Citigroup Inc. (C) Earnings Call Transcript & Summary

Got it. Okay. So maybe help us tie that through with what you're seeing so far in the second quarter, you've been -- what have you been seeing in terms of overall investment banking and markets and if you have any other updates for the quarter?

Yes. No. And I think probably in part of the continuation of what we saw in Q1 as it relates to the good and intense level of customer engagement, right, and customer appetite, I would say. If I go through, for example, investment banking in terms of fees, what we're seeing for the quarter is something along the lines of a mid-teens level of year-on-year growth, and that is anchored on equity activity, right? What you've seen IPOs picked up between Q1 and Q2 and what you're seeing in follow-on activities. In DCM, we're seeing investment great debt, also highly active, a bit more selective on the high-grade side -- I'm sorry, on the high yield side. And then on the -- all the selectivity as it relates to some of the sponsor activity as well. And so overall, fairly constructive in total as a wallet. In terms of markets of our market franchise, we're seeing in terms of revenue growth, high single digits to low double-digit revenue growth for the quarter. Some of the trends that we saw in Q1 -- I'm sorry, as a reminder, the -- remember that Q2 last year had the element of volatility into equities that the tariffs brought along. So it wasn't the lowest of quarters, let's just say, right? But even with that, we're seeing strength in equities in prime, in derivatives in line with our strategy to continue to drive prime. On the fixed income side, continuation of strength in currencies, in commodities and spreads is instinct with our strategy of driving financing and securitization. We're seeing good volumes in the second quarter as well. And those are stable, more stable source of revenue momentum across the franchise. And then -- the last piece I'll mention for Q2 is as it relates to cost of credit, we're expecting to be more or less in the range that we were in Q1. And that links up with our reserves which are probably more volume driven in the quarter given the client activity that we're seeing. And then on the NCL front, I just mentioned, I think, generally well within our expectations, seasonal patterns between Q1, Q2 down delinquencies and losses for -- on a year-on-year basis, Overall constructive.

All right. Perfect. So investment banking up mid-teens markets up high single to low double digits off of a strong base in the second quarter of last year and cost of credit in line with 1 Q?

Yes, recognizing there's a few weeks ago. I should say this as you have go up here before I open my mouth. But of course, there's a few weeks to go and some of the things could change. And depending on timing, even on investment in banking fees, there could be more opportunity on that. But yes, that's what we're seeing today.

Perfect. That's great. Okay. So at Investor Day, you focused a lot on 2027 and beyond. So I did want to spend some time on 2026 as well. You've given a target range for net interest income ex markets up 5% to 6% this year. And -- can you help us think through the puts and takes of that growth, particularly as we think about loan growth and deposit growth?

Yes. So no, thank you, and it's obviously a very pressing question. And let me start by mentioning a couple of things. First, as I said at our Investor Day, we are confident in that 5 to 6 that we will be able to deliver that guidance. If you look at what we've done recently in Q1, that NII X markets number was about 7% year-on-year growth. Last year, it was about 6%. We guided for the year mid-single-digit growth of the underlying drivers, deposit and loan growth. We are comfortable with guidance. And 1 key takeaway on NII X market is that the majority of the outcome for the guidance of this year is really on core of client-driven engagement and client-driven volumes. So when you look at deposits for a minute, what we're seeing in services, what we're seeing in our wealth business, how we're driving -- how Andy is driving both the retail bank and affluent customer volumes, which are high liquidity value for the firm and also what is driving on the private bank as he has been rewiring that for the last couple of years. I think that momentum in the mid-single-digit range feels good. And then on the loan side, ex markets -- we're seeing good momentum as it relates to wealth in the securities back lending in mortgages as well as on the U.S. cards front as well. Reminder also that in the second quarter, we acquired the American Airlines portion that was looked after by Barclays. And so that's coming in as well. But overall, in line with the spend that we spoke about as well.

Got it. And as you think about that mid-single-digit deposit growth, we've been hearing from some banks saying that competition is picking up. Anything that you're seeing on either the corporate side or the consumer deposit pricing side that speaks to increasing competition?

Yes. Of course, we'll have to look and see a little bit, especially across the story on rates given the events in the Middle East may be shifting on us, right? The curve is right now pricing and increased towards the end of the year. A few months ago, that was a very different picture. And so that pivot may impact -- and that's why we want to be thoughtful about the guidance on the 5% to 6% because even though you may say, hey, isn't higher for longer, it will be better for banks. The answer is generally yes to that, but you also have to see the impact that it creates on the on the volumes and on the pricing. So far, the pricing and the betas are holding stable. I think there's a lot of what we get to see specialty related to services, which is about 2/3 of our funding sources. There's a lot of operational deposits anchored into the fact that we are a global bank in 90 countries and the customers. Our clients need us every day to make payroll and to really drive their commercial volumes around the world. And so we're highly embedded and therefore, the price sensitivity is not the same as you see in other pockets.

Got it. And then maybe let's flip to noninterest revenues ex markets. You've talked about your expectations for growth. Can you walk us through the drivers of fee revenues across the businesses for this year? And I guess, what is -- what should we be considering as we think about that piece of the revenue?

Yes, thank you for the question. I think the -- I'm going to sound like a broken record, client-driven growth momentum. That's what we're focused on, right, commercial intensity and also not only being in high engagement mode with clients, but also making sure that the investments that we have been making are paying off. And we're seeing that. So if you look at Q1 and the drivers of the NIR x market, you had 15% revenue growth in services, You have 14% investment banking fees growth. And you had -- although you had a 5% on wealth, we were also lapping the fact that we sold our trust business a year ago. So if you look through investment revenue, investment fees, those were at also double digit at 11%. So we feel good about the momentum that we saw in Q1 and the continuation thereof and our expectations through the year, both as a combination of upping the level of accountability and engagement across our teams, but also the investments that we have been making across those franchises. So those 3 are going to be the primary drivers.

Okay. Perfect. And I guess, the last part that 2026 discussion is on the efficiency ratio. You've spoken about an efficiency ratio of around 60% for the year. Are you -- are you still on track for that? And b, can you run through some of the drivers for that expense base this year?

Thank you. So I think a couple of things. And if I step back, the #1 commitment is our return expectation of 10% to 11% ROTCE. Sacrosanct very confident that we will be able to deliver that this year. Now operating efficiency was 1 of the components of that, right? So we guided around 60% to your point. And yes, we are confident that we will be able to deliver within that range. And what's important to us is if you look at operating efficiency and the progress we've been making, we had 2 years in a row where we've improved our operating efficiency down to 63%. We expect to repeat this year. with another 300 basis points of improvement or thereabouts at the -- around 60%. The key drivers of that obviously emanate from continued momentum on the client franchise and really seeing that revenue growth part of which is being driven by the investments we've made. Secondly, continuing to make progress on our structural efficiency sources, which are self-funding some of those investments going forward as well. So 3 pieces there. stranded costs which were about EUR 1.3 billion last year. You already can see in Q1, they were about $200 million. So even if you annualize that, you can see them coming down, and we expect to do -- for that to continue. -- transformation costs. Last year, they picked at $3.3 billion. Now I've spoken in the past about how roughly half of those are sitting in corporate other and are more temporary in nature. They were there to build the house. right? The other half are structural in nature and are there for us to stay with us as part of our fabric. And so the temporary ones, as we are reaching completion and we spoke about in the past, recently, how 90% of our programs are at or near completion. As we complete programs, we don't need to wait for exiting the consent or in order to be able to release some of those costs. So you're seeing that in the early innings of that, that would play out through the near term. And the third piece is structural efficiencies, right? Those have come from automation, technology automation and deploying AI. We have more than 100 of our kind of largest scale and most manual processes. Our COO, Anand and Tim Ryan, they met our tech head. They meet every single week with our work teams. And so we have a lot of rigor behind making sure that those 3 sources of funding for self-funding our investments for the future are there and clicking. And then the last piece, sorry, is RWA and capital optimization, right? Very focused on driving and making sure that within the businesses, we're very dynamic and thoughtful in how we allocate capital on a quarterly and daily basis.

Great. So with all of that, still on track to that around 60% number and room for improvement. As we think about the AI-related spend that you just spoke about, -- can you talk about some early tangible benefits you're seeing on the AI side?

Sure. So the -- maybe let me talk about the approach and the focus on pockets of value that we're seeing to make it tangible. First, in the approach -- we take a dual approach. The dual approach is top-down and bottom-up. So down because there are some areas where you can see really scale benefit, and that requires the prioritization the senior management focus and the high urgency and intensity to monetize it, to size it to fund it, right, because you may need technology development. and really drive that. That's linked to what I was just talking about the structural officers those 100-plus processes that we are looking at end-to-end, and I'll come back to that in a second. The second piece is bottom up. We also want to unleash individual ingenuity right? And so how do we make available ARPUs to all of our team members, how do we enable them to grow and develop and upgrade themselves and also in their very specific -- not every role is homogeneous, right at the firm. You may have call centers. You may have KYC agents. Those jobs are more homogeneous. There are others that are not. How do you bring innovation and efficiency and that utility value to everyone at the firm is kind of the second piece of top-down and bottom-up. And then when we look at the value, we look at really 4 different buckets, right? One is enabling growth. So tangible there. How we're looking at wholesale credit, being able to make faster decisions that still pass our credit risk appetite, what we've been doing with AI machine learning on the credit card space, where we've seen improvements of 100 basis points on approval rates. All of those things are tangible things that I can see as far as driving and enabling growth. Then you have a vector of efficiency. Obviously, that I'm sure everybody is on the same boat there. But if you look at customer service, for example, and we've been at it for a couple of years now, just on Genii alone, we've seen improvements of cutting down the call time by seconds, right? That's a big number, not only in sales, but just think of the customer experience on having to be on the phone for so long and from a risk management perspective as well and also from an efficiency standpoint, And we're seeing that even on the corporate side in services, right? The containment rate of our City direct agents is up about 50%. All of that again is better service and more open. So you have almost like a triple win, right? It's risk, efficiency and customer experience. So that's the second vector. The third vector is defense. And so we're seeing a lot of application, not only in cyber, which has been in the press, but also in fraud, in AML, in all of those areas of defensive nature and that help us protect the bank. And the last piece is our people, not in that order, but the last piece is making sure that we are helping our team members innovate for the benefit of the firm, but also for self benefit, right, and making sure that everybody, myself included, right, that we upgrade ourselves, so we don't become the dynasoursoft tomorrow.

I hear you. And I think the other piece of what you spoke about at Investor Day was the investment spend that you're making in the business, I think you spoke about $5 billion of investment spend. A lot of it is self-funded. So -- can you talk about where you're investing and maybe talk about the timing of some of those investments?

Yes. No, thank you. So maybe I'll start maybe with Principal One, which is we want to be very disciplined about this. So we recognize the importance that these investments are going to anchor our path to our near-term and medium-term returns. And at the same time, it's important that we keep the discipline in how we're going to fund these investments. And so we've spoken about how we're still funding them. I talked a little bit earlier about the levers, so I'm not going to repeat them again. Then when you look at the areas of focus, the other -- the second principle, in addition to the discipline and the self-funding is that these are not spread the peanut butter investments. These are very focused investments that are 100% aligned with our strategy. So even if I go 1 by one, you're going to see a very direct connect and that's how we hold ourselves accountable with our business heads and our teams into making sure that the linkage is direct. So if you think about markets, for example, and they spend most of it -- a good portion of his presentation talking about how we want to scale our equities business. So some of the technology platform and the talent investments that Andy is making that were enabled are linked to that piece in equities as well as continue to drive and maintain our leadership in fixed income. If you think about Investment Banking, Biz was talking about how -- we're investing in talent in certain sectors, right? We're investing in North America. We're investing in technology, in health care, in sponsors, which is an area that we weren't where we wanted to be, and we've been driving that. And this is, we talked about technology. We saw Sky and how we were deploying our AI agents. But at the same time, the investment in talent, right in bankers and relationship managers and the like and so -- as well as the product capabilities. If you look at our cards business, right, a very good return in business, and we want to drive the growth. So investing in marketing, right, in card acquisitions as well as digital experiences and engagement and driving loyalty for so that we're top of wallet card. And then when you look at services, of course, right, or a crown Jo, you want to make sure that we are constantly innovating on the platform because that is not only a defensive move, but also an offensive move, right, as you bring 2 multi-country, cross-border payment availability, we have to invest in the platform and really make sure that gives us not only the durability of those great returns that we get from the services franchise, but also enables consistent growth.