Citigroup Inc. (C) Earnings Call Transcript & Summary

Yes. So there's no question that we fell short of the delivery that we would expect of ourselves. And job 1 now, until it's over, is to get ourselves on the right path. What I would say is that we were quite heartened with the fact that the consent orders themselves mentioned that we had already done a lot of work. So we are going to be using everything that we have been working on and then tweaking it so that we can make it even further fit for purpose, but it wasn't as if nothing was going on. The other thing that we were appreciative of in the consent orders was that we were not limited in our growth in any way compared in contrast with some of our peers. So how did we come up with kind of what we should actually do? When I first joined, I was asked by Mike Corbat to take a listening tour and really did nothing but meet with, first, the executive management team, then with every member of our Board, which I had thought I'd meet with a couple, but I met with every single member, and then our largest regulators. And I asked each of them the same 2 questions: how did we get here, right? Why are we at this place? And then what should we do about it? And I would say that the -- how did we get here had 2 components. There was a bit of a cultural component, which we're going to need to very much break down some of the silos that we had. We talked about being in our swim lanes instead of One Citi. So that is a huge driver culturally. Also culturally, we need clear accountability and decision-making. And that's one of the things that Jane is really going to get on, the kind of cultural backdrop and change required to be successful. From a process perspective, we often were solving smaller problems versus looking at the total picture. So again, the consent orders are giving us a chance to step back and look at this whole target state, what end state do we want? What gaps do we have? And then the final thing I would say on that listening tour that was clear was that we often use outside consultants instead of doing this work ourselves. That's a common trap. It's easier to kind of ramp up the staffing that you need, but we are committed toward this [ go ground ] and for the future that these will be Citi employees who will be working on this, and it will be the exception to have consultants, not the rule. So it needs to be a Citi-led effort, and that's what we're gearing up to do.

And Karen, as a follow-up to that, as you think about the work that Citi's already putting in and what you've learned on your listening tour, what do you think is the most important in terms of really moving forward your transformation, as you call it, in a meaningful way?

Yes. I think it kind of goes back to what we were talking about that this is a unique opportunity for the firm. And absolutely, I know that the executive management team sees it this way. Our incoming CEO, Jane, plans to lead this very personally. And so let's take the chance and let's structure it, obviously. We can't waste the time because we do have some pretty ambitious deadlines. But let's take the time to step back. Let's take a look at what we think our end state really should be and probably should have been. Let's take the time to look truly at our gaps. And of course, this means you need to hold a mirror up to yourself in a different way than perhaps you were doing before. Let's challenge each other. And again, that's almost the professional nature of our group's role is to develop some standards to be challenging, to -- simple stuff like red, amber, green ratings, where are we too positive. It's okay to have a yellow or a red rating as long as you have a path to getting to an improved situation. And so we need realistic time lines. Sometimes in the past, we might have actually tried to be so aggressive and actually undermined ourselves. We need clear priorities, and then we need this incredibly detailed plan that we talked about before in a level of kind of detail that will probably go to daily, weekly, monthly, quarterly, and we'll be very, very clear to everybody involved, where are we at any given time.

So that's a great segue to my next question, where you are in any given time. The market was quite surprised when the Journal first reported about the new consent order. And we understand that regulatory matters, by nature, are confidential. That being said, how can your stakeholders measure progress from the outside?

Yes. So I know that our investors are quite interested in knowing how much will this cost and how long will it take and all of those very critical and important questions. I guess the best I can say is we plan. And certainly, the combination of Mike and Jane and Mark Mason plan to give you those details as soon as we have them. We are in a planning phase, though, now, as I highlighted. And so it is going to take us a little while to kind of box this all up in terms of the people spend, the technology spend and the kinds of things that you will want to know more about, both at the top line and then with more granularity. So all I can say is we're working on it, and we would certainly plan to keep you informed as soon as we have some news and some quantification to give you.

So you mentioned the plan that you are undertaking. How are you framing out the plan in terms of work streams and the supporting operations that enable addressing these work streams, which were suggested by the consent orders? And I apologize in advance for the compound question. But where is Citi in the process from your perspective? And again, I know you're probably delaying me, but how are you thinking about the cost and time it will take?

Sure. So let me unpack that and start with kind of how we're getting organized through this. So this is very much linked to the Board. As you would imagine, they are quite interested in increased oversight of this whole initiative. So they have established what they're calling the Transformation Oversight Committee. It will be chaired by the Chair of the Board, John Dugan, and then each of the committee chairs will serve on this Oversight Committee as well as some other representation like CBNA, our largest entity, the person who runs that bank board. So you're going to have this very linked board oversight mechanism, which frankly will make it easier for everybody or make it easier for management because the various pieces that I'll describe will report up to a committee, but then you'll have one-stop shopping, if you will, with one board committee that understands the whole picture, which is critical. The next level down of governance is the Steering Committee. That will be led, and we've already kicked that off. Jane Fraser, incoming CEO, will definitely lead that. She'll chair that. She'll drive that. And you don't know Jane if you don't know how passionate she is with this whole topic and her ability to both lead at a high level. But then she's also busily talking to our employees in written and verbal communication about the changes that will be required and that she's counting on them to have. On that Steering Committee will also be Paco representing our Institutional Client Group; Anand, who's just been named to run GCB, Global Consumer Bank; and then also, Sara Wechter, Head of HR; Mark Mason, who you know very well, CFO; myself as the Vice Chair; and then we'll also have our Head of Audit, Jessica Roos, as a guest member at every meeting so that we're keeping aligned with what audit would expect of this as well. So we then formed program groups. And again, if you've read the consent orders, as we already talked about, risk and control is foremost. So that is a group that has an executive management team set of sponsors, that's myself, Paco and Anand. Then we end up with a chair for each of these transformation programs and a transformation lead from my group. So risk and control primary, almost first among equals. The next topic is data, and we'll get to some conversation about why data is so critical and why a transformation is going to be super helpful to the future of the firm. Compliance is another topic that was captured in the consent order. And then the last one of the big 4, if you will, is the capital and liquidity planning. And it really is -- we're extending it to be the finance function at large. So those are kind of the 4 core. But then we've gone one step further, and we've added 3 other elements, and we're doing this voluntarily because we think they're so critical. One is culture, right? I made that point before that this is going to require some tweaking. Citi has a great culture. We do the right thing. And so this is not wholesale change, but it is some tweaking around accountability and even how we govern ourselves. The next one is business simplification. As is inherent in automating controls, you have to have a sense of how can you simplify your business going forward. Trying to get fewer technology platforms, those that work together more efficiently and effectively. And then the final one where we have a whole work group around is our interactions with our Board. How do we make those even more effective, efficient? How do we make sure that we're telling them the most important aspects about this transformation? So within that then, my organization, as I've mentioned, has a responsibility to govern this entire set of programs in a consistent way, in a transparent way and in a way that anybody involved, as I said earlier, the management team, the Board and certainly our regulators, will know where we are at any given time. It just makes it so much easier to kind of be dealing with one mega plan. And I guess this is another good place to just emphasize, the sense of urgency that we have about this. This is super critical. This is job 1, as I said earlier. And it is one of the things that I also kind of got the sense in joining Citi that it is an organization that really rallies around kind of big needs and the issues like this. So we are kind -- we are finding people volunteering. Every day, I get an e-mail from somebody who wants to be signed up for one of these programs. And we are beginning to get the energy and the alignment that we absolutely need to do this differently starting now.

Thanks for that, Karen. Those were very thorough. Understanding that all of this that you've talked about are investments that you're making in your operating environment, what improvements are you expecting on the other side of these investments?

Yes. So these are real investments. You've heard Mark talked already about what we have been spending just here in 2020. And we would expect investments to go on, and I would call these -- they are real investments. But I'd use 2 examples to just kind of talk about the benefit of these investments. The first is data. So if you think of the power of data that when harnessed correctly, when utilized to do things like predictive market behavior or predictive consumer behavior or what our clients might be wanting in one of our markets businesses, the ability to make it usable and to make it [ fast ] and to make it able to change as we look toward the future is just a critical, critical asset, and all of our peer groups are working on the same thing. So we believe that the -- any investments we can make in making our data more usable and more trackable and more accurate is going to be a dollar well spent. I would say the same thing about controls. We have tons of controls. It's not that we don't have controls. What we have though is a lot of manual workarounds. So we are going to need to invest in automating many of those, which will actually, of course, make them more reliable, less subject to human error, and that's also a dollar well spent as we come up with, and that's where business simplification comes in as well. So really, we totally believe -- and this is what's kind of exciting. I think as people start to see that we're taking it all seriously to look at where have we been and where are we going, the idea of building a sustainable future model that can change and certainly can actually be more effective for our clients because that should also be a major goal.

Karen, given the kind of franchise that Citi is, how will this execution translate globally? And if you could talk about the anticipated impact and benefits, if any, to local franchises, and will effort divert from locally agreed upon regulatory commitments?

So this is the trick, right, which is to develop a plan that works for your major U.S. regulators who issued the consent orders. But also because we do business in 96 countries, we have to accommodate and we want to accommodate those topics that the regulators want around the world. Really, a jewel in our crown is our Citi country officers, what we call the CCOs, and they are very close to their markets, to their clients, to their regulators around the world. And so we are building into this entire process, regional representation, the voice of these various global regulators, particularly the largest ones, but most of what works for the largest ones typically does work for smaller regulators as well. There's something called the core college where our largest regulators collaborate among themselves and meet among themselves. So we will be very much keeping an eye on not just what the U.S. regulators want, but where do these largest global regulators come out, and it's typically very similar. They tend to want the same things, which is fortunate.

Got it. Well, Karen, thank you so much again for joining us in this conference to address the topic that has been top of mind for all your investors. I'm sure your investors appreciated very much hearing from you today.

Thank you. Thank you, Erika. Thanks to BofA for having us. Very much appreciate it.

Thank you again.