Citigroup Inc. (C) Earnings Call Transcript & Summary

Great. Good morning, and thank you, everyone, for joining us. We're very happy to have Citigroup joining us next. And we are very excited to have Jane Fraser, who is the CEO of Citigroup. Jane, thank you for joining us today. I saw you earlier, and I'm looking for you now. And there you are. Great. Jane, can you hear me okay?

I can hear you perfectly, John.

Excellent. Well, thank you so much for joining us. We're very happy to have you. And you've been CEO for a few months now, but that, of course, has followed a 17-year career at Citi. So I thought I'd start off by asking you, what's been different now as CEO? Has anything surprised you now that you're looking at the company from the CEO vantage point?

I think one of the great joys of when you come into the -- into these roles is your ability to take a step back and really reflect on the company, the industry. It's the time to go and listen to investors, go and listen to our clients as well. And I think in many respects, for me, it's been an affirmation of some of the areas that are our key strengths. We've got a lot of assets, we've got a lot of opportunities that we'll be talking about, particularly our globality, the platforms we have. And so it's that unique opportunity, I think, to really think about how to position an organization for the future at a fascinating time in the industry and the world because there's so many dynamics that are changing. And the joy of being a bank with clients is that we get to hear different perspectives from different CEOs around as well. So I'm shamelessly stealing the best ideas that I hear from others and claiming them as my own, John, and looking at a strategy refresh, looking at what are the different ways you want to transform the bank from culture to sort of the soup to nuts around our operations and organization in a much more digital environment and the strategy refresh. So it's not so much about things that are new -- discovering new things, but it is really making the most of those first few months in the job to sort of set a context for the future.

Sure. And we'll dig into each of these, I'm sure, later. But just at a high level, what would you say are some of the most unique aspects of Citi that an investor may not appreciate from the outside? And I ask that thinking about potential positive aspects as well as the challenges of a big organization.

Yes, absolutely. Well, I always think your clients tell you the good, the bad and the ugly. And I think our clients tell us that we are unique in the global advantages that we provide and the competitive advantages we provide our clients because of our footprint in operating on the ground in 98 countries and the connectivity between them. The people that we have on the ground in those countries, we have -- many of them we've been in for a century. So you really are a -- you are local as well as global. We've got leading positions in a number of critical businesses for them, transaction services and our trade and treasury solutions is really the crown jewel, but so is our fixed income and FICC businesses. Our cards, we're the #1 cards company in the world. And a lot of those different businesses now are able to provide critical services, connectivity and ultimately, competitive advantage for any company, mid-market or global, that is operating across different geographies. So that, I see, is unique. I think we're also quite unique in our Asia and connectivity we have there. So wealth, an aspirational brand in many of the emerging markets. And in terms of challenges, I think there's some areas where I'm excited about growth opportunities, where we haven't really filled out to full potential wealth. We mentioned the commercial bank, which I'm sure we'll talk about, is fascinating in today's world, where we have 30 commercial banks around the world. And that business is really exploding with new born digital players as well as more and more companies that are looking at going into different geographies. And then in terms of challenge in our U.S. retail business, I would say, is the one that we'll talk about as to how in this world, which is beginning to move more from a physical to a digital architecture, how do we get scale in that, and that's -- I would say that's the area we're focused on coming up with new opportunities and getting the scale for the world that we operate in. So pretty interesting things. I have to say, I like the hand we've been dealt with. And there's quite a bit to do and doing it with urgency.

Great. Well, before we dive into some of those strategic issues, maybe we can talk a little bit about the macro. You've got a unique vantage point as a CEO of such a global institution. What are your thoughts on the global economic backdrop as you look ahead to the balance of '21 and into next year?

Yes. Well, I have to say I'm rather glad to be American as we look at the U.S. and we look at China as being the 2 big drivers and engines. And in the U.S. in particular, it's -- it will be the consumer that will be a major driver. We'll see recovery of certain sector, think of restaurants, think of the entertainment sectors, travel, as that comes back as a driver. Obviously, the stimulus is important and we hope that the President's plans on infrastructure and the like will provide another driver of long-term growth and sustainability for the longer run, I think will be important. Jury out on that one, it's too early to tell. So that will be important. China will also obviously still be very important. At the moment, it's interesting we're seeing the consumer being more of a driver and domestic demand there than actually the corporate sector and the export side, which initially was a big driver of their recovery. I think a few concerns on overheating there. And then in Europe, we're starting to see, obviously, lag to the U.S., delayed but not derailed growth and recovery there, which is pleasing. Germany, we're very focused on China, as you'd expect, and export areas there. But we're in the middle of some big dislocations. I mean the pandemic was the mother of dislocations, and it happened so fast. The recovery from it and normalization is going to take some time, and we see that. We're seeing it obviously in supply chains. You're seeing that both in the recovery on supply chains in some areas. But I'd also say we're seeing a strategic shift from supply chains being just in time into just in case. We're seeing more of the east-west going more north-south. So there's a number of longer-term changes that will take a couple of years to work through as well there. And employment is the big one, and we see this really around the world. I see it, too, in our consumers, there's still a conservatism in behaviors and I think people are waiting to see. Some of that can be health related. I think consumers are -- just they've got a high savings rate. We all hope that we'll see them out lending or borrowing some more from us in the second half of the year. I'm optimistic on that. But on the employment side, I think it's confidence from people that they'll find a job and at the moment, they're not in that much of a hurry to do so. And so what actually happens in the labor markets is going to be quite an important driver and something we'll need to keep an eye on. So an asynchronous picture. EM doing a bit better than we thought, frankly, the world growing faster than we thought it would, but some things to keep an eye on. And then will inflation be transitory? There's many reasons that the peaks that we'll see at the moment will be. But what's the longer-term trend? And that, I think, everyone will be keenly watching. And again, we think the jury is out too soon to be able to make the call on that one, but we'll certainly be watching it.

Sure. That's really helpful. So let's talk a little bit about strategy. The work that your team is doing, you've called it a strategy refresh, but help us understand what does that really mean? Is the strategy you're developing going to be an incremental change or a real step function?

Yes. So the piece that we've done is we've recognized that there's a lot of parts of all of the industries. I see it with my -- our clients. There isn't a CEO I don't speak to who isn't seeing their industry transforming at the moment in many different ways from their customer behaviors to the actual structure of it and competitive nature. So I think anyway, this would be an important time to be taking a look and saying, okay, for the next 5 years, where are we seeing value flowing into? Where are we seeing value flowing out of? How are we positioned within that competitively? And what are the opportunities to be successful? The goal for us is clearly, we have a gap with our peers on returns. And so in some ways, we've got a North Star, which is not just we want to win, but we're also mindful that we've got to deliver the financial outcomes that our investors are expecting from us. So the plan has to deliver both elements. And so with the first piece of the strategy review we do, I'd characterize as being dispassionate, I think that clinical assessment. The next piece, as we're looking out, is therefore also where do we focus so that we win. We have a big benefit of being unique in the sense of our client base and our core client base are companies and institutions and investors and wealthy individuals who need to -- who are operating in different markets around the world, and we help them grow in them. We help them manage that and succeed and we provide access to them. And so there's kind of a -- it's hard as a bank to say what's really unique about you. It's very easy at Citi on that. So it means that we can have quite a -- we can have a focus around what are the different platforms and businesses we have that those clients need, how do we make them world-class and how do we make sure that the key points of connectivity are there so that the clients are able to use multiple platforms and that they have synergies between them. And that's where we're focusing on, what I call, the business strategy elements, over each of those areas, how do we make sure that they really are world-class and they're fitting the needs of the clients in a very digital age. And then we're making sure that as part of that, we are making our bank simpler. There's types of scales of volumes. We move $4 trillion of volume a day. I mean the number is mind-boggling. It's only going to get bigger. And in that, you have to have an infrastructure which is simpler. So a fair amount of what we're looking at in our strategy is not just the what, but also the how. And this is where our transformation comes together. So it's a refresh in the sense of it's looking at an industry and a world where there's a lot of things changing. It's making sure that we're positioning our businesses and making the calls as to which ones are going to be the valuable ones and which ones are not, and so we'll get out of them or really shrink them and then focusing, picking the spots and then playing to win, all with the goal of getting the returns up. So it's really interesting. It's a fascinating piece of work. There's no silver bullets on anything, John. This is going to take us some time to execute. And we're making sure that we're being very thoughtful about where we play that has the most value and ultimately, drive success for clients and investors.

And I'm sure the pacing of change and how quickly you can do things is a tough one. You've got a lot of good ideas you want to act on, you want to do everything right away. But how do you pace it so that execution-wise, you do things the right way? You also don't want to end up with too much excess capital if you get out of some things and can't deploy it right away. So how is that pacing managed?

Yes, it's a great question. I think the when question is a lot of it. There are certain areas that you look at and go, okay, these are areas that are very easy that we can immediately begin building and strengthening. We'll talk about wealth as an example of that. We've got -- we've had other decisions where we've taken them fast around exiting 13 countries, which is a sizable presence in retail banking as we look longer run. So you can take certain decisions pretty swiftly and get on with executing them fast. There are others where I know we'll probably be -- take a little bit more time in the actual execution of them. And that will be a function both of really, what can you do well and what are the most critical areas to focus on transaction services. You'll hear me talk about in a little bit in commercial banking. These are very exciting growth prospects. I'm more focused on what we can be and will be rather than what we're not. But we're also going to be very disciplined about freeing up capital and freeing up resources and then putting that to work in other areas. And that will make the task easier, which is why now we're getting a move on with some of the divestiture work that we're doing in Asia right now, because it will provide the capacity. So we're not going to take on so much that we can't get it done. I think sometimes it's very tempting to spread the peanut butter. I'm not a big believer in that. I think we'll do the most important pieces step-by-step first. And this will be multiyear. I don't think any CEO right now in any industry would tell you that the strategy won't continuously evolve over the next 4, 5 years as data changes, as digitization changes, as behaviors change. So I'm not overly concerned that you can't do everything at once because you'd have to do things differently further down the road anyway. But yes, we'll be -- I think the main takeaway there, we're going to be disciplined about the execution so we do things well rather than just rush a lot of things and actually not get the results.

Great. That makes sense. And I know that you obviously have a successful consulting background in a highly strategic way, thinking about companies.

Many years ago.

But you have a strategic mind, of course. And -- but you've also talked about Citi needing to aspire to operational excellence. So how are you balancing this focus on strategy versus moving the company on that journey towards operational excellence?

Yes. I mean I think a lot of my experience at Citi has been a lot on the operational side, both regulatory and then the core operations in mortgages, in private bank, other areas has been down in the dirty as it were. And I think that really will be a lot of the transformation work. It's how you deliver outcomes of good growth and better returns. It's a lot of the how you do things, not -- the strategy is lovely, but it's really around the operating capabilities. And I think a huge amount of what we want to do in the firm is about how do we operate better. Call the spade a spade, we had a massive unforced error at Revlon, where it showed examples of manual processes and manual controls. We need to automate those. We need to look end-to-end at a number of different parts of the bank and make sure that we're reengineering and embedding risk and controls, embedding new data technologies in and simplifying the bank in the process. So I would say that it's important we have the strategy right upfront, but a huge amount of that strategy is going to be the how we operate and the investments that we continue to make in that, as we've obviously been making many -- for many years as has everybody. And that philosophy of continuous improvement in an agile organization -- I talk about excellence a lot because everyone throws out best-in-class, state-of-the-art and all this is, it's like, oh God, yawn. But I think excellent is something an organization can relate to. Everyone can relate to excellence over being mediocre or good enough or those other components. In today's world, I'm really driving for excellence, risk and controls and operations, client service. At the end of the day, that's what will deliver the results.

That's helpful. So before we dive into some of the businesses, let me just ask for a little bit of strategic view. I don't know if it's too early to ask this, but if we're looking at Citi's business mix and revenue contribution, say, 5 years from now, any sense today of how that might look different than it looks today?

Yes. I'll certainly be able to give you a better answer in a few months' time when we've completed all the strategy work and rounded out more on the financial dimensions of it. But as I look at it, I think one of the pieces we're trying not to think conventionally as we think 5 years out, because I strongly suspect some of the industry, the separation of consumer and institutional is already blurring in payment spaces and other areas. I suspect that will blur even more. So some of the divides will be a little different in mix in that respect just because the structure of the industry will evolve. The other component, I certainly would like to see more fee income and revenue in. I'd like to see some more strength in our U.S. deposits, retail deposit base as well in that mix, some diversification in the earnings, we'd like to see from that dimension. But I would ask you -- in a few months' time, ask me the question again and we'll talk about it. And -- but the most important piece is that we want to achieve our return goals in all of this. So you'll see a heavier weighting growing towards the higher returning and growth engines within the business while still making the most of the other businesses in which we have a leading position.

Makes sense. Well, you -- let's talk about some of the businesses. You mentioned TTS a few times already. That seems like a great business, perhaps gets overlooked at times by investors. How are you thinking about TTS relative to the refresh? And remind us what are some unique advantages in that business.

I mean it -- the thing is just extraordinary. I have to say, I think it's my -- it really is one of my favorite businesses. Having run Latin America, I saw companies can't operate without us, multinationals on the ground. So it really becomes this network we have in cash management, in foreign exchange, in trade, in lending. The data that gives and the services that you're able to provide clients, and I'll give you some real examples of it. When you then operate that in 98 countries on the ground, with people on the ground as well as the partnerships we have, the rails, the connectivity between them, most of the multinationals I certainly found in Latin America, they didn't have a choice really but to do business with us because no one else is able to provide that combination of the rails, the data, the mixture of different businesses and connecting the supply networks and their own organizations everywhere. And I hear it from this...

We lost you there for a minute, Jane. I think it's coming back.

Okay. Is it coming back?

Yes. Now we're back. Yes.

Okay. Good. Sorry, I'm not sure what happened there. No, and I've spoken to about 100 of our CEO clients who -- the multinationals or investors, and they always say, they smile and don't tell the investment bankers, but they'll say, look, it's wonderful that you want to do the strategic advisory work. By far, the most strategic capability that you provide is what you do in helping our operations work around the world. So if I give you a couple of examples, Alibaba, they are a monstrously large organization now. And they needed a global digital receivables recognition tool. Yes, this is the largest global e-commerce player there, and they want to improve transparency, certainty and risk management of what they do in their marketplace as they connect globally, buyers and suppliers. We are their partner for that. We're the leader in TTS digitally around the world. It is unmatched compared to the competition of what we have on the ground and how we bring this together. We have the platform and capabilities to cope with that scale. Sanofi, they want to bring their free cash flow down, significantly improve it, get an improvement on what they're doing, get their cost down, their efficiency and drive this forward. Our ability, we're the best-in-class treasury performance capability in place for them. So it's not -- it's something a local bank can't do and the other global players just don't have the capability. And we're then able to really help them be their thought partner to run an integrated global firm. Stripe, in their treasury, when they're looking at what they do as they start going much more global, we're their partners to do it, the same way that Google, we're their partner on this. So that is something that is an extraordinary asset. It's not just managing cash. It's not just managing FX and trade. It's bringing all of this together and enabling our clients to have competitive advantage to drive their efficiency, to manage their risks more effectively. So think of this as a services business, not just as sort of a commercial bank, corporate banking capability. And the growth there is tremendous, and we're now seeing it around the world with these huge wave of new companies that are emerging, so these born digital players. In Asia, the average age from life to IPO -- birth to IPO right now is 6 years. The first-time issuance was 70% of the Asian investment banking wallet last year. So these are companies that are growing up very fast. And we are the bank -- and our commercial bank, with all the capabilities on the ground already that can take a company that suddenly goes born locally and starts expanding globally, we start helping them go global, well before they're thinking IPO, well before they're thinking about the other things, and they see us as their critical partner. So there's a lot of growth in here and there's further downstream impacts from the commercial bank transaction services. So I think as you can tell, this will be, I think -- this is really going to be the driver, I think, of the valuations of Citi going forward, just given the dynamics in the world and the competitive position that the business has. It's very hard to unseat this, and we keep investing hard to make sure that, that remains the case.

And what are you doing to scale it more than perhaps Citi has in the past, Jane? I think we have heard about TTS and its unique advantages in the past. But I think investors are kind of saying, hey, it would be great if this is a bigger part of the overall franchise itself. Can we see more of it?