to speak, and then allowing for leaders to independently impose it on their [organizational] structures, but managing it through the organization,” Mason said. “When we report on this new structure next year for the fourth-quarter earnings, you're going to see those five core businesses … what the returns are associated with them, and those leaders know that they are now held accountable to that in a very transparent way to our investors.”
Of the roughly $54 billion in expenses that the bank’s guidance anticipates in 2023, $1 billion was for restructuring, Mason said. The figure excludes a $1.65 billion FDIC special assessment charge. A couple of hundred million in expenses for restructuring will be spent in the fourth quarter, he said. Looking to 2024, Mason said he expects expenses to be between $51 billion and $53 billion. Going into 2026, the restructuring will result in continued downward pressure on expenses, Mason noted, estimating that the bank’s revenue for 2023 will likely be around $78 billion.
Concern about Basel III endgame
Mason’s wide-ranging presentation also touched on the Federal Reserve’s capital-requirements proposal, under which banks with at least $100 billion in assets would have to increase the amount of capital they set aside. That figure is expected to increase by roughly 19% for a bank of Citi’s size. The Fed’s proposal has generated considerable critique from industry groups and politicians.
Mason, whose views are roughly aligned with industry peers, outlined a number of concerns with the proposal, including how it will weigh on U.S. banks’ ability to compete with overseas institutions because the rules would be applied differently.
“We worry about movement of activity to nonregulated spaces and outside of the banking banking institutions, and we worry about the impact of consumers and corporates from a lending point of view,” he said.
Panel moderator Richard Ramsden, a managing director at Goldman Sachs, also referenced Mason’s earlier commentary about a 16% to 19% increase in common equity tier 1 capital based on the proposal.
“The real takeaway here is… the numbers that I've given assume no mitigation. Mitigation involves everything from how we think about repricing, to how much collateral we need to hold, to whether we want to be in the business and at what level or not — we're looking at all of those things,” Mason said.
Ramsden told CNBC on Tuesday that bankers speaking at the conference feel the Basel III proposal is far-reaching, and that there really hasn’t been analysis that’s been done that really looks at the cost relative to the benefit, which would be a safer banking system.
“What they’re hopeful for is that there will be enough pushback from politicians that the whole framework gets called into question and they go back to the drawing board and come up with something which is quite different from this proposal,” Ramsden said on CNBC.