Q3 2019 Earnings Call - Fixed Income
Call will be hosted by Tom Rogers head of fixed income Investor Relations.
I ask that you. Please hold all questions until the completion of the formal remarks at which time he will be given instructions for the question and answer session.
Also as a reminder, this conference is being recorded today.
Had any objections. Please disconnect at this time Mr. Roger you may begin.
Thank you Jim Good morning, and thank you all for joining US as Virginia mentioned I'm joined this morning buyer Chief Financial Officer, Mark Mason, and our treasurer might production.
A moment, Mike will take you through the fixed income investor presentation, which is available for download on our website Citigroup dot com afterwards market, Mike will be happy to answer your question.
Before we get started I might remind you that today's presentation may contain forward looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances actual results and capital another financial condition may differ materially from these statements today for a variety of factors, including the cautionary statements referenced in our discussion today. It does include in our assay.
Filings, including without limitation the risk factor section of our 2018 Form 10-K , We got said, let me turn it over to Mike.
Thank you Tom and good morning, everyone.
On today's call I will cover a number of topics first I'll briefly discuss our year to date 2019 operating results.
Second I will cover recent balance sheet trends, including growth in loans and deposits.
Third I'll review, our issuance program and finally, I'll discuss our continued strong liquidity and capital position.
Slide three summarizes our results for the third quarter and year to date 2019.
Year to date, we reported net income of $14.4 billion.
<unk> 's by 17% and achieved in ROTC he of 12% inline with our target for the full year.
On slide four we show average balance sheet trends over the past five quarters in constant dollars.
On this basis, we have grown our balance sheet by approximately 5% over the last year.
We continue to leverage our global footprint to raise high quality deposits across our institutional and consumer businesses.
We saw strong growth in both ice EG and GCB loans.
Long term debt increased modestly year over year, but declined sequentially as we optimize our funding given our strong deposit growth this quarter.
Slide five presents trends in our loan portfolio on an average basis in constant dollars.
Total citigroup loans increased 3% year over year, and 4% in aggregate across our consumer and institutional businesses.
In our consumer franchise average loans grew 3% year over year.
Driven by continued growth in North America and Asia.
Average loans in Mexico declined 1% year over year, reflecting the current environment, what do we continue to see a deceleration in GDP growth and a slowdown in overall industry volumes.
On the institutional side loans grew 5% year over year.
TTS loans decreased 5% despite strong origination volumes as we continue to utilize our distribution capabilities to optimize the balance sheet and drive returns while supporting our clients.
Phones in corporate lending increased 2% as we continue to support our clients strategic financing needs.
Private bank loans increased 13%, reflecting growth across regions, driven by both new clients as well as the deepening our relationships with existing clients.
Finally strong year over year markets loan growth was primarily driven by residential and commercial real estate warehouse lending.
And loans included incorporated or continue to decline driven by the wind down of legacy assets.
On slide six we show credit quality trends in our GCB and I see GE loan portfolios.
And GCB credit continued to be favorable again, this quarter with NCL rates broadly stable across regions.
And I see G. Nonaccrual loans remained low at 42 basis points of total corporate loans.
Turning to slide seven we show trends in average deposits over the past five quarters in constant dollars.
Total deposits increased 9% from the prior year period.
In our consumer business deposits increased 4% driven by growth across all regions.
North America deposit growth accelerated to 3% as we continue to make progress against our strategy of delivering a more integrated multi product to relationship model.
In our institutional business deposits grew 11%, primarily driven by high quality deposit growth in Ts.
Now, let me highlight our parent benchmark debt issuance program on slide eight.
So far this year, we have issued approximately $16 billion of parent level benchmark that across a variety of tenors currencies and structures, including the roughly 7 billion. We issued this month.
Going forward, we'll continue to maintain the flexibility to issue a mix of tenors currencies and structures.
Okay.
On slide nine let me cover our bank note issuance program.
So far in 2019, we have issue just under 9 billion of bank notes.
Going forward, we will continue to maintain the flexibility to issue across a variety of tenders currencies and structures as we drive the efficiency of our funding sources.
On Slide 10, let me cover our issuance maturity and redemption expectations.
In 2019, we now expect total gross issuance to be in the range of 25 to 30 billion below our prior guidance of 30 to 35 billion for our bank and parent level programs combined.
This includes the 16 billion of parent benchmark and the 9 billion of bank level debt, we have issued so far this year.
On slide 11, we show the composition of our long term debt outstanding.
During the third quarter total long term debt decreased by approximately $10 billion to 242 billion as we optimize our funding given our overall levels of liquidity and strong deposit growth.
On slide 12, we provide an update of our LCR metrics in drivers.
Our average LCR declined slightly to 113% this quarter.
Turning to slide 13, let me summarize our key regulatory capital metrics.
Our C E T one capital ratio declined sequentially to 11.6%.
As net income was more than offset by 6.3 billion of total common share buybacks and dividends along with an increase in risk weighted assets.
And our SLR is were 6.3% and 6.8% for Citi Group and Citi Bank, respectively.
Moving to our last slide let me summarize several key points.
First we earned $14.4 billion of net income.
<unk> S by 17% and achieved in ROTC of 12%.
Second we maintained a strong capital and liquidity position with a C E T. One capital ratio of 11.6% and an SLR of 6.3%.
An average LCR of 113% and an estimated and SFR of greater than 100%.
We maintain a surplus above our t. lack requirement.
Finally, we continue to further diversify and optimize our liquidity resources.
Before we move on to Cumin, a let me touch briefly on the transition away from LIBOR.
Broadly speaking, we are continuing to prepare ourselves by working with our regulators and industry working groups such as the alternative reference rate Committee.
He's working groups have been established to promote and advance development of alternative reference rates and to identify and address potential challenges from any transition to such rates.
We've established the governance structure within city under our asset and liability Committee and several work streams, which are focused on the transition related to a number of areas, including the impact on our clients operational capabilities and legal and financial contracts to highlight a few.
We've also made investments in our systems and infrastructure as client activity moves away from LIBOR to alternative rates.
And lastly, this year, we've issued benchmark bonds referencing so far from both a bank and the parent as well as their preferred security, which will reference so for once the fixed interest rate period ends.
With regard to the unique language in the subset of our preferred securities as I've referenced previously, we're continuing to evaluate alternatives, including a potential exchange or amendment.
The recent proposals from the IRS and fads be have allowed for greater insight into some of the potential tax and accounting implications associated with our alternatives.
However, we're still working through additional considerations.
So while we continue to make progress working through the alternatives, we're not yet in a position to speak to a specific transaction or timing.
Overall, we feel good about the progress we have made and we will continue to provide you with update I.
With that Mark and I will be happy to answer your questions.
At this time, if he would like to ask your question. Please press star followed by the number one on your telephone keypad that is star one for any questions. Our first question will come from the line of Scott cabin, all with a P.G. Please go ahead.
Good morning, guys and thanks as always for holding this call greatly appreciate worry.
Scott. This morning, So just wanted to head off first on C.. So could you just to give us a recap of your reserve expectations and the impact on the seat one ratio.
Sure. This is mark good morning, Scott how are you good.
In terms of in terms of C.. So we mentioned I think.
If not on the last call to quarter before that our current reserve estimates for a seasonal or about 20% to 30% of into of our total reserves and so all right and likely to be on the high end of that range, so closer to the 30%.
That would result in about a 30 basis points of the impact to the C.T. one ratio, but as you know thatll be phased in over over multiple years.
Okay, then when we support out.
The day to impact I know you had mentioned that.
And on the initial call do go a little farther and how you're thinking about that and how you're planning on disclosing the impacts on a quarterly basis going forward I know there was a federal reserve a request for comment on that how are you guys thinking about doing it.
Yes, So I did mentioned on the call I mentioned, we were obviously you know not prepared to talk to any additional disclosures on the day to dollar impact.
There has been FASB has outlined a number of new disclosures required for financial institutions that are impacted by Cecil and we'll obviously continue to work through that and ensure that we are adhered to the new requirements in our 10-Q filings coming up next year that's.
Ed when you when you think about Cecil and its impact we've got to factor in a number of things in any given quarter, including.
What's your balance sheet looks like in the loans that you have a in place, including a perspective on the economy at that time, a and including your estimate for what or our estimate for what the lifetime reserve impact will likely be and so all of those will be factors as we.
Move from day, one today to and on an ongoing basis look to to adjust the impact to our or capture the impact of Cecil in our financials.
Okay, and then switching topics, if we think about LIBOR so for with the recent repo market volatility.
Country to most industry research so first did not.
Behave quietly there was quite some volatility how should we be thinking about that particularly mccarty note from an asset liability perspective.
Yeah, I mean, I think the we see this has gotten a lot of coverage and there was some some volatility in the rate as a as repo market rates were volatile of course.
The Federal reserve has taken steps to address that repo market volatility both in terms of addressing the level of reserves, but also a you know enabling themselves with the capabilities to.
Add reserves or even take reserves added a system through open markets operations. So you know we think that you know there was some volatility but the fed is taking the appropriate steps and you know regarding used to so for you know we think over the longer term that kind of volatile.
Realty wont be wont be problematic for the adoption of cellphone.
And last from me.
Well you weren't impacted directly from the implementation of the tethering rule. It did impact some of your the larger regional banks in the dynamics within some of the different products in the investment products have you seen any changes in the competitive landscape a bad so which products are you seeing more or less demand.
Yeah, Yeah when it when it comes to that question I would say that when I think about the.
Those portfolios that are that folks have access to so in terms of managing that liquidity profile in those liquidity metrics.
Certainly some of those smaller banks well, we'll have some flexibility in terms of freeing up that liquidity and perhaps moving away from liquid securities into lending activities.
From our perspective that that we haven't seen anything have an impact around impacts on on the portfolio.
And we just don't think that well have an overall a meaningful impact on the competitive landscape and when we think about the securities portfolio and how that could impact it though the largest allocation. We have are going to be to treasury and agency mortgages together that's.
25 trillion dollar market. So we're not looking at anything in terms of a of impacts around how we allocate.
Thank you very much guys have great.
Thank you.
Your next question comes on the line of he made Glover with Bank of America. Please go ahead.
Thank you.
Thank you very much on thanks for doing the called.
Thank you Mark appreciate it.
Let me start off with a question on perhaps and I heard you say you may not be able to specifically common I'm on securities but.
I'm going to try anyway, but I also have follow up to that but no.
So you have recently called the city 5.8 past chatter libraries that any shoot 'em city five so freeze it and that makes sense from economics, and Leiberman, Germany standpoint, two questions on that one should we expect to see more off these actions in the near term.
And broadly speaking, how you're thinking about.
Try to T to lower exposure to life or assets and liabilities and then second is actually wait for the stress capital buffer to be finalized how should we think of watch your profit human human for the remainder of the year and looking into 2020 .
Sure Hi, he made its Mike thanks for that thanks for the question.
At this point and we've talked about our 81 level in the past and at this point. We're just over 150 basis points of of 81 that includes the impact on having redeemed or will be redeeming series, a and and as we've talked about in the past at the.
Time of each call, we'll evaluate the need for that capital.
And if we do need it and we'll look at the economics of calling the security and replacing it versus leaving it outstanding.
In addition to looking at other relevant factors at that time, So I would say no real change in strategy of how we evaluate that 81 need.
Okay, great and the any comments on needs to be proposal.
Based on that if you had any commentary.
That's perfect humans.
No I think again that are obviously the CB, there's been a lot of dialogue around it.
You know once finalized violently.
With that entails, but at this point I don't know that it would be changing how we think about the target of 81 that hundred 50 basis points, but we'll certainly evaluate those those final rules and what it may mean to how we manage the balance sheet and look at that capital stack.
Appreciate it and.
Labour strategy for assets and liabilities any additional color that you can share.
No I I think again as we talk about the transition away from from libel or our focus has been supporting that transition in the many ways that we can supported and that's through our own operational readiness and its by supporting the development of the markets and we've obviously been.
In a market maker and and so for derivatives, we supported the transition by issuing debt.
Get that references so for both in the bank and the non bank. So again, our focus has been ensuring our readiness the transition away from libel are and we will continue to do that.
Okay, great. Thank you just a follow up.
Can you talk about your science for Trop, specifically city can do 18th and Citigroup capital C. since the bank is not tier two capital constrained any thoughts that on dissolving the trust to get T. lactate similar to what other banks have done a this week last week.
He might not not at this time I mean, you are right to say that you know, we're not tier to constrain as I mentioned in my prepared remarks, I mean, we have a t. lack a buffer at this time, which was 9 billion a at the end of the quarter, So I and these legacy.
He trups are only work a little over 300 million of tier two capital. So it really doesn't move the needle with regard to either you know tier two or T. Lack for that matter. So nothing at this time.
Okay.
Alright, great. Thank you.
Thanks, Jim.
Your next question comes on the line of Brian Monteleone with Barclays. Please go ahead.
Hey, good morning.
I appreciate the commentary you gave regarding your latest thoughts on a evaluating a potential exchange or or amendment to deal with a legacy preferred.
Beyond the guidance the you've now received from the IRS them from fast be what other information are you still waiting for or do you need to be able to make a decision about how to move forward there.
Sure Brian Thanks for the question. So at this point those are proposals. So obviously, we still want to get greater insight into how those may be finalized.
So as as we look at these in evaluate its important that we understand the implications not just on ourselves, but our investors as well so really would like a further insights into how those potentially are finalized and of course I. Yeah. The other book end of course is that were.
Still working under the assumption that LIBOR or may not be available at the end of 2021. So we're working through it were making progress and for everyone's benefit we look forward to getting additional large insights on the implications.
Great. Thanks for that and then can you talk a little bit about citigroups experienced during the period of repo volatility in September was with Citi able to provide incremental liquidity just clients during that period or did you run into the same resolution planning on liquidity stress testing constraints that appears have talked about or were there other concern.
So you face continues to provide a little color there.
Sure.
Broadly speaking, we didn't experience any meaningful impact a adverse impact on our liquidity or or on our earnings I keep in mind, we retain a sizable liquidity cushion at all times, we have different funding levers that give us flexibility if actually.
He needed during those periods of volatility.
At the same time, you know, we're going to maintain a liquidity cushion that serves our liquidity management requirements and that that liquidity buffer is going to be a function of our own liquidity standards as well as those which are informed through regulation, but to the extent, we have liquidity over and above.
Of meeting those requirements Oh, we do in the normal course of business optimize that liquidity and extend that liquidity really two ways in which I think about it one is by letting that liquidity into the market drew reverse repo.
And.
During that period of stress, we did a scale up the amount we did incremental 10 billion roughly a reverse repo that we lend into the marketplace.
But then I've also talked about broader optimization of course as as we add additional cash. We also think about broader optimization of HQ outlay, and perhaps deployment into security purchases. So I would say at that time, though to answer your question directly we we've learned a position.
Lend some liquidity into the marketplace through reverse repo.
That said, we are supportive of the actions that have been taken from a regulator point of view in terms of stabilizing things.
Great. Thanks, both the just one follow up so I guess in terms of you know the $10 billion is there any constraint and why you weren't able to ER chose not to provide more or was there any regulation that hit a limit that you mentioned internal.
And regulatory expectations around liquidity I assume that's not the LCR. So I guess, what it was there some somebody else there.
Yeah I mean.
Keep in mind as we think about liquidity management standards, we have around and we have standards that really incorporate regulation. So it's a combination that's a really inform how much reserves, we wish to hold and so again, you know that that Inc.
Her mental 10 was really a function of ensuring that we had sufficient liquidity on hand to meet those liquidity management standards, while deploying some additional into the marketplace our boat to support the market as well as to optimize their own returns.
Got it thank you Beth.
Thank you.
Your next question comes from the line, if I'm not going to deal with Bloomberg Intelligence. Please go ahead.
Hey, good morning, guys. Thanks, a lot for the call just diving into the balance sheet and I think on page four so I think you talked about the incremental activity and then the repo market. So is that so the balance sheet is growing it was a deposit growth is going to balance sheet and on the asset side loan growth is.
Let's see around 3%, but where the growth is there isn't the trading related assets. So the incremental report to me that you've done is not reflected in that trading related assets.
Yes, so that's a it wouldn't be pickup there you're not going to pick up that activity in your eye in your long line. So so yes, when you look at the that activity.
You would be picking that up I know on trading.
Okay got it and then I think there's headlines that I see munitions says he's open those sort of bank rules to ease repo stress. So in theory. If if you do get some of these requirements, maybe coming down time to stress potentially that treating related mine might go up if if there is continued a repo activity repos.
Yes.
Look we'll have to we did a I did just see that that came out shortly before the call started well evaluate of course, what that may entail of course, we have our own a liquidity management standards, a we'll evaluate what changes if any are.
Our in fact, a are implemented but.
Again, the the level of cash that where we're keeping at our central Bank I mean, that's ranged.
From 50 to 75 billion. So you know doing a an incremental 10.
Yeah, I, just don't know that there would be that much more that that would really drive that trading related line that meaningfully.
Okay, Great and then.
Staying on liquidity on page 12, so you've been able to lower the LCR.
From about 120% down to about 113% over the past in 2019.
So can you talk about some of the drivers of that it seems kinda coincidental with yup upgrade that you got from Moodys and are you still targeting the 110% that I believe you mentioned before.
Yeah, I don't I don't know that I gave a target other than you know, we're always looking to optimize the balance sheet and optimize our funding sources you know and we've also talked about how the LCR metric tends to be an output rather than being driven to a defined target, but when you look at.
That coming down over time, it is a function of how we've optimized the balance sheet optimize our funding sources, but also there's an aspect of I'm looking at the transferability assumptions and keep in mind as we raise liquidity through deposits a lot of that is gonna be in our bank entity.
Our where we need that liquidity to extend loan activity for our customers.
And so there's there's certain transferability assumptions.
That we evaluate as well, but overtime, yes, you've seen that that that ratio come down and we're happy to take that down to lie the levels, where it is approximately now.
Okay got it so we'll have a requirement so yes [laughter].
And then lastly in terms of.
ER stress capital buffer you guys talked about that I think we haven't gotten the final rule yet so how do you. How do you guys think about do you think will still get the stress capital buffer for 2020 or and if not do you see room to kind of continued to be aggressive with your share buybacks. If we have no stress capital buffer and then maybe take your city one below.
Oh the 11%.
Yes, so as as you've heard we've heard kind of the same thing you've heard in terms of the likely what the guidance for the expectation that will get.
Clarity around the rule in time for 2020. So we're we're still I'm hopeful that that is the case that as the last that we've heard I think the good thing.
About that is obviously it would give us a bit more certainty as to how to factored that in you've also heard probably in conjunction with that the desire to ensure that whatever proposals get put forward a they're done so when a balanced away such that the impact to the amount of capital is held out.
About constant from an industry point of view and that's been a consistent view from our regulators and we think that that makes a lot of sense. You know the when we talk about our CE T. One ratio target of 11.5% as you know that includes in it.
It in that calculation not only the regulatory minimum and a G. SIB score of about 3%, but also an approximation of about 3% for the stress capital buffer.
And we believe that that 11% love it and a half percent excuse me is still the the prudent level with which to to run the far more I wish to run the from and so we're still planning and and managing the from a against that target and as things change overtime.
We'll continue to look at it and look at our management buffer, but what that is where we where we stand at this point.
As as I said, we hope to get clarity on the FCB and due course, but hopefully to do so in a way that's balanced in terms of its impact.
Great. Thanks, a lot.
Yep.
Your next question comes from the line of marquee, how what the Mci shelf. Please go ahead.
Hi, Good morning, I, just a few questions. The first one is could you talk about what really matters.
In terms of where rates are or is it more case of the yield curve needs to upward sloping for city to be kind of best position to earn a kind of spread on this business. Thank you.
Mark It's Mike.
So look good the yield curve I mean, there's a number of things to think about the level of rates of course does have an impact on how we.
See the sensitivity of the those rates move coming through.
So obviously, we've been over the past couple of years, taking down are you at a rate sensitivity and so as rates have been moving lower its had some impact.
You talk about the slope of the yield curve, we think about our our sensitivity a lot of that sensitivity tends to be in the front end of the curve and as you could see in our disclosures.
That that backend sensitivity really has far less impact then to front I think what you're getting at two ways. What does that mean overall when you look at you know how we think about that sensitivity, we think about it in a in a parallel shifts we.
Don't make any assumptions about subsequent actions we may make if if the yield curve does different things. For example, if we saw a massive steepening of the yield curve and we don't make an assumption that we would go out then perhaps you know repositioned the portfolio war or by Securities in the 10 year part of that.
Curve, which would generate additional net interest revenue.
So again, we look at things are just on a parallel shift or at least in terms of how we model that sensitivity in that disclosure.
Sensitivity does tend to be more front end rather than a further out on the curve.
Thank you.
On page 20 of the presentation. There is like a reference to customer related. This is that structured notes and to what extent is that kind of a substitution of ability with with kind of two like it's chooses towards market this where they're kind of one could displace the other.
Oh, yes. So that is yes. Those are the notes that are our customer related a lot of those will have some type of structure related to those and something that may a point to the performance in markets, such as the rates markets or or commodities already.
Equities.
And and those notes really serve as a as a good tool for us it's a it's something that.
Allows us to facilitate client needs. It also provides us with some funding diversification, but it really it really won't be a driver in terms of how we're issuing our parent debt. When you looked at what we issued this year. We're still you know in the range of what we what we set out to do a but too.
The way I look at it is just say a good funding alternative it diversifies, our investor base well at the same time, facilitating our client needs.
My last question really was there was a stored and Reuters on October 17, talking about how regulators or a greenlighting. Thanks to all more treasuries and potentially less cash.
And this does driving your talk of optimizing optimizing your skouries portfolio or is it really you need to optimize it would be a case of kind of a reduction in Arkansas easing of the resolution standards for liquidity.
When I talk about optimizing the portfolio as I mentioned that earlier, Mark Thats more along the lines of the things that we've talked about in the past than in the past.
When talking about holding cash versus holding securities. That's a function of looking at what value does owning the securities present.
Obviously, the securities ever store of liquidity. There were also a valuable tool and managing the interest rate risk profile and and of course, you know will also by some agency MBS I. In addition to other products and that's going to be a function of how can we optimize returns based on how we look at spread.
In some of those investment options and how we expect volatilities to play out. So really that's just a function of us optimizing that HQ outlay and the mix in that pool to again, both retain liquidity, while optimizing returns, which is a beer you activity as opposed to being driven by any.
One catalyst that's out there.
Thank you.
Your next question you talked in the line of Robert Smalley with Tds. Please go ahead.
Hi, good morning, Thanks for doing that call warning running yeah lot of questions asked and answered three areas that I do want to talk about.
On card on Hong Kong and on digital so first on card.
You had.
Pretty robust growth, especially in branded card.
At the same time, we've heard a number of competitor calls who are looking at the same kind of growth and having and playing similar kind of strategy. So where's the the competitive battle ground. In this area is it in rewards I know yet had a question about giving away toasters.
On the other call, but where exactly is the competitive dynamic.
We saw a at least one UK bank, that's pretty big hearing card refine its growth targets downward and are you starting to see some winners and losers in that area.
And then.
The second question on Hong Kong just.
On page 22.
You have on the consumer credit growth.
It's pretty robust year over year, what is that giving given the events in Hong Kong and the slow down there and then after that we can I can press on the digital stuff.
Okay, what on a why don't I take that.
So I guess I'd say, a couple of things I said, one in terms of our cards momentum that we're seeing now and we grew the topline at about 11% year over year this quarter and again, that's a byproduct of having invested in some of the promotional offerings, a while back and now seeing that start to take.
Ah take hold and convert into average interest, earning balances, which is giving us I think some good growth momentum over the past couple of quarters. The way we moved to have a very balanced portfolio. Both in our branded cards business and also more broadly and what that means is that we'll continue to make.
Take investments and require target towards our target customer a with promotional like offerings just to ensure that we continue to get that conversion over time. We're also seeing good purchase sale volume growth, which means people, obviously using using our card and seeing good loan growth that.
Goes in tandem with that but I think to a large extent I think about that cards momentum in the context of the broader retail strategy and so this may get to your digital question, but in that context. The cards platform provides us with an opportunity to to build.
No doubt or put to work our digital capabilities that we've been investing in.
And I think it's as we deepen their relationship with our customers both card and other customers that this will start to I think feed on it de what feed off of itself as we as we become kind of the choice. If you will have a top choice for our customers. So what I mean by that is.
As I think about the growth in the consumer business, having proven the digital capabilities for Onboarding clients with new products will be able to tailor offerings.
At help to expand that relationship and so whether its thank you points or double cash rewards as a benefit to those card customers.
Understanding what those customers respond to what they value and then subsequently being able to create value propositions that are targeted towards them. We believe will allow will drive more business for us either more card business more retail banking business more broadly more lending business as we.
Buildout broader lending products like flex loan and we believe that that multi relationship type customer will or will fuel some of the growth that we expect going forward.
And.
In order to.
Execute the strategy are you relaxing your profitability targets in the area first or few model much greater profitability in years 345, how do you look at that.
It relates to cards or more broadly.
Cards, and then yes carts and then the strategy of using cards and expanding the relationship yes. So no. We're not we're not relaxing our our targets certainly not our risk targets, we obviously investing in.
In these capabilities, both digital capabilities, but also the creation of the rewards and the value propositions, but we're doing so with obviously return targets in mind and also forward looking perspective as to what we think the you know the the life value of both of those customers are likely to be and.
We have metrics that reflect that and demonstrate that the more or the deeper relationship. The more products, we have with more cost with our customers the more profitable those customers tend to be so thats part of the modeling.
We do that we factor in in order to substantiate the investment that we're making in the platform.
Okay.
That's helpful and then.
On on Hong Kong the growth that we've seen there what is that yes, so and in Hong Kong Oh, we saw a loan growth at about 19% year over year and the drivers of that growth included a increase in our mortgages.
That we do with customers, both new and improved marketing promotions that we put in place around around a mortgage product. It also is driven by higher margin lending volumes driven by clients taking advantage of of low interest rates.
So those are those are two major factors that we've seen.
Play out in Hong Kong, this quarter or the leading indicators I'd say are starting to show some softness, particularly in the unsecured lending business and including some price softness on on a on on mortgages in particular, so we don't we would expect.
With that to slow a bit but we have seen a good good momentum in Hong Kong.
Thus far.
Obviously to your broader question, we're managing you know hopefully in watching closely the situation that's happening in Hong Kong and ensuring the safety of of our of our employees and customers et cetera, but on the business. Thus far has has shown continued robustness.
That makes sense, and then lastly, and maybe jumping back a little bit in the.
Presentation, you gave the other we I'm looking on pages 20 to 23 consumer drivers.
And you've got some digital metrics international.
And you've got growth numbers year over year, 19% active digital customers, 34% active mobile customers are most surprised that at the jump in the active mobile customers just because.
A lot of your jurisdictions have consumers that have been phone savvy and bank phone savvy for a long time.
So I could you explain that that jump there.
Yes, so weve. So we've had active mobile customer growth in internationally of about 34% year over year and a lot of that a good fair a fair amount of that has come out of Mexico.
And so we've had a that's been a big driver that we are still seeing growth in Asia in particular.
But we're seeing both the a the onboarding of new customers as well as the take up from a mobile point of view and much of what we're able to do in terms of capabilities in Asia were able to replicate in part in other parts of the world whether it'd be the flex loan product that we're offering here in the U.S. whether it.
Be the digital capabilities that we've launched here in the U.S. or some of the capabilities that we reported to ER to Mexico that helped to to build out the offering that we have there in the mobile mobile capabilities that we can avail ourselves or bell to clients and so this is a byproduct of the investments that we've been making in Mexico starting to.
Take hold and customers being responsive to the capabilities we bring.
Great very helpful. Thank you and thanks for doing the call. Thank you.
Your next question comes from the line of Jeff Bernstein with Incyte. Please go ahead.
Hi, all my questions spin asked and answered except one item.
In terms of issuance why is it that you haven't done any long dated bonds at the Holdco This year.
Yeah, It's Mike.
We're very happy with what we've done in terms at a program this year in terms of.
Diversifying the Investor base you saw this year, we had done more issuance.
In non dollar than we had done in the past couple of years.
So there is opportunity to diversify away just from the U.S.
I think the long into the curve to be honest with you underperformed a bit broadly in the marketplace.
And so we we've been focused on diversifying and also focusing on where that investor demand is coming.
And we were really pleased with the with the sponsorship from overseas, where we actually saw issuing in non dollars either at the levels that we can issue in dollars or even better in some instances. So we tend to diversify and that's why we are.
Took the opportunity to issue and in currencies like Euro in Sterling and even in LNG dollars.
In the long end.
No we do different parts of the curve again as we look at overall funding need we're going to look across different currencies were going to look across different tenders. So as opposed to in the U.S. just going out on the long end that occur.
One way of diversifying but we also diversified based on our investor base as well as across the different currencies.
Okay. Thank you.
Sure.
Your next question comes from the line of Gary Kessler with Goldman Sachs. Please go ahead.
Hi, Thanks for holding the call just a quick question on the Citigroup capital 13, given the L plus three 637 reset and.
More limited tier one credit at this point how are you thinking about that security in are you considering the retail market at all today.
We so look we continue to to look at the capital Thirteens and evaluate those from time to time, but from an economic point of view when we look at that and the the.
The gain that we previously taken there and the resulting impact if we were to call. These it just hasn't made good economic sense for us to do so.
So I don't so that's that's kind of how we bought Mike I don't really want to add to that but that's the general we will look at it from time to time, but given again that economic impact and given the return targets that were managing to that just hasn't make good sense at this point.
Thanks very helpful. Thank you.
Your next question comes down the line, it's Kevin Maloney with Blackrock. Please go ahead.
Thanks for taking my question.
First off from the T. luck buffer seems to be running around 910 billion on a consistent basis is that what you want to be up.
Kevin It's Mike in the past I've talked about a seven to 8 billion.
Dollar range, so were slightly above that now again, we have a little bit of room to allow that to come down of court t. lack is going to be one of the things we look at and deciding what we're issuing and when we're issuing but I think you can think about that nine or 10 of.
Having a little bit of room to allow that to come down further.
Okay, great. Thanks, and on the card portfolio. There was a lot of talk about the promotional rates and how that's kind of in the maturing space. There. Just wondering if you could talk a little bit more about does that mean marketing costs will fall also or is that just a separate function.
I'm sorry, you said marketing costs is that what you said, yeah basically mailings other stuff, yes, yes, no. So I'm actually what you what you should expect to see because again the way the way. These promotional offerings work is we'll make that that investment.
Start to convert to average interest, earning balances and in order to keep this to strike the right balance in the portfolio. One has to continue to make those types of investments and promotional offerings and so we're reaching a steady state point I would say now in terms of the mix that we have been so we'll continuing.
So we'll be continuing to invest at about the pace. We're investing now to ensure that we have a steady pace of promotional offerings that ultimately convert to average interest, earning balances and allow for us to deliver on on the on the near that we forecasted.
Okay, Great and just one last question on cards has the cashback rate.
Versus receivables has that gone up overtime in other words or do you have more people using the benefits on the card than previously say a year ago.
I.
We have more people using the benefits on the car in other words, yeah more people using the rewards.
Because we've seen over the other players that we horowitz reward weights have gone up.
I don't I don't have that answer in front of me to be to be honest with you. We obviously have seen good continued use of the card.
Through purchase sales, we've seen good uptake of.
Of the offerings that with the value proposition offerings that we've made in terms of both new offerings, but also those that have driven digital deposit sales.
But I don't have the specifics around any one rewards program and increases in the uptake.
Weve tailored those programs more most recently are probably a quarter or so ago on the responsiveness to that that tailoring and adjusting of the programs has been very good and inline with our expectations I. We haven't seen a fall off of usage, we haven't seen clients shutting accounts because of the adjustments we.
Made to rewards and so while I don't have a precise number for you.
All the indicators that I see in that I looked at here reflect that we've got continued good activity in broad use but also the reward taking advantage of the rewards that we offer as well.
Okay, Great just one last question about the CISA bucket. There was some talk earlier in the phone call on this and just wanted to.
That's one more question it seems like year.
The second quarter, you're above the 3%.
And so as to other big G Sibs.
And I imagine that you want to get back into 3% bucket. That's essentially you said so can we see a liquidity squeeze sort of thing here, we saw last year and what another big Bank has suggested could be the case.
I can't speak to.
The other big bank, but what I can say is you're right. We did see an uptick this quarter in the GE. Some score I think we were at 631.
And so that's that's two basis points higher than the 629 bucket that would have us in the 3% in a 3% bucket, where we've been for some period of time now we obviously will want to as you've stated and as I stated on the earnings call I'm get back into that 3% bucket what matters.
As obviously is where we end up on December 31st there are lot of levers that are involved in in a lot of components to that GE subscribe or I should say rather including.
The overall size of the balance sheet for loans to deposits I mean, all of those things the stock price their multiple factors there.
And we will manage.
The business with with the client at the center in a way that we can get back into that bucket for the for the year end in won't be there will be puts and takes to that and I can't tell you precisely what they will be at this stage, but we will actively manage that.
In order to try and remain in that bucket.
Okay, great. Thanks, a lot.
Thank you.
Your next question comes on the line of James Checker with Wells Fargo. Please go ahead.
Good morning, everyone. Thanks for hosting the call any just a quick couple of follow up some some topics that have already been beaten to death.
Trying to be cognizant of everyone's time, but I just want to get some clarification.
Going back to SCB is there a deadline, where you guys. Thank you would need to see the final rules or the industry would need to see the final rules in order to give you enough time to get your capital plans ready to be able to submit them in April and then related to that do you also expect or would you need like SLR recalibration to be part of that.
In order to think appropriately about your capital levels.
Yes, so we're obviously going to kick off our CCAR process as we as we normally would with the creation of our scenarios and running it as part of our capital planning process, we will get the the right the fed.
Scenario when they deliver on that which normally is in the early part of the year I don't have a view as to precisely when they will provide more clarity on the FCB. We hope that it's in a time, where we can make the appropriate adjustments what what.
Without the gate, what matters, obviously as the own out our own scenario that is created and the results that are byproduct from that work.
So I don't have a specific date for you for by which we would not be able to factored in but I I do know as you know that it's the regulators objective for up for it to be out in a time that allows for us to a you know to do that the the C car. The that is our binding constraint at this point and so we'll have to today.
Manage to two that and were well above the target from an SLR point of view and we'll have to.
See how that would play out but at this stage, that's really all I can I can say on it.
Okay and that on the SLR piece are you expecting.
Finalization around that same timeframe or you kind of as much in the dark as the rest of us.
It's hard it's hard to say at this point I'm I'm unsure as to to win precisely we'll get that him that clarity.
Okay fair enough switching gears going back to library.
I I guess, the 800 pound gorilla the room is our amendments still on the table as a possible alternative to address securities with with legacy level or language and then it out I'm, specifically thinking about some of your preferred.
Yes, as I said earlier that is one of the considerations.
Okay.
Perfect. Thanks, a lot and appreciate the color is always.
Sure. Thank you.
That concludes the question and answer session Mr., Roger do you have any closing remarks.
I just like to thank everybody for joining the call today and of course whoever they follow up questions. Please feel free to reach out to us and Investor relations. Thank you.
Ladies and gentlemen that does conclude today's conference. Thank you all for joining and you may now disconnect.