Citigroup Inc. ($C)

Welcome to RBC Financial Institutions Conference. Thank you for all of you attending and really, Jane doesn't really need much of an introduction. She's obviously a Chairman of the Board and Chief Executive Officer at Citigroup. This is her fifth year as CEO at Citigroup. And I was doing some number checking and the stock is up under her tenure, 53% versus the Bank Index, which is up 31%. So you're outperforming the Index, which is great.

It's getting going, though.

Which is the most important part. As you may know, the market cap of Citigroup is about $187 billion, and it's truly one of our big global banks in the United States.

And so we're going to have some questions during the fireside chat. And Jane, maybe we could start off with given the Citi's broad and deep global reach. Can you share with us -- talk to us about the dynamics that you're seeing around the world right now? And what are you hearing from your corporate and investor clients? And any thoughts on the consumer sentiment activity that's going on?

Well, it's quite a lot in there. Look, I kick off just by the underlying economy, it's doing just fine around the world. And activity is good. Business momentum is good. The consumer spending was up about 5% in February here in the states. We're seeing a pretty fiscally responsible consumer as well, which is probably where some of the sentiment has translated into some more mindfulness in it and the balance sheets are in pretty decent health. On the Corporate side, I think particularly here in the States, I hope it's very much on the front foot. You're seeing strong investment both in AI as well as into general automation and technology investment that's going on, pretty vibrant M&A market linked in as well. As companies are looking at consolidation and opportunities really to move momentum forward. And I think particularly given everything going on in the Middle East, most relevantly, balance sheets are probably the strongest I've seen in my tenure, and they haven't been weak during that tenure. So again, corporate is in good shape. And we've also got some other positive drivers that are coming through. deregulation is making a difference. We're seeing things getting done faster, more confidence out there. And then we're also going to have the tax bill benefit, it's coming through. So the underlying side, particularly in the States in good shape. I'm just back from Europe. Germany, definitely feeling much more positive about their outlooks. And Europe generally feeling this year will be better than last year. So the big wildcard is obviously the Middle East. And when we look at the big question really is the duration and the containability, if that's a word, of particularly what's going on in the straits. And we don't know the answer on that one. But if I look at -- I was chatting with our economist yesterday, and his view, which I think is the right one from what we're seeing is, if the oil price is over $100 for the next 4 to 6 weeks, say it comes down to about the $85 mark for the second quarter and then below $70, which is more in line where inventories, other things are in the second half of the year. That probably shaves 15 bps, 1-5, of global GDP growth. And part of that is there's a lot of physical inventory out there still. Now if it's longer than that in terms of above $100 oil price for a longer period, then you're looking at a very different scenario. And that has ramifications for inflation. So I think, the central banks have a tough job at the moment. They're all set globally for bringing rates down. And they're in a wait-and-see mode at the moment. And they will be in suspension for a little bit, I suspect. So they've got the tougher job and particularly here in the States because the labor market is -- the supply side is not a challenge, but we've all seen a clear softening on the demand side. So I think the Central Bank, the Fed is going to have a tougher job between the balance of, if inflation is picking up, because of the oil price, and you've got the labor market on the other side, where do they land? But if you go despite everything, Corporate activity, very strong at the moment. Large-cap M&A is not missing a beat right now where we see a bit more of a pause is, say, middle market private equity, equity capital markets, IPOs, the best names continuing forward. I think probably going to be a little bit more selective with some of the smaller IPOs as to which ones will be up to come or not within in the larger space, not. And the credit markets have been very constructive. If anything, right now, they've been more focused on AI than they have on the oil price. And obviously, for investors, I think the equities guys, we're better positioned in the equity markets. We've seen a few of the hedge funds with some pretty hefty losses on the rates front, but not for everyone across the board and commodities we all know about. So you put it all together, the other noises we see in the markets around private credit. And what I'd say there is we do need to just get some facts on the table. Private credit is a $1.7 trillion market, right? We just wiped $1 trillion of crypto and never no one missed a beat. It is the retail investors are not a major investor in the space yet. And it's not a levered part of the market. It's 1, 1.2 so leveraging there. So I'm more sanguine on private credit. There'll be some idiosyncratic risk in there from folks don't have credit standards, but I don't think it's a systemic issue. Where it gets a little more concerning would be if the Middle East crisis goes on for a long time, and you see a convergence of the concerns on AI valuations on the disruption risk into business models from AI. We're seeing it obviously with SaaS software, some of the business services and private credit all coming together and getting and converging, that would be more problematic. So that's what we're keeping an eye on.

No. Very insightful. I appreciate that. Can we follow up on the regulatory comment? Obviously, we have the stress capital buffers and CCAR coming up very shortly. Can you talk about what you're thinking in that standpoint from what the regulators recalibration? But also in terms of how do you look at it from a capital perspective as well?

Yes. Well, I think, we're going to know a lot more in about 2 weeks, that's we're hearing the time frame for getting the proposal through as it comes out of the FDIC, the Fed and the OCC on Basel III and GCIB. So I think, we'll know as it were the, worst case as it were on capital. And I think we're all optimistic, but let's wait 2 weeks, isn't that long, we'll get a better sense around it. And then SCB, I -- well, it's always frustrating when you're expecting your SCB to come down that you have to wait a year. I would much rather -- and I think all the bank CEOs would say the same thing. We would much rather have the right models developed and then have that giving the market and ourselves much more certainty around the stress capital buffer system for multiple years. Then have a pillar system or some other approach that was more of a Band-Aid, getting accurate and better models will, certainly, from Citi's point of view, be very beneficial in bringing the SCB to be an accurate reflection of our risk and our risk is coming down. And then the other piece is, it's good to see the focus on material financial risk. I mean, from the supervisory side, the last 15 years have -- they've not been banal, but they have been benign. And I think, thinking that it's going to continue being benign for the next few years is probably a tad optimistic. So having a supervisory focus much more on material financial risks is very important for the next few years. So I think it's from an investor point of view, you want the supervisors focused on what is important for the future, safety and soundness and not on things that are not. I'm optimistic about our capital, because I see the risk of our bank materially different from what it used to be way back when, and I look forward to our SCB reflecting that.

That is very good. Yes. No, we're all very anxious to see the proposal when it comes out from Washington later this month. So that's good. Maybe shifting over to the first quarter. You touched a little bit about the market conditions. Can we dive into what you're seeing in the overall growth in investment banking this quarter as well as markets? And then anything else you'd like to call out into the quarter or ahead of the Investor Day in May?

It's always lovely being asked that question with a few more weeks to be left in the quarter when you've got an uncertainty in the Middle East going on. So with the appropriate caveat of, let's see, how the events unfold. I'd say for the first 2 months and a bit of the quarter, it's been good activity. So our perspective as I sit here right now is when I think about investment banking fees, we're expecting mid-teens growth in fees for the quarter year-over-year. And that's really been M&A, as I talked about before, and ECM, that are the big drivers. Same guidance for markets. Our markets business, we're expecting mid-teens as well year-over-year, and that's both been strength in equities and fixed income. Obviously, that can change in 2.5 weeks, but I feel pretty good with that where we sit right now. And then in terms of where looking at overall, we will be expecting, as I talked about at the last earnings call, around about a 60% operating efficiency for the full year. But you can expect us to be front-loading some of the severance expenses and other elements in the first quarter just because of obviously that, that is better for our shareholders and for ourselves when we do that. And you'll get the benefit in the first quarter earnings of seeing the Retail Bank sitting into Wealth and then the clarity of what our cards franchise looks like. So I hope that, will make everyone even though you have to change some of the models around, it will make it much easier to forecast some of the pieces going forward. So short-term pain for long-term gain.

And the Investor Day is obviously coming up in May.

Honestly, I can't wait. So we're looking forward to that because we'll -- I think you'll see the confidence we've got in the 10% to 11% RoTCE for this year. And with a lot of good tailwinds behind us. And also, we've really -- we've tested a lot for different macro environments. I think all banks have had to in the last few years are making sure the model is pretty resilient under different scenarios and good diversity of businesses there. So we'll be looking forward to laying out the path from here.

Great. You touched on the 10% to 11% RoTCE. Are you feeling confident on that? And then what are the drivers that you see in efficiencies to get to that number?

So yes, I feel good about that. I think we all do. Gonzalo is sitting here in the audience with me has been looking at everything with a good fresh pair of eyes as well. If we unpick it on the revenue side, I think you've seen us with sort of 7% revenue growth for the last few years, despite the various challenges in the environment. You look at the NII numbers, I'm looking forward the rest of the year, expecting to see some good deposit growth. We've had benefit of a flight to quality of late, but we're just expecting to see good growth in NII from volumes. We also see the benefit in mix as well as seeing some of the investments we have in treasury getting reinvested. And that provides a very, very good offset to a potentially declining rate environment, the timing of that's TBD. So good growth on NII ex markets. Similarly, NIR, feel good on the growth there. We'll see it from services. We'll see it in Wealth Banking. So markets, I find it very hard to predict exactly what markets revenues are going to be over the course of the year when you sit here in March. So I sort of decline to comment on that one. And then on the operating efficiency and expense side, as I said, the expenses we'll be looking at around the 60% number for operating efficiency. But as you go beneath that, you'll see both productivity saves as well as investments. So the different components on the expense base, we've got productivity benefits from investments that we've been making. We'll have the transformation costs as we're -- as I mentioned in the last earnings call, over 80% of the programs are at the target state that we've laid out. That enables us to bring the cost base down associated with that. So you'll see that in head count and expenses starting in this quarter. We also got stranded costs with Russia getting closed, China is done. Mexico, other pieces getting into a strong position that enables to bring stranded cost down. And then the benefits of the investments we made in transformation and others translating into productivity. On the severance side, I expect it to be a little bit lower than last year, but as I say, we're really front-loading that into the quarter. And then on capital, we continue with the discipline and we love giving capital back to the shareholders if we don't see the opportunity to deploy it at high returns internally. So a bit -- very much the same, as you've seen from Citi over the last few years. I think there's been a consistency. Revenue growth positive operating leverage, capital discipline, improving returns and investing in the businesses for the long-term growth at the same time as driving the productivity improvement. So I hope this year is just continues on nicely as more of the same.

There you go. And you touched a little bit on the Wealth and the Retail Bank coming together. Maybe you've had some real momentum and success in that area. Can you talk to us about the drivers of what you see going forward? And then also, what are the synergies that you're looking for now that the Retail Bank is included in the Wealth Management area?

So, Andy has been doing a super job. I think what we've been doing most of late, and we put a lot of it within the first couple of years he was in, he was getting the platforms put together, getting the synergies in. You saw a lot of the cost benefits coming through. The focus at the moment, we've been continuing to attract really excellent talent as well as retaining some of the -- we've got some fabulous talent in different parts of the business in the world. And we've been doing a lot of work on the CIO capabilities and product, Kate Moore and the team have got a fantastic set of capabilities and proposition now. We've also been putting a lot of work into the investment platform. So, Keith Glenfield and the team there have been making sure that we've got a platform agnostic, platform and offerings. So we're not pushing our own product. We're very much agnostic as to where it comes from. I think that's a competitive advantage, building out in alternatives and the core investment offering. And then we've got some fantastic partners: BlackRock, iCap, Palantir, looking at how can we disrupt, how can we improve client experience, and how can we also leverage our partner scale. So you'll continue to see us very focused on quality, NNIA, on investment growth, in the investment platform to drive our returns, but also good discipline in the balance sheet and getting returns there. So I feel good about that. And then good timing for putting the Retail Bank and Wealth together. Seeing Retail Bank had obviously been a drag in the USPB franchise. It's had very good revenue growth in the low to mid-20s. As you saw in the recent numbers, Wealth had strong growth and revenue momentum and underlying momentum. So, we'll put them together. It won't change the -- it changes the RoTCE as you'll see, but it doesn't change our expectation to continue growing the RoTCE in line with the targets that we laid out. And the synergies are just, they are so obvious. There's real value of having a deposit franchise together in one. I think that's another area. You'll see as investors the benefit of seeing what does the full U.S. deposit franchise look like without having to flip through supplements and other things. But the heart of it is, we're very -- our Retail Banks in the six markets where most of the -- a lot of the Wealth is in the states. It's about 35% of the high net worth households are in the six markets that we've got the strong holds in. And so, that ability to have a pretty seamless client experience all the way up, the client elevator is an obvious one. And we could see it when we had USPB and the Wealth franchise with the referrals going across, that we have $3 trillion of assets in the U.S. of us with clients with an existing relationship with their operating account for the day-to-day finances and we've been that forever. So we're highly confident particularly given the investments in client experience, the platform work we're doing in Palantir and others that we will be providing a very modern and highly appealing Wealth proposition into that Retail Bank client base. I think you can tell I'm excited by this one.

Yes. Very interesting. And the other big part, of course, of Citigroup on the consumer side is cards. And now, can you talk to us about the franchise? It shifted as a stand-alone. So how are you going to be -- what are you looking for in terms of the drivers there? Now that is a stand-alone.

You'll hear a lot from Pam at Investor Day about this, as you obviously will from all five of the business heads. So what we're seeing is we're the #3 franchise in the States. We've been investing a lot in terms of our product platforms. You've seen us launching the different strata, so that we're filling in with the premium customers. That went so beat my expectations. I think the team low-balled the numbers when they showed them to me the first time, because the growth has really been strong there. We've also been seeing a lot of strong momentum behind loyalty and engagement that we've been investing behind. We've got American Airlines coming on board. So that's had a lot of attention in terms of building out the proposition on the rewards side in terms of the lounges. And really spectacular growth in client acquisition on that front. Also very happy where the Costco relationship has been going as well, which has been a big and important one. We've been focused on driving up the returns. On the CRS side, I think what we've seen is consumers now prefer a general purpose card, and more of the closed-loop system. So you'll see us in terms of our growth, focusing more on the co-brand relationship and even some conversions of existing ones into co-brands as well as the proprietary cards for the growth going forward. But I'm excited about what we're going to be doing. And AI is also an area where we'll talk quite a bit about that at Investor Day because that's also providing all sorts of new possibilities.

And on the credit cards, from time to time, portfolios come up potential bidding or sales. Are there any on the horizon that you're aware of that Citi may have an opportunity to look at?

I'm not going to let our competitors know about that one. But we're very clear both with the existing ones when they're coming up for renewal as well as other opportunities. It's laser focused on the returns. We have -- if something is not cutting it on the returns in the renewal, we won't be pursuing them or we'll be looking at a very different set of economics. And the same again for new situations that come up. The Barclays portfolio that we're taking over, for example, next month, the economics are all ones that our shareholders will be -- would say is appropriate.

And one -- because of all the different changes as recently as from January, it was talk about that 10% limit, and you were very clear on your earnings call, how you felt about it. But we haven't heard anything. Is it kind of past us now? Or is that still something that's?

Look, I think the President is rightly focused on affordability. Right? We have a very broad array of different offerings for our customer base that play into that, not only in cards, but also the Retail Bank and the like, as do many of our peers as well. And I think we've been very clear that, this is not the way to solve affordability. This is the way to crush access to credit for anyone other than the wealthy. And I don't think that's what the President would like. So I hope -- I think Congress understands that.

Yes. Coming back to the returns, the 10% to 11% RoTCE, what are you most focused on to ensure that it's higher returns are sustainable over time?

Yes. And this is what you'll hear from us a lot at Investor Day. I think we're excited just to help you see the continuity of the strategy, but where does it -- where does it take us to next. And there's a lot of tailwinds from the investments that we've made over the last few years. So that really does help us with momentum in the next 2 years and then beyond. We will be continuing to invest in acquiring new clients, deepening with existing client relationships in the product capabilities. And AI is obviously another area where investments are driving greater productivity. They're driving opportunities in revenue. They are driving opportunities in service, and we're extremely, extremely active in that front, particularly with the new raft of models that have come out. And we -- I've talked a bit about that before. But what you'll hear at Investor Day, will be, where do we have the -- where are we looking at the investments that will help drive the revenue growth by each of the different businesses. So you see in services where we're making investments in the product innovations that we've been talking about, new ones in markets, prime, finance as an example, in the financing space and the technology investments behind that. You'll be hearing in banking about some more of the talent growth that we'll be investing behind. So we'll lay all of this out. We are not short of growth opportunities. And we're also, because of all the work we've done, able to bring the firm together and have much more of a one Citi approach to clients and the client coverage improvements is really helping drive the wallet share capture going forward. We'll lay it out. We'll lay out where we see the expense opportunities, continuing to invest, but particularly as transformation, stranded costs, other elements come through. That will be a benefit for continuing improving our operating efficiency and operating leverage. I think we have the best corporate loan portfolio on the street. That's our belief. And we have some good proof points behind that. We are a source of resiliency for our clients. We see it at the moment, Middle East, that's operating resiliency for them as they sort out supply chains, operating resiliency because our infrastructure is modernized and strong. And then on question more financial resiliency for our clients in terms of our capital, liquidity and whenever there's a port in the storm needed, we see the flight to us in moments like this. And then on the capital front, we continued to making sure capital is investing in high-return opportunities, things commoditized moving from that and then return of capital to our shareholders. And we'll also get the benefit of the back end of final stranded costs coming down, transformation expenses coming down, DTA getting used up here in the States. So, it's a pretty logical path to the next set of returns in the next couple of years and then towards returns that are firmly in the respectable category beyond and the team is on the mission. We'll get it done.

No, that's great. We're running out of time. So the final question, can you share with us -- we touched on -- this is your fifth year as CEO at Citi, the progress that you've made over this period. And then finally, one of the key messages that invested that you'd like investors to take away from today?

Yes. I mean, I think, we really put the foundations in place over the last few years for what Citi is for going forward. And you can feel the positive momentum behind that. Clarity of the strategy, five interconnected businesses in which we have the right to win. And we are advancing in terms of our market share, wallet position and others in all of those businesses and getting those synergies and connectivity from them. At the same time, really good progress on the divestitures. We've either got sales agreed or completed on 13. And as you saw from the announcement a couple of weeks ago, much further ahead with Banamex, and I think anyone would have thought. So it will be down to 51% when the latest tranche of investments closes before too long. So it's a clearer Citi. We've also, as an organization of the org simplification, you've got a flatter, simpler, better connected firm, faster decision-making, much easier to connect the pieces to deliver one Citi to a client with a focus and accountability within the organization to do that. And that transparency and accountability from the org side was a really important piece. Transformation in good shape, as you've heard, but also importantly, driving some of the benefits that we'll get from the investments in transformation, translating now into efficiencies. And we have modernized the firm, the infrastructure of the firm. And we have a fantastic leadership team in place that really works as a team. So you put all of that together, we got a lot done in a short -- relatively short period of time, translate into results in terms of the revenue growth, positive operating leverage, improvement in returns, improvement in the position of each of the businesses. And I am looking forward to the next 5 years as we manage the firm with a much simpler, better Citi. And our competitors better watch out, and our investors should just enjoy the upside because we're still cheap.

And with that, please join me in a round of applause thanking Jane for joining us today.

Thank you.