Q1 2021 Citigroup Inc Earnings Call
Hello, and welcome to cities first quarter 'twenty 'twenty, One earnings review with the Chief Executive Officer, James Frazer, and Chief Financial Officer, Mark Mason.
Call will be hosted by Elizabeth Lynn head of Citi Investor Relations.
We ask that you. Please hold all questions until the completion of the formal remarks at which time, you'll be given instructions for the question and answer session.
Also as a reminder, this conference is being recorded today. If you have any objections. Please disconnect at this time Ms. Lynn you may begin.
Thank you operator, good morning, and thank you all for joining US before we get started I'd like to remind you that today's presentation, which is available for download on our website Citigroup dot com may contain forward looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances.
Well results capital and other financial condition may differ materially from these statements due to a variety of factors, including the cautionary statements referenced in our discussion today and those included in our SEC filings, including without limitation the risk factors section of our 2020 form 10-K with that.
Let me turn it over to James Thank.
Thank you Liz and good morning to everyone.
<unk> 90 to join you from my first earnings call as the Citi CEO.
Can I have a lot to cover today, so let's get cracking.
Earlier today, we announced <unk> for the first quarter as well as the initial strategic actions, we're taking in our global consumer bank to focus on our competitive advantages and to improve our returns to our shareholders.
I'll start with some observations on the first quarter and then I will update you on the ongoing work on our strategy.
It's been a much better than expected sales for the year and we are optimistic about the recovery ahead of us and we're positioning the bank for a period of sustained growth.
For the quarter, we reported earnings of $3 from 62 per share on net income of $7 $9 billion.
This was a record quarter in net income driven by good performance in our institutional business.
And a release of $3 $9 billion from our allowance for credit losses, as a result, as the improving economic outlook.
And the institutional clients group, our markets businesses benefited yet again from an active environment.
So solid performance in fixed income after a very strong first quarter last year and a record quarter in equities, we owe.
Also had a record quarter in investment banking, reflecting high levels of activity in equity underwriting.
Treasury and trade solutions, which are the backbone of our global network grew deposits, even though revenues continued to be impacted by low interest rate.
Global consumer banking revenues.
Quarter over quarter as a result of the pandemic. However, we clearly see a recovery taking root in Asia as well as the U S and that was reflected in our ACL release.
And I would note. This is the healthiest, we have seen the consumer emerge from the crisis in recent history driven in large part by the U S government stimulus package now.
While loan demand was down we did see strong growth in wealth management and in digital engagement, both of which are central to the consumer franchise. We are building.
And our capital levels remain strong and stable, allowing us to respond to the needs of our clients and to return capital to our shareholders.
And at 11, 7%, our common equity tier one ratio was unchanged from the fourth quarter and we resumed the repurchase of common stock, which we bought it in Germany poised at the onset of the pandemic.
Tangible book value increased to $75.50.
Up 5% from a year ago.
No.
Turning to our strategy when we spoke in January I appointed a full principle of which we're using to guide the refresh of our strategy first we said we will be critical in assessing which businesses. We can retain all secured leading market positions in.
Next we're going to be focused by directing resources to high returning businesses and away from the others.
But we're gonna be connected so we ensure our businesses fit well together and they generate synergies and lost regardless and plan to better serve our clients fulfill our obligations to learn from regulators and unlock value from shareholders.
We also committed to take the strategic decisions needed to best position <unk> to win and to close the gap and returns with our competitors and we committed to share. These decisions with you as we make them and that's what we're doing again today.
Now I think in January of Athlon, New focus on wealth. We believe we're very well positioned to capture strong growth and attractive returns in this business, particularly in Asia and the U S.
Per day worth at city represents roughly $6 billion in revenues with three quarters of a trillion dollars of client assets.
And there's many synergies with our market be CMA and commercial banking franchises across our global network.
Yesterday, we announced the management teams with Citi Global wealth and the work and investment that went underway on the business strategy and growth plans.
And today, we announced our decision to focus our consumer banking franchise in Asia, and EMEA solely on full well centers, namely, Singapore, Hong Kong, UAE and London. This positions us to capture the full spectrum of the wealth opportunity through these.
Important hubs, where we can serve onshore and offshore clients and in Asia. This will allow us to continue operating a leading consumer businesses in Singapore, and Hong Kong, which have been scaled and very high returning.
We will painful per SKU exits of our consumer businesses and the remaining 13 market in Asia and EMEA now while these are excellent franchises. We don't have the scale, we need to compete and we've decided we simply the best owners of them over the long term.
Consistent with the principles, we outlined the strategy refresh we believe our capital our investment doughnuts and all the resources officer redeployed against high returning opportunities elsewhere.
What does this mean this means that global consumer banking will consist of two scout franchises in the U S and Mexico and these four hubs serving 100 million customers in total.
And it may be very clear on one very important point.
He will continue to invest behind and serve our institutional clients in need.
Okay.
We have a high returning and leading institutional franchise in Asia and this is an absolutely central part of our success going forward and we see important opportunities to invest and gain share with our institutional clients region wide.
Indeed.
So from my own experience in Latin America, how the institutional businesses in each market really benefited from the increased focus once we had exited a subscale consumer franchises and simplified the operating model in the region.
I fully expect the same will be true in Asia.
And in the meantime, the comprehensive work on a strategy refresh continues we will continue to share the decisions. We make with you as we work to close the gap in returns with L. P. S.
In parallel we are of course, followed it but all transformation when making our next submission to the FCC. This quarter. It's a massive body of work. We continue to work closely with all regulators to meet their expectations and we expect to submit a complete kind of both rate and Natus no later.
From the third quarter.
We've identified the end states perform the GAAP analyses and are currently working through the detailed Resourcing I'm program plans and inter dependencies, and we've begun execution on several fronts being.
The investments required.
And with our strategy work. So for example.
When we talk about simplification, we're pursuing it through changes to our pricing model, but also by removing manual processes and controls and make no mistake about it we want to achieve nothing less than a fundamental transformation by delivering excellence in our risk and control environment in our operation.
And then on service declines.
I am excited about the rate to hedge and I have no doubt that these investments and others that we're going to make in talent and technology are going to help us modernize the bank and positions <unk> to win.
And finally I want to update you on some of the commitments, we're making in terms of ESG now we've prided ourselves in being a leader in many dimensions of ESG over the years I see it as embedded in what we offer to our clients and the communities we serve around the world.
And as you May know on my first day as CEO in the beginning of March I committed that Citi would reach net zero greenhouse gas emissions by 2050, and we will deliver our plan on how we will do so within the next 12 months.
Critical to helping our clients transition to a low carbon economy is the support we provide them through our environmental finance activities. So did that and we can extend our current environmental finance target from 250 billion by 2025 to 500 billion.
By 2030 and in addition.
We finance other activities and supported the UN sustainable development goals outside of environmental Finance and these include our important investments in affordable housing and health care and workforce development. We are committing an additional $500 billion to these activities by <unk>.
<unk> 70.
Our total sustainable development goal commitment one trillion dollars by 2017 and with that I am going to turn over to Mark and then we will both be delighted to take your questions.
Mark Thank.
Thank you Jane and good morning, everyone. Let me briefly review the results for the quarter and then I'll go into more detail on the strategic refresh and specific actions, we announced earlier today.
Overall, we had a stronger than expected start to the year driven by a constructive capital markets backdrop as well as the benefit from the cost of credit for the quarter.
For the quarter Citigroup reported net income of $7 $9 billion.
Revenues declined 7% from the prior year, while we saw continued strength in investment banking and a solid market performance. It was more than offset by the impact of lower interest rates, along with lower card loans in consumer and the absence of the prior year mark to market gains on loan hedges.
<unk> were up 4% year over year, reflecting continued investments in our transformation, including infrastructure supporting our risk and control environment as well as other strategic investments, partially offset by efficiency savings.
Credit performance remained strong with net credit losses of $1 $7 billion more than offset by an ACL release of $3 $9 billion, driven primarily by an improvement in our macroeconomic outlook as well as lower loan balances.
<unk> was $3.62.
Our TCE was just over 20%.
In constant dollars end of period loans declined 10% year over year, reflecting lower spending activity in consumer as well as higher repayments across institutional and consumer.
Deposits grew 7%, reflecting consistent client engagement with both corporate and consumer clients continuing to hold higher levels of liquidity.
Before I go into more detail on each business on slide four I'd like to cover the strategic refresh that John discussed earlier.
Last quarter, we spoke about the significant opportunity wealth represents per city going forward and announced the formation of Citi Global well in order to better connect assets and capabilities across the consumer and institutional franchises and to transform the way we serve clients across the wealth spectrum.
We continue the build out of Citi Global wealth this quarter and have provided some details on the scope of the business on the slide with additional information on key drivers in the appendix Citigroup will wealth represented roughly $6 $6 billion and allocated annual revenues.
And it delivered 15% growth in investment revenues last year, driven by higher client activity and growth in client investment assets.
As we continue to integrate the component businesses into a single wealth platform.
We'll finalize how best to implement this strategy from the organizational standpoint over the coming quarters and update you accordingly.
Turning next to the actions we announced today.
Given our strategic focus on global wealth management, we announced the decision to focus our global consumer banking presence in Asia and EMEA on for wealth centers.
As Jane mentioned this strategic shift will allow us to simplify our operating model, while directing investments and resources to the businesses, where we have competitive advantages and the scale necessary to drive higher returns over the long run.
Let me describe the 13 markets, where we will pursue an exit shown on the slide with added details in the appendix last year. These businesses contributed roughly $4 billion of revenues.
And while historically profitable like other consumer businesses the impact of seasonal weighed on full year results given the pandemic with cost of credit nearly doubling in these markets year over year.
Total assets were <unk> $82 billion as of the end of 2020 and the businesses are supported by roughly $7 billion of allocated TCE.
We have a good track record of reducing expenses in similar situations. However, as noted on the slide we were including fully allocated expenses to these markets, which could differ somewhat from the ultimate expense reductions.
We will continue to manage these markets as part of the GCB franchise, but we already have relevant actions well underway.
We plan to share more information with you as we make progress against these and other actions as part of our ongoing strategy refresh.
Finally, I want to emphasize the point that Jay made earlier.
We'll continue to serve ICD clients, including our commercial banking clients in all these markets.
And more broadly this strategic shift will allow us to focus more investments on <unk>.
Turning now to each business slide five shows the results for the institutional clients group, we delivered a solid performance in the quarter driven by strong execution and a constructive operating environment.
For the quarter ICD delivered EBIT of $7 7 billion up 65% from last year.
Revenues decreased 2%, reflecting the absence of mark to market gains on loan hedges seen last year.
<unk> revenues were up 5% with 9% growth in banking and 2% growth in markets and security services.
Expenses increased 8%, reflecting investments in infrastructure and controls along with other strategic investments higher compensation cost and volume driven growth.
Credit costs were down considerably given of $1 $9 billion ACL release.
The released this quarter, primarily reflected improvements in the outlook for global GDP as well as modest improvements in portfolio credit quality.
As of quarter end, our overall funded reserve ratio was one 1%, including three 6% on the non investment grade portion.
Total net credit losses were $186 million and ACG delivered a 25, 7% return on allocated capital.
Slide six shows revenues for the institutional clients group in more detail.
Product revenues were up 5% driven by record revenues in both equity underwriting and equity trading.
Looking at these strong results across our overarching equities franchise, we feel good about the strategic investments, we've been making which enabled us to leverage our full service model to better monetize the current market on the banking side revenues increased 9% Treasury.
Treasury and trade solutions revenues were down 10% in constant dollars as good client engagement and solid growth in deposits were more than offset by the impact of lower interest rates and lower commercial cards revenues.
Spite these headwinds we continued to see strength in our underlying business drivers, including 14% growth in average deposits in constant dollars this quarter.
And over the past year, we've seen significant increases in digital adoption and penetration as well as 7% growth in cross border flows and 6% growth in clearing volume.
Investment banking experienced its best quarter ever with revenues up 46% driven by equity underwriting given our leading position in the spec market.
Private bank revenues grew 8% also its best quarter ever driven by higher lending volumes and managed investments revenues corporate lending revenues were also up 8%, reflecting the absence of prior year marks partially offset by lower volumes.
Total markets and security services revenues increased 2% from last year.
Fixed income revenues decreased 5%, reflecting a strong performance in rates from currencies last year. However.
However spread products revenues were up from the prior year as clients search for yields in this low rate environment with steady demand across flow and structured products.
Equities revenues were up 26% versus last year, driven by cash equities derivatives, and prime finance, reflecting solid client activity and favorable market conditions.
And finally in Securities services revenues were up 1% on a reported basis and roughly flat in constant dollars.
Here, we saw good growth in fee revenues with both new and existing clients driven by growth in deposits assets under custody and settlement volumes offset by lower spreads turning now from the results for global consumer banking in constant dollars on slide seven.
While we are still seeing the impact of the pandemic and high payment rates when revenues consumer spending continues to improve and credit remains healthy volume.
Moving to our recovery as we move through the year.
For the quarter GCB deliver EBIT of $2 $8 billion up significantly from last year, primarily driven by improved credit costs.
Revenues declined 15% as lower card balances and lower interest rates across all three regions were partially offset by continued strong deposit growth and momentum in wealth management.
Expenses decreased 1% as efficiency savings and lower volume related costs were partially offset by investments.
Credit cost decreased significantly driven by an ACL reserve release from all three regions and lower net credit losses.
The released this quarter, primarily reflected lower volumes as well as improvements in the macro outlook and.
And GCB deliberate a 25% return on allocated capital.
Slide eight shows the results for North America consumer in more detail.
First quarter revenues were down 15% from last year, primarily driven by lower card revenues.
Branded cards revenues were down 11%, reflecting a 15% decline in average loans as clients are using the liquidity from stimulus and other relief programs to pay down debt.
Retail services revenues were down, 26%, reflecting higher partner payments as well as lower average LOE.
Net interest revenues were down 18% as average loans declined by 13% on higher payment rates.
Higher partner payments drove the remainder of the revenue decline versus last year, reflecting the impact of lower forecasted losses, and therefore higher income Sherry.
Looking more broadly at all cards businesses, we're continuing to see a recovery in sales activity.
In branded cards total purchase sales were unchanged year over year, but essential spend was up 12% and we're starting to see the recovery in areas like travel and binding.
And in retail services purchase sales grew 4%.
So purchase sales are improving slightly faster than our prior expectations and with the vaccine rollout. This should support a further recovery in discretionary spend.
The bigger impact on loans is from a high payment rates. This is creating revenue pressure, but it's also benefiting our delinquency and loss trends. So the good news is that we're seeing the recovery in spend which should continue and our credit portfolio is proving to be quite resilient.
We're now focused on loan and revenue recovery.
Driving spend activity reentering, the market for new account acquisitions, and investing in lending capabilities and new value propositions.
Turning to retail banking revenues were down 8% year over year, reflecting pressure from lower deposit spreads.
That said, we're continuing to see good momentum as we grow and deepen retail bank relationships as well as improve the quality and stickiness of these relationships.
Average deposits were up 22%, including 30 per cent broken checking and <unk> were up 32%.
We're also continuing to broaden our digital capabilities to extend from deposits to wealth management to mortgage lending.
As Jane mentioned, we're committed to the franchise and all of this gives us confidence in our ability to scale. Our U S retail bank with a digitally led client centric approach supported by light physical expansion in new markets over time.
On slide nine we show the results for international consumer banking in constant dollars and.
In Asia revenues declined 12% year over year in the first quarter.
We continue to see good momentum in wealth management as investment revenues grew 22% with a 14% increase from Citi gold clients and 13% growth in net new money.
And the numbers are meaningfully higher if you look specifically at the four global wealth hubs.
Average deposit growth remained strong at 13%, albeit at lower deposit spreads.
Card revenues remained under pressure year over year with purchase sales down, 5% and average loans down 13% given our continued significant impact on travel in the region.
However, we are seeing some signs of a recovery with the pick up in new card acquisitions and purchase sales year over year in the month of March.
Turning to Latin America total consumer revenues declined 16% year over year.
Similar to other regions, we saw good growth in deposits and assets under management in Mexico. This quarter with average balances up 9% and AUM is up 17%.
However, deposit spreads remained under pressure and lending volumes continued to decline given the macro environment.
Slide 10 provides additional detail on global consumer credit trends in the U S. Both NCL and delinquency rates remained favorable driven by the significant amount of customer liquidity due to stimulus and other relief programs.
Given the delinquency trends, we're seeing today, we do not expect credit deterioration in the U S portfolio in 2021.
And so peak losses may not occur until late 2022, depending on whether or not the stimulus results in a permanent benefit.
By contrast in both Mexico and Asia, we saw a peak in credit losses in the first quarter of 2021.
This was as expected driven by the impact of customer accounts rolling off relief programs. The impact was pronounced in Mexico with a peak NCL rate of over 10% as we saw most customers roll off the relief programs at the end of the third quarter of last year.
Excluding those accounts that participated and relief programs, our credit trends in both Mexico and Asia remained stable and you can see improvement this quarter and delinquency rates.
Slide 11 shows the results for corporate other revenues were roughly flat in dollar terms as the impact of lower rates was offset by the absence of March versus the prior year as well as some episodic gains this quarter.
Expenses were down 1% as investments in infrastructure risk and controls were roughly offset by the allocation of certain costs to the businesses. This change had no impact to EBIT at the city level.
And given it was immaterial we have not reflected the change retrospectively.
Credit cost declined year over year, driven by released this quarter compared to a build in the prior year.
Finally, the pre tax loss was $231 million this quarter.
Looking ahead, we would expect a quarterly pretax loss in the range of $500 million for the remainder of 2021, although with some variation quarter to quarter.
Slide 12 shows our net interest revenue and margin trends in.
In constant dollars total net interest revenue of $10 $2 billion. This quarter declined $1 $4 billion year over year, reflecting the impact of lower rates and lower loan balances as well as the impact of one fewer day versus last year.
Partially offset by slightly higher trading related NII or.
Sequentially net interest revenue continued to stabilize and excluding the impact of two fewer days in the quarter was roughly flat to the fourth quarter.
And net interest margin declined five basis points, reflecting lower net interest revenues, partially offset by treasury actions and balance sheet optimization.
Turning to noninterest revenues in the first quarter non and I are declined slightly to just over $9 billion predominantly driven by the mark to market on loan hedges offsetting strong investment banking revenues.
On Slide 13, we show our key capital metrics, which has Jane mentioned remains strong and stable again, this quarter, allowing us to support clients and returned capital to shareholders.
Our CET one capital ratio remained 11, 7% as net income was roughly offset by buybacks and dividends along with the impact of OCI and an increase in risk weighted assets.
During the quarter City returned a total of $2 $7 billion to common shareholders in the form of $1 1 billion in dividends and share repurchases of $1 6 billion.
Our supplementary leverage ratio was 7%.
And our tangible book value per share grew by 5% to $75 50, driven by net income.
Before we move to Q&A, let me spend a few minutes on our outlook for 2021.
First our full year top line outlook has improved since last quarter.
At that time coming off the performance of 2020, we'd expected industry wallets to return closer to the 2019 levels. This year.
Given the strong start to the year as well as the increasingly positive signs of a recovery ahead. We now believe wallets will be somewhat higher relative to 2019.
Meanwhile, our outlook for net interest revenues is unchanged and we continue to expect a decline in net interest revenues of somewhere between $1 billion to $2 billion with stabilization continuing into the second quarter and an improvement in the back half.
Taken together this suggests revenues down in the mid single digit range.
Better than our prior guidance for a mid to high single digit range to clock.
Second on the expense side, we continue to expect full year expenses to increase in the range of 2% to three per se, mostly driven by investments related to our transformation agenda.
In addition, we could also see some episodic impacts this year related to the market exits we are pursuing and as I mentioned earlier, we'll be very transparent about the impact of these actions on our financials.
Finally on cost of credit.
We continue to have an overall favorable outlook with regard to credit performance and.
And depending on the macroeconomic outlook, we could see further reserve releases, although given the size of the reserve release. This quarter, we would not expect to see the same magnitude of ACR released going forward.
With that Jane and I are happy to take any questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad again Thats star one to withdraw your question press the pound key please.
Please limit your questions to one question and one follow up please hold while we compile the Q&A roster.
Your first question is from the line of John Mcdonald with Autonomous research.
Thank you.
James I wanted to ask you a bit of a strategic question just for some more color on this idea that the investments you're making in the risking controls will also help advance your goal of modernizing cities technology for the benefit of customers could you elaborate on that a little bit and maybe give us some examples of where you've seen technology.
GAAP says you've done your listening tour across the company.
Hey, Thank you very much John.
So.
It's fascinating at the moment I have a chance to go out and talk to the Ceos of banks, who are our clients all around the world and all of US talk about the same thing Mike just does.
As a major transformation, that's going on digital transformation a need in the industry.
And so as we look at like in central during the transformation the transformation my day to as much as much broader than just the the consent order. It sounds like that's obviously, a very critical component to that.
And so as we look at the as we looked at the investments we're making.
I look at the ones that we're making in our infrastructure and our data.
As a as very much linked to our strategic needs as well as what's being required and also with us from moving from the consent order with us so.
Do you want a day to self imposed to start on the App.
But also with data would be and also its example, that's both sweat investments of what we make and the quality of our data assets will have a big impact for all shareholders in terms of driving revenues on net.
Improving our client experience and making faster decision, making on risk business decisions.
As well as making sure that the data that we do have is properly toughened and Ah you know from a safety and soundness perspective.
Many of the investments we've got at the moment are really.
The strength I'm transformation, a lot coming together.
As it goes from many banks.
Okay, and then a quick follow up on that from Mark Mark how should investors think about the multiyear cost of this transformation, obviously, you've given us some sense of what's embedded to get to your expense guidance for this year of up to 3%, but is this something that does get spread out over multiple years. It doesn't sound like an easy or quick project.
Yeah. Thanks, Thanks, John.
As James reference it is they are not much referenced in the past it is a multi year effort and we've been working very diligently on identifying the gaps that that we have in identifying the root causes and as James has mentioned, we're working very aggressively on constructing a plans to Tom.
Move towards more comprehensive execution, but those plans have to come together and we're still working through that and as you've mentioned you know I've been very clear as we as we develop the information as to what we can expect in the way of headwinds that 2% to 3% this year.
In the prior year and as we.
As we bring those plans together all continue to share openly what our best estimates are probably expenses continue to to evolve what I would say John is that I say this a lot I guess these are investments as Jane mentioned there are benefits that we expect from them. The data was a great example.
As to how we leverage that with our clients, but also how getting that quality data in and not having to rework it and reconcile it et cetera et cetera saves us on the operating cost as well and I highlight that because as we make more investments we will undoubtedly continue to seek out.
Productivity opportunities.
That moved to offset those.
Your next question is from the line of Glenn Schorr with Evercore ISI.
Hi, Thanks very much.
I guess I guess.
A simple one that's probably not so simple that art is theres not theres not a huge revenue or earnings impact from divesting.
But the 13 markets, but there is a lot of like resources on bandwidth freed up.
I guess my question is what do you do with the capital.
Just conceptually.
Everyone's been.
Looking to you for a huge capital return story, which is what you are.
But but.
Putting the consent order aside how do you think about using net capital off scientifically to augment the businesses that you're doubling down on.
Sure look I think this is one of the reasons why it's so important that we're doing the refresh that James has described it allows us to very clearly focus on the parts of the franchise, where we think we have a significant competitive advantage and as James mentioned those are going to be the parts of the franchise, where we allocate more.
Our resources, both on the way of expense dollars and investments, but also in the way of capital allocation. So that we can capture the growth that we see with with client opportunities there.
And after that after kind of ensuring that we're capturing those opportunities that deliver returns that are consistent.
Distant with our objective of narrowing the gap to peers.
Then we want to obviously, our return excess capital to shareholders as as we've as we've been doing so that that's the way we think about it first let's lead with what is the strategy.
Let's make sure that strategy is rooted in growth opportunities and commensurate returns that makes sense for us.
Let's allocate capital there to take advantage of that and then what's left less return it to shareholders.
Yeah, Mike.
Mike just jumping on this one as well they have been all that great listening tour with our investors I'm not hearing that the spec person.
I'm very clear around our priorities such as clothing return GAAP with all with art. He is making sure that we put a strategy in place.
But hustle investment profile.
Well as the different actions to do so and as Mark said this is our number one priority.
I appreciate that I love to follow up on just one piece so.
<unk>.
On that front, well is definitely something that sets a high rate return profile, you mentioned youre doubling down I'd love to discuss.
As a combined entity.
What metrics do you think we will be looking at to determine success like what are the important linkages with the other businesses.
Can be maximized better.
What systems and product platforms.
To get to these higher aspirations.
But be careful because I could talk for hours on this one.
And I think we're incredibly well positioned and well and Mike <unk> Mike.
Some of the visibility and the size and scale of the business today.
When I look at it we've got and we've got a phenomenal brand known and aspirational one in the wealth space, particularly in Asia, but around the world. We have all commercial bank, which operates in 30 different geographies.
Around the world and it's where a lot of the wealth is being created so we have relationships and are helping with that so wealth generation and source of wealth from many of our clients as well as all day, so nicely T. We've got a top tier institutional platform and capability.
And we've got a we've got a presence a very well established from these major wealth hubs around the world. So I do feel we're incredibly well positioned when we can bring these different assets and capabilities into a single platform. So the investments that we've already begun making.
It's putting a single wells.
Wealth platform organization in place, we might be announcement yesterday around the leadership is a free not.
We started investing and growing our relationship managers and employees around the world I'm not really.
Really bringing together the best of the firm and I expect US we block on the technology, Tom will have some different tech stack lined up against that too so Jim Mcdonald, putting the plans together right now but.
But we see this as a tremendous tremendous opportunity on your behalf to measure us and hold us to account for this in terms of the returns that we generate the gross and the free income and continuing to starting to capture share in the years ahead.
Your next question is from the line of Erika Najarian with Bank of America.
Hi, good morning.
Yes, just to follow up on Glenn's question.
So John you mentioned in your prepared remarks that you were now refocusing on consumer businesses, where you have scale and that's the U S and Mexico.
I guess, we're wondering I'm sure you are still in the middle of your strategic review.
What is your vision for the city consumer franchise in the U S.
And then as we move past the world, where hopefully your multiple is more reflective of.
You know your ROE potential and you're past the consent order would you entertain inorganic opportunities for market share growth in the United States.
Eric a great great question suddenly well, what I have heard loud and clear from many of our investors as well as we've been talking with them.
The U S is our home market, we have to get it right.
It's a great franchise in terms of brand.
Client base that we have around the country, we suddenly see upside potential in wealth has been talking about we have a large called business, where the pandemic has accelerated the cross sell of off road, the banking proposition and I think the broader theme of Digitization.
We have very high quality clients and announce a footprint and they've been very deep sleep engage and that's only increased.
50, 750 per center, new accounts this quarter in the retail bank, but if it were a quad play in about 75% of our clients. For example are digitally engaged already and we have tremendous partnerships. So I think we've got some we've got terrific assets and building blocks, but does he said the work is going on.
Right now on the strategy refresh.
And we're looking forward to coming back to you.
In reasonably short order when we've done the work and have the plan on what our what actions we will take them, we're looking longer run and put now partnerships that got me very important but Tom you know, we'd love to do inorganic moves if that makes sense for our shareholders and for all saw the down the line, but not both.
Mike has some partnerships.
Thank you for that and my second question is with Mark and Mike.
It's just probably partially how you laid out guidance, probably partially answers. This question, but investors seem to believe that there could be upside.
Revenue from banks, whether it's you know continued expansion of wallets and your ICD business or you know in more traditional N. I R sources and I'm wondering if the two part question one is.
We get a better revenue from here could you still achieve that 2% to 3% expense target and as a follow up on the expenses that would be carved out from those exits we heard from one of your peers that you know if you exclude overhead or you know expenses allocate.
Businesses exited yeah, we would see a net.
Sort of a net expense savings of about 75% to 80% of identified expenses and I'm wondering if that's the rate ratio to think about those 13 markets that you're exiting.
Sure. Thank you so.
So the first thing just in terms of revenue I did speak to this in the guidance and what I referenced was.
I talked about in the last quarter.
The normalization of the market's wallets.
And what we're seeing just at the start of this year and the strong start that Jane referenced is that.
While I do expect there'll be some normalization I would expect at this point that the market wallets will be above the 2019 levels.
And so we do think that that presents some upside I talked about the and that's what kind of feeds in part.
The down mid single digit guidance that I gave for total revenues youre right with the Steepening of the curve on.
That does present some.
Some opportunities we've got dry powder to put to put liquidity.
To work and we've done some of that but we have more dry powder to do that.
That said as I mentioned earlier, we are seeing higher payment rates.
From the consumer business that offsets.
Some of that potential upside and I did describe veneer in the way of a range down $1 billion to $2 billion and so that range gives you some sense for the ability or the opportunity. If we were to capture more of that upside.
In terms of the expenses two things one you mentioned relative to revenues.
The answer is that it.
<unk> continued to perform even stronger.
The recovery is even more significant on the on the lending side or consumer side, where ICT, sorry for that matter and that will come with higher expenses.
<unk> expenses compensation expenses, but I think everyone would agree that that would be good cholesterol.
And.
So we'll see how that plays out.
Obviously I did mention episodic costs associated with the exits what I'd say about that is.
And your point around allocations, both Jane and I have deep experience at this.
I have experience from Citi holdings, and being part of that team and ultimately running Citi Holdings, James run Latin America, both of those parts of the franchise historically have exited countries and we have both been keenly focused on ensuring that we get as much of the stranded costs associated with exits out of the organization in the past.
And you can rest assure that that would be the same type of focus we'd put to these exits.
So that's kind of the view there I don't have a ratio that I'd want to share at this point, but please please know that that it will be a focal point for us in order to ensure that we get the most value out of this decision.
As a reminder, please limit your questions to one question and one related follow up. Your next question is from the line of Matt O'connor with Deutsche Bank.
Good morning, I noticed there's a tough question to answer, but how should we think about the timing of the consent order.
Should we think about the ones that came out in October of last year is essentially restarting the clock ore from father was going on for several years.
And the fed and nurses, who acknowledge that you've made progress maybe.
Maybe you don't think about it as a resetting the clock in and the reason I'm asking is if you look at other consent orders every industry. It tends to take several years 345 years.
And it's a little bit trickier with you guys because again, it's not like just starting from scratch, but I was wondering if because I thought you could comment with respect to the timing and kind of how I frame that.
Yes, sure sure why don't I why don't I start and then John you may have some some thoughts on it as well.
What I'd say is you know look this is.
The consent order.
What's clear in its way of directives in areas that we need to focus as James described.
We're looking at this frankly, a little bit broader we're looking at this as a as a transformation.
And it will take.
It is a multiyear effort that is underway here, yes. There are some things that you've heard us reference that we had started even before the order.
Remediation efforts that were underway.
And some of the areas that are referenced in the order. We're leveraging the work that we had started already but candidly what's different about this transformation versus a remediation is that we're looking at this end to end.
As opposed to a very narrow or silo or tactical approach to an issue that's identified.
And in order to do that you do have to pause for a second you take a step back and look at things on the front end of a process where things come into our systems and understand how you can improve those processes. The technology that supports them the governance around that I highlight that because your answer is that your question is.
Tough question. There is some of it that we will keep accelerating but we want to make sure that we do that in a broader context, so that we get it right and that's what's really important to us John anything you want to add to that.
I think I think you said, it very well Marc and remediation as tactical trend from transformation is more strategic.
And much more fundamental and that's what we're doing and they take a soup to nuts approach. We're looking at the target sites. He wants to get to making sure that Todd I know, we've got real excellence.
And what we do I'm.
And that.
That is that is the focus.
So we look at rather than looking backwards.
And then just a follow up there like it isn't a reality.
You need to kind of fix the regulatory issues. So that you can accomplish some of the things that you want and the transformation right because I think your ability to do deals ability to open branches. There's just a lot of restrictions.
So I think that's good to hear about like a long term vision, but you probably need to get.
The house in order first right before you can accomplish some of those things or can you do both at the same time.
You couldn't you absolutely do price at the same time and that's what we're very focused on as I say the transformation and day on the work on the transformation that's faster in many ways go hand in hand, and getting us to the same goal, which is make sure were excellent for our investors for our clients as well as for our regulators and the safety and sound.
This agenda. So the two go very much hand in hand, they spend controls of obtaining important.
Particularly in the digital world and we need them to be at a very high standard.
Operators, one of the world's most significant financial institutions that he and pension assets the intention to make sure. Our operations are the same so one and the same go here.
To your point James.
Exiting exiting these 13 countries that simplifies the organization.
Creating Citi global wealth and bringing.
What was the private bank and our wealth organization and consumer together allows for us to come up with an investment platform a unified investment platform that simplifies the organization makes it easier to have controls in place around those processes. So James is exactly right. The strategy is aligned with the trends.
Information that's underway in many ways.
Okay. Thank you very much.
Your next question is from the line of Saul Martinez with UBS.
Hey, good morning.
That's a bit of a.
A bit of a hodgepodge of questions related to <unk>.
Your strategic refresh.
So first.
You gave a lot of color on the financial metrics of the 13 exit markets.
But do you also happen to have what the reserves or on the balance sheet that could be released over time windows.
In those countries.
Second.
Time Horizon, I know Youll, you indicated mark that you'll you'll give us more detail as it presents itself, but just any sort of guidance on the time horizon are we looking at the quarter.
Quarters or is this going to play out all play out over a number of years, just any any guideposts and then I guess thirdly, I'll just finish up.
Maybe more importantly, but a mix any how is how are you thinking about buying a mix in the context of <unk>.
Your strategy refresh I mean, it certainly is not a subscale business, but you know Mexico does have some some macro challenges as you guys highlighted in a government that has.
Is it very heterodox views policy views on a whole host of things so just any thoughts.
On how youre thinking about banamex right now.
So you want to start and then I can piggyback on that.
Yeah, So and in terms of why did you guys start off with timing.
And then I'll take the rest of them I can yes, I can I'm Chuck there was that one over to you Mark So in terms of timing look, but yeah, we were.
We're already getting going and there's no dilly dallying here.
And what we're what we're looking at doing is something we've begun the work the actions are underway in several markets.
We will look to complete yet so net.
Timely fashion, and we expect to be out in some markets this quarter.
Equally.
This is Susan.
We were going to be thoughtful about Todd who are.
Who the the baas are in day.
How do we do this and the value that we create for shareholders in the process and say well there is I didn't see an action.
We're going to make sure that this is a this is a good move for all shareholders.
And act appropriately on the timing is going to be driven by regulatory approvals in different geographies. So as Mark said as we know more we'll update you on the process, but we've been very transparent about what we're intending to do.
And then in terms of Mexico.
Mexico is a a scaled franchise.
When I compare Mexico to rising consumer.
Charles is that they really benefit from our scale. The returns are good.
There's a lot of upside potential that the investments in digitalization of really paid off so while the country is going through a very challenging time at the moment.
A lot to like in the franchise over the longer term and either we'll we'll give you a better sense of the strategy. There we carry on the strategy refresh work, but a lot Tonight.
Mark do you want to cover our reserve Yeah. So let me just.
I guess I'll make a couple of comments and I don't think I'm going to get into a specific reserve number so apologies for that but what I will say is as you as you see what we shared on on the page that it's roughly breakeven.
In 2020, and we all recognize in 2020, there were significant reserves.
Established in light of the pandemic.
What I'd say is if we would look at 2019.
Which would have been a more normalized year, the EBIT associated with the 13 markets.
Would have been a little bit under a $1 billion or so and so it gives you some sense for how the build in reserves at least to some extent.
Has impacted you know what the what the financials are that we've shared here.
And again as we go through these transactions.
We'll be appropriately transparent with the impact that we see from them.
As a reminder, ladies and gentlemen, please limit your questions to one question and one related follow up question. Your next question is from the line of Mike Mayo with Wells Fargo Securities.
Hi, James.
Hey, Bill about about 45 days from the job and you announced the asset dispositions. So I guess youre not wasting any time.
As you think about these assets dispositions or future dispositions, how do you what lends to use because you can consider returns.
You can consider growth you can consider synergies with the rest of the firm.
You could potentially consider regulatory benefits as it relates to the consent order I do you get credit for simplifying less systems too.
To resolve or what other measures do you use I note that the it.
It looks like the exit of the 13 consumer markets are those where capital hogs.
I can't imagine the returns were very good but there's a lot of parameters you can look at what lines do you use.
So interesting question Mike.
And.
Frankly, I look at it in terms of what we want to be not what we did because what you don't want to be kind of falls out of full south of it pretty easily.
So the main consideration may have is how do we close the return GAAP without P. S and make sure that the businesses, we're in that from wind and I.
Yes.
Very disciplined about going back to those principles I laid out at the very beginning.
We talked about back in January we've been using this consistently in the strategy refresh what Mike said the first thing we're looking at is.
Is it a sector or is this client segment or is this business that doesn't have attractive dynamics as we look out over the medium and long term.
And importantly, within those sign I'm ex cat how can we when does this make the can be well positioned in this.
And I think with that anything in the world of financial services. The day that scale is obviously, a very important consideration.
So the corollary of that is if he doesn't have scale. That's usually a disadvantage we look at it in terms of connectivity and it's very very important that we have synergies across all major platforms and all client segments.
And you know what you'll hear us talking about that a lot more going forward and what are some of the metrics that we will look at.
To demonstrate that we are really capturing the synergies we.
We look at season returns.
So therefore it is lets say if its capital is it generating returns that we're getting the growth rate.
Deficient on the CE Gen revenues relative to what Mark and I would like to be so that becomes a consideration and then does it really fit with the strategic identity that we have for city of Mike well keep working on his positive refresh. If it's yes. Then this is a candidate for investment.
The laying out what the strategy is if it's not it's the opposite.
And you know dispositions, we're always gonna taken to time into consideration timing.
And the last question that there's no fire sales, yeah, I was going to be thoughtful in how we ensure we generate value for shareholders on the exit of the potential value of partnerships with <unk> with the potential buyers et cetera.
And I know, how best can we monetize them and generate value as we do this and so and in many ways. It's a little bit of all of the above on your list, but we cut it we stopped in the opposite places that they know is I mean, what are we going to be.
And our focus on making sure that we generate the greatest value from that and the other decisions kind of pull out of it pretty quickly and I think you could see that being demonstrated in the and the decisions. We made on price why wealth on the hubs that we got and we are investing in.
In Asia, and EMEA, but then equally day the other decisions on day, one remaining duchene market on consumer being the accident.
And then one follow up it is early.
But do you have a sense of what sort of return you'd ultimately like to achieve.
And ultimately what is the identity that you would like to have for Citigroup, who who is Citigroup you know what's your.
Yeah.
What's your elevator summary, elevator Citigroup is fabulous Mike.
When again when I go back to one of our investors been talking to me about.
As we've been going round and listening to them. They want us to have yeah. They wanted us to have total GAAP with the.
Returns without P S.
I think mark given some indication that we have is we see a more normal rate when we see a normalized rate environment.
The strategy that rate.
88 at mid tier range seems reasonable, but I would certainly add and let us do the walk on.
Because I want to make sure that we have a very thoughtful strategy, namely bought clarity around it and when you ask us about them.
What is what is going to be we'll be back to you with done again, a lot more precision and clarity around it but I think you can see from some of the moves that we've got we want to be.
We really want to be excellent.
Hum.
That's not just in terms of how we serve our clients many of whom are very have global needs and there's a lot of consistency around that but also I would say what's sticky is.
Excellent to be one that is used about us and our operations and our culture.
And our accountability and what we do.
And so that's what you'll you'll hear from me a lot and that's a standard I'm holding myself and the from too.
Your next question is from the line of Steven <unk> with Wolfe Research.
Hi, good morning good.
Good morning.
So wanted to start off with a question just looking at the strategic actions that you guys had taken if I think back to 2014 right. Then what was outlined then James was actually pretty similar in terms of the profitability profile of the businesses that you're exiting the capital benefits that were ultimately going to.
Reaps.
And it was at least difficult to see some of those benefits if I look at how the profitability profile has changed so I guess from your point of view, having been at the firm when that was undertaken now what what lessons did you learn from that process and are there any differences in the approach that you might take this go around to potentially drive.
Even more conspicuous are clear benefits to the bottom line.
I'm sorry, just in terms of I, just want to make sure I'm understanding the question you're asking for in terms of the benefits of Digitization.
They just hi, Jason just if I think back to the exits that they were strategic actions that you had pursued in 2014.
Exiting.
A handful of markets.
You know to try to optimize that global consumer footprint and it was very similar in terms of the disclosure around the exit markets were barely profitable there were capital benefits that we're going to be reaped ultimately we didn't see those benefits that'd be just translate into bottom line impacts and curious if you could just speak to some of the learnings from that experience.
And what approach you might take a bit differently.
Yeah.
When I look at this day.
In Latam on the benefits, we got we're pretty tremendous so I I think festival.
But very much focus on our strength in our institutional franchise.
And we were able to make sure that we had truly world class talent, we invested in our technology and platforms.
We are very focused on that that client base.
The multinationals, we set that in particular in the at the Investor base.
Jason has America only drive the returns up from.
Teenagers to mid twenties.
A pretty short period of time, we raise up day out in the rankings in the in the banking side.
And you know really solidified our leadership on the institutional front I'd also say, we simplified the management structure as well in the in the region.
And and gained quite a lot of benefits from simplification that hit the bottom line as well so I I gotten I'd say my experience as being one in which there's real benefit from focus.
Get better at the businesses that are in you get strong talent on and you're able to bring more focus talent that's what's different.
And you get your rate, but it really get the linkages across the different businesses.
And then Mark I don't think that if you've got anything else that because you and I hope that it's a nice John they used together yeah, James Jane I think you captured it well the only thing I'd emphasize in terms of kind of the what's different now is we go at this is the last couple of points you made which is.
That keen focus on making sure that you've got that we've got the right talent in the right places as we go through this strategy refresh.
And in ensuring that the org structure supports that again I go back to the wealth example, and the resetting of that Org structure, you can point to the idea of moving commercial into ICD to ensure that you've got that focus against that strategy and you can really capture the linkages across the firm and then the.
Last pieces the focused investment.
We've really moved we're moving away from kind of a spreading of the investments and really wanting to to focus them on where we think the biggest growth opportunities are and where the highest returns are but I think you've captured it all day.
No that's great color. Thank you both for those insights and just for my follow up I wanted to ask about the TTS business. You know, it's a really strong franchise and like the underlying balanced growth you know historically has been quite strong and relatively steady Eddie.
In more recent quarters theres been some pressure on that feels like a lot of that is actually NII or rate related but was hoping to give some perspective on what are some of the underlying trends that youre seeing in that business now what's your outlook at least from here now that most of the rate pressures that we should be fully absorbed or reflected in the run rate.
Sure why don't I why don't I start and then John you can add on as you'd like in terms of some of the clients perspective, but you know look the revenues you're right, we're down about 10% year over year on an ex FX basis.
You hit it right on the head I mean, there's the low rate environment that we've been in.
It's a very big driver and what we've seen in the aggregate TTS revenues now now we have seen higher deposit volumes and that obviously plays through with.
With that impact what I would say in terms of your broader question.
What we look at is one the engagement that we have with clients and we have very meaningful significant engaging with clients throughout the entire prices that we've been managing through and that engagement kind of plays through in the increase in number of accounts digital accounts that we've opened for them really kind of reinforcing some of the investments.
We've been making in onboarding and enhancing and in enhancing our digital capability.
That engagement plays through in the clearing activity and cross border transactions that we've seen which are both up six from 7% over the over the past 12 months. So good solid underlying drivers.
While we do see pressure on commercial card activity.
Fee revenues ex commercial card activity has been has been good and frankly as we see the economy recover and we look at some of the GDP forecast in and that starts to play out we would expect to see the business.
The business activity turn in a way that that starts to play through a true through the through the top line, but we see again very very strong continued engagement.
With our clients and with how they're evolving their own strategies and the last example, I would mention is.
Many of our clients with the acceleration of Digitization.
Our focused on business to consumer activity and that's an important area of growth and we're part of that dialogue with part of creating that solution as it relates to their business model or business models. Jane I don't think that you want to add to that.
Yeah, you're you're going to hear quite a lot more about our Pts business and the services platform rate represents force.
So many of our clients around the world.
On the client and then my discussion with clients.
Over the last the last few months, they love, our TTS platform up more than that they depend upon it.
Strategic for them.
John.
And and it's a different services that they share it represents the other dimensions of it and so the growth that we're going to see from this this next year and it is I think is going to be very material.
You'll hear us talk more about the commercial bank going forward as well because they make more mid market clients and the born digital clients are ones, who use something use our GTS platform and the capabilities and services around it to all set themselves stopped growing internationally.
And it becomes a core part of them. So it is something it's just we've got more to grow with our existing clients. We've got a lot of new clients that are coming on board. This sudden this is gonna make aside because I think part of the story going forward.
And the underlying opportunities he is separate to the rate environment.
Your next question is from the line of Ken Houston with Jefferies.
Thanks, Hi, good morning.
Jean Marc I was wondering if I could ask you just about global recovery and pacing as you look through the supplement you see different growth rates. When you look whether you look at loans cards or deposits.
At different paces and as the currency translation impacts as well of course, but just how would you help us understand as you look forward to revenue stabilization over time, just how do you see the global customer base recovering in terms of pacing U S. Non U S and if you can juxtapose that to an extent in the wholesale side.
That would be great as well thank you.
Yeah, I'll I'll kick off per se and little bit more on the macro side Michael jump in on some of the other important dimensions for ourselves look it's asynchronous price out there is what we're seeing them I think they are seeing the U S and China suddenly leading the recovery with a with Asia.
Europe as it is delayed but certainly not derailed and parts of the emerging markets are struggling. So you do see a different picture in different parts of the world I think you've heard from US from me at the beginning of the call we're pretty optimistic.
About the about the U S. In particular on over the next few years, there's a lot of unspent savings out there with consumers huge amounts of liquidity in the market corporate balance sheets are broadly healthy and then you've also got a lot of dynamism from.
Digitization, that's changing consumer behaviors and driving investment. So overall, it's certainly a very improved outlook around the world, but it is an asynchronous one and right now we're seeing as Mike had talked about as from pipelines a lot of client engagement a lot of client activity.
But up quite a I tend to you on how you're seeing some of those translate yeah. Let me make a I guess I'll make a couple of comments one we.
We are seeing.
Continued pressure on our consumer business right. So we talked about loan volumes being down, particularly in branded cards, almost 15% or 15% retail services average loans down down 13%. What I would say is we are seeing signs of.
The recovery and while those loans are down payment rates remain high that helps from a cost of credit point of view and purchase sales are starting to show. Some good thoughts so branded cards purchase sales were flat year over year. The retail services purchase sales were up 4% year over year.
And the outlook is positive in terms of kind of GDP and unemployment and so.
There is the stimulus that's out there still has to play out in North America.
But we are we are optimistic that consumer spending trends look like they're going to go favorable and that will undoubtedly help.
Forecast that I spoke to which is recovery in NAR and some loan activity towards the back half of the year.
On the on the corporate <unk> side.
Similarly.
We're certainly seeing good signs as it relates to the market's activity, we've talked about that and that has continued since.
Last year, but when I think about even ICU G.
Loans, we've seen loan activity in the private bank.
We've seen loan activity.
Parts of markets.
And so those are good and loan activity as it relates to trade.
Which is which are all good signs of the.
The recovery that we're all we're all marching towards.
And one follow up on card Mark you had mentioned in your prepared remarks about how we knew that we would get.
The bounce in card losses, but and you mentioned of generically that card losses would still remain pretty low any any way of helping us kind of understand just how you expect card losses to traject overall.
Yeah, Let me, let me mentioned a couple of things on that so so one is.
Let's take it in pieces, So Latin America on the chart in Slide 10, big jump in the in the quarter almost 11% of Ncl's.
But again that is a byproduct of.
<unk> customers coming off of the relief program in the third quarter and as we look at the delinquency.
Buckets, we're not seeing.
Meaningful signs of increases in those buckets and that gives us comfort.
Comfort in the case of Latin America that we've reached the peak there.
Similar fleet for other regions. There are no signs into delinquency bucket to suggest that we're going to see big increases in our <unk> and in fact in North America, which you heard me say is that we likely would not see that until.
In 2022, and so it's the it's the payment rates that we're seeing it's the low activity as it relates to the delinquency buckets. It's obviously the impact of stimulus playing through all of that that would give us some comfort at this stage that we're not we're not likely to see a pop in mcl certainly.
And in 2021.
Your next question based upon the line of Brian Klein handle with the K B W.
Good morning.
So yeah two questions maybe first on the corporate lending.
Balances there were down 30% year on year I'm, just trying to a sense of how much of that is driven by client demand versus overall risk appetite, maybe if just trying to see if you get more risk appetite that those loan balances could come back sooner.
Yeah, I mean look.
As you know.
We're managing through this crisis, but if you look back to.
Early last year.
In the second quarter last year this was about ensuring that.
Clients had an appropriate level of liquidity.
And.
And that has continued to happen as you see in our deposit growth as you've heard others mentioned as you see monetary action. There there are corporate clients have lots of liquidity by and large and Mike.
They have a <unk>.
Many of the clients we serve have the option of how they want to access the market for that liquidity and you saw that in some of the ECM DCM activity through the balance of last year and even some of it continue and so long winded way of saying. It is it is this is a client driven business. This is about client demand and so it's not a question.
[noise] of risk appetite risk appetite is always important we operate inside of our risk appetite framework always.
But the dynamic that youre seeing here is about client demand.
And then second.
A question on cards.
Desire to grow new card accounts can you maybe just.
Go into a little bit deeper on the strategy behind that is it more going back to promotional balances and opening up that bucket again or how are you going to grow those new credit comps. Thanks.
Yeah, you know again the the card.
NAMIC here is about.
Ensuring that we get.
The timing right as it relates to market reentry, alright, and so obviously coming into this we wanted to be very thoughtful about how we managed our risk.
And we've tightened risk risk.
Our risk criteria in order to ensure that we could man, we would manage responsibly through.
This pandemic and now as we sit here and see all the signs of recovery that you've heard us mentioned.
It's about a responsible reopening right in and ensuring that we're.
Getting the customers that we.
We want longer term the existing customers that were opening line availability to them where that makes sense in the case of.
Our retail services that we are pursuing new account acquisitions, both there as well as in branded cards. So it's about that reentry strategy.
And consistent with the target market customer that you you've heard us describe before which tends to be of a higher quality.
Your next question is from the line of Chris Kotowski with Oppenheimer.
Yes, good morning, and thank you.
My question is on the exit.
Exit markets and in particular on the markets in the Pacific rim.
Their operational linkages between the operations and all of those countries that would make it those come from it was better.
Better to sell as a unit to one of the Penn National companies or is it very modular and could be pulled apart in each country sold to the highest bidder.
And then secondly, I was wondering also.
Do the due to the Citi branded cards go with these dispositions or do you maintain that separately and continues.
Tried to solicit been growth grow the card base.
I hate that Chris So in terms of the exit markets I'd say, it's probably a tad early to speculate on the bias.
These are these are fabulous franchise is on and we've got really true tremendous talent tremendous capabilities that I'm in the individual markets and so I would expect it to get a lot of interest, but as to who and what so I'm certainly not going to speculate yet.
When you ask about operational linkages I mean, this is something as Mark said, he and I have gone through quite a few divestitures in different geographies.
And get up there, where we are well skilled at how to make sure that we can we can separate out the consumer franchises and then invest in the capabilities that the AR for the ICT businesses, it's not been a problem in any of the divestitures that we've done and I would tell you, which what money I mean, it was about 11 or 12 accrual.
South America and adopt those before so it.
It seems that credit is it it's not going to be an issue.
And in fact, it'll enable us as we said to talk about our investments more than to be the institutional platforms and wealth in the hopper as we talked about.
And then in terms of branded cards.
And I do Brian do branded cards go as part of the sales yes.
Simple answer to that one bill.
Transaction services of course remains an important part of the franchises and the sudden sucking geographies and so now all capabilities and commercial cards at all.
All capabilities and payments et cetera, but the TTS side of the business day no remain intact.
And we'll we'll be investing it.
Your next question is from the line of Gerard Cassidy with RBC.
Good morning, John Good morning, Mark.
Good morning Corning.
Mark can you share with us many of US are trying to take a look at what your bank and your peers will look like when we get back to some sort of normality.
We're beyond the pandemic and one of the areas of focus as loan loss reserves since as you and your peers said you build them up dramatically now you're drawing them down of course can you share with US I think if I recall back on day, one January 'twenty when the new <unk> rules came into place your loan loss reserve to loans was about two.
Two 6% and I think today, it's about $3. Three can you give us some color of Directionally do you think you could get there I know, there's a lot of moving parts and change of mix of loans and different economic outlooks, but the economy looks a heck of a lot better in the next 12 months than it did pre pandemic and when you guys all day to day one reserves.
And that was of course is something we didn't know the pandemic was coming back and of course, yeah. Yeah. You know it's a it's a it's a really tough question to answer because there's so many moving pieces that come into play here. So while we sit at 3.3 percentage as you pointed out.
You know the macro environment continues to improve this is based on an outlook and as those economic variables change whether it be U S unemployment or GDP, but also as our balances change. So as we can tell you too to reenter the.
As I kind of suggested in my other response, we're going to start growing balances and we're going to start.
And that's going to impact the mix of balances that we have been so all of those factors on top of in our case, you know how the probability and severity of a downside continues to morph.
Become important considerations in not only answering your question.
But also how we think about future reserve releases and so I'm not trying to Dodge your question at all but it is it is a question that will be a kind of a byproduct of how we get to some sense of normalcy and how the portfolio continues to evolve.
Got it.
Understood and James I may have missed this but.
Obviously, a sense of your excitement in your voice about the new.
Refresh on the strategy how long if you have to sit back or is this a three five year project any idea of how long it will take to get the city to the place where you want it to go to.
That's an interesting question.
What we're looking at as we do this trashy refresh what is looking with a longtime perspective.
Am I I don't think it takes us a long time to complete the strategy refresh work and we'll be looking forward to sharing that with everybody.
As we go along as we said Mike.
And as we get on with execution.
As soon as it makes sense so.
I don't honestly no assets.
Mike consultant as to whether you're ever done this strategy. This well this highly dynamic.
Mike It's a it's a fascinating world I think part of the excitement is I'm excited about the franchise I'm excited about the prospects of the Sun I'm also real estate, we've got quite a bit of what to do.
And with our Mark and I, probably can't on what our priorities are so I I don't think it's going to take us very long to come back to everybody with the with the pay per view of where we're going I'm looking forward to doing so.
More than anything looking forward to getting on with that Mike and I did.
I did get rapid John.
So I can't I can assure you derive that James is moving all of us with a sense of urgency and that's the that's the right focus that we should have on the strategy refresh, but then you're absolutely right strategy doesn't it doesn't just stop alright, so well said.
Your final question is from the line of Vivek <unk> with Jpmorgan.
Hi, James Hi, Mark Thanks, John.
My question.
John I wanted to get stem from you. So you know you've gone through these exits as you've talked about in Latin America, and now Youre doing in the consumer bank and that you've announced for Asia now what do you see as the differences in your consumer franchise in Asia.
The rest of Latin America and pointedly.
The investments sales what is that as a percentage of revenue for instance, in your Asia consumer bank versus letting rate that's a little.
Question <unk>.
Tail on that.
And little depth.
Those revenues also go away. So so two different questions, one a little higher level, but tied to it as the sole investment sales and what do you see that and implications for your I guess, what I'm trying to get us sales of implications for your private banking revenues, which.
Guess, that's different than this investment sales revenue that shows up in the consumer bank.
Yeah and I.
Thanks, Tom.
The differences between our Asia consumer franchises and and lots of America Latin America. That's the canvas is a franchise from Citi Banamex, so need today.
And.
That's a single geography with about 20% market share I'm, not and you know a full eight and is a full offering to the consumer.
As opposed to a franchises in Asia.
But a small assets they're excellent franchises as you know they've got a good brand name they've got they've got a terrific called franchises and in an affluent client base, but they they haven't had the same scale that we have in Mexico. So I do view them as something as rather different.
And in terms of what are the right message I guess the question you're asking is what is the ramification of that.
Net of the divestitures, but this for our wealth business day in Asia.
And if you look at the individual Asia markets. The domestic capital markets are not that well developed and so the the offshore market sitting and Hong Kong and Singapore, and indeed in the middle East and in the States and then.
And the like become very important markets for the onshore wealth.
Opportunity is usually massively dwarfed by the offshore well flow opportunity and that's why we feel we're best placed.
And I would just focus our attention and resources.
What I would also say, though is I I one of the advantages the city.
We're not just sales investment sales proposition on that we also do have the deposit franchise. The cod franchise, we have the capital market platform for sure. We've got the ability to offer our clients tremendous managed investments the content that we're able to offer our thanks to our I C. G.
Franchise and.
It's really best in class and it was quite extraordinary in the asset allocation advice. So this is really at the capabilities, we can provide them.
The client is very well diversified.
From lending banking.
As well as the investments in the managed investment capital market revenues that you see and so I just think of this as investment sales and is this is this is something that we're able to offer them. That's much much more broad and knows the well center hubs.
And the offshore.
Is far greater than me on shale opportunity in those market.
And you'll get more guidance on this as we go forward as Mark said is and as James Flushes out the strategy and the plan that we've got you.
You can expect to get some more details.
There are no further questions I will turn the call back over to management for any closing remarks.
Thank you all for joining today, please feel free to reach out to Investor Relations. If you have any follow up questions. Thank you again and have a nice day.
This concludes the first quarter 2021 earnings call. Thank you for your participation.
Okay.
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