Citigroup is preparing a vast plan to convince skeptics

NEW YORK, Feb 23 (Reuters) – Citigroup executives will present detailed plans to generate better returns and address spending concerns at a shareholder meeting next month that analysts and investors say could determine his future.

The bank will set new targets for tangible return on equity, a key measure of profitability, people familiar with the plan said. Achieving these goals will require a renewed focus on payments, commercial banking and wealth management.

The bank will also try to show investors that the cost of employing 4,000 people to comply with regulatory orders will lead to cost savings and improved processes that will help drive future growth, according to Paco Ybarra, managing director of the client group. Citigroup institutional investors.

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Investor Day on March 2 comes just over a year after Jane Fraser, 54, became chief executive of the fourth-largest US bank by assets. Fraser, from Scotland, was tasked with transforming a company whose share price had lagged rivals like JPMorgan Chase & Co (JPM.N) and Bank of America (BAC.N) for the eight years at the helm of his predecessor Michael Corbat.

Fraser moved quickly to streamline the business, announcing plans last April to exit noncore businesses, including consumer franchises in 13 markets in Asia, Europe, the Middle East and Africa. It doubled in January – announcing plans to sell or divest the Mexican retail business of Citi, its largest consumer business outside the United States.

However, investors remain skeptical.

“People are incredibly skeptical,” said longtime Citigroup investor Patrick Kaser, portfolio manager at Brandywine Global Investment Management.

Citi’s stock price is currently trading below the value of its assets, while most major banks are trading at premiums to their book value. This puts pressure on Fraser to present a plan that will restore investor confidence.

If it fails, the bank could face breakup calls, analysts say.

“Today is the most important day of Jane Fraser’s working life,” Wells Fargo analyst Mike Mayo said. “The goal is to show why Citigroup has a reason to exist. The stock market says Citigroup is worth more dead than alive.”

Investors want Fraser to present a viable case that the bank can cut expenses, accelerate revenue growth and improve returns.

“If they could come up with a credible plan, the stock could go up 10% or more,” Kaser said.

Leaders need to show that in two to three years, Citigroup can deliver a 12 to 13 percent return on equity, said analyst David Konrad of Keefe, Bruyette & Woods.

That would still lag behind rivals but would be seen as achievable, he added.

PAYMENTS

The growth of the global payments business, known as Treasury and Trade Solutions, is central to Fraser’s strategy. It requires relatively little capital for the returns it can produce and can make it easier to cross-sell other services, executives say.

“This business has significant potential for the future,” Ybarra said.

Citigroup’s payments business already leads its rivals in catering global businesses. The bank wants to expand it to serve commercial bank customers – mid-sized companies with annual revenue between $50 million and $2 billion that do business internationally.

It also sees opportunities to expand payment services to governments, financial institutions and fintech companies, according to people familiar with the plan.

Leaders will explain how the growth of the payment, commercial and wealth management businesses will help the rest of the bank.

“Investing in payments, commercial banking and wealth will strengthen our banking position,” said Tyler Dickson, global co-head of banking, capital markets and advisory.

Citigroup’s investment banking and trading business hasn’t gained as much market share as other US banks from shrinking European banks, something executives are determined to change.

“We will invest in parts where we can gain revenue share over our US competitors,” Dickson said.

A BETTER PLACE

US banking regulators fined Citigroup $400 million in October 2020 for failing to fix ‘longstanding flaws’ in its risk and control systems, and ordered the lender to upgrade its processes and its technology.

The bank has seen its annual spending rise 9% to $48 billion in 2021, in part due to the cost of complying with orders.

Citigroup executives will argue that the investment will pay off in the longer term.

“When we succeed in delivering what regulators are asking for, we will be in a better place,” said Ybarra, whose investment banking, commercial, corporate banking and services businesses contribute nearly two-thirds. of Citigroup’s core earnings in the new shaped group.

“It forces us to address deeper issues in our infrastructure and data that would have taken longer.”

Citi executives will discuss how they plan to strike a balance between returning capital and investing in growth.

“It’s good that we only retain capital that we think will produce decent returns,” Ybarra said. “This trend is particularly strong for us because of our stock price.”

Fraser’s strategy will not produce immediate results. Finalizing sales of consumer businesses in Asia and Mexico, for example, could take two years. Its long-suffering investors are unlikely to show patience.

“They built this investor day,” Konrad said. “There must be a pretty big sense of urgency.”

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Reporting by David Henry; Editing by Matt Scuffham and Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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