Q3 2021 Citigroup Inc Earnings Call

October 14, 2021

[music].

Hello, and welcome to city third quarter 2021 earnings review with Chief Executive Officer, Jane Freezer, and Chief Financial Officer, Mark Mason today's call will be hosted by Jan Atlantis head of Citi Investor Relations. We ask that you. Please hold all questions.

Until the completion of the formal remarks at which time you will be given instructions for the question and answer recession also as a reminder, this conference is being recorded today. If you have any objections. Please disconnect at this time Ms. Landis you may begin.

Thank you operator, good morning, and thank you all for joining us.

I'd like to remind you that today's presentation, which is available for download on our website Citigroup dotcom may contain forward looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances.

Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings.

Before we get started I'd like to thank Liz Lynn for being such an incredible partner. During these last few months I.

I really enjoyed getting to know the entire city team and I'm honored to be the next head of Investor Relations.

And I look forward to working with you all with that I will turn it over to gene.

So thank you Jane and good morning, everyone I'm delighted to join you today, so let's kick off the call with what we're seeing from a macro perspective and the tremendous engagement. We continue to experience with clients before I give you an update on our results and priorities.

Certainly the recovery from the pandemic continues to drive corporate and consumer confidence I, particularly like the robust pipelines, we see through the rest of the year and beyond.

Corporate client sentiment remains very positive.

Healthy cash flows and liquidity driving M&A activity and deleveraging and consumer balance sheets remained unusually strong on the back of the increasing consumer net worth during the pandemic.

Now all that said growth has come off the ball and attack.

We're watching three things very closely.

Down in China, and its impact on global growth inflation, and supply constraints and labor materials and energy.

Finally, what happens next with the U S debt ceiling negotiations visa.

These are also the issues, which repeatedly surface and all conversations with clients.

So turning to the quarter, we reported net income of $10.0 billion and EPS of $17.0 embedded in these results is a pre tax loss related to the sale of Australia consumer business, which mark is going to provide the details on.

Excluding this transaction our third quarter revenues would have been up 3% over last year and our EPS would have been $2.44.

In the institutional clients group, we grew revenues by 4% year over year as we continue to see strong client engagement with momentum in investment banking equity markets and security services more than offsetting the 16% decline in fixed income markets.

I'm very proud to tell you that it was the city's best M&A quarter, and the second best investment banking quarter in a decade and lending and the ITG grew again this quarter, albeit modestly.

Also had a very strong quarter and equity markets with revenues up 40% year over year. So despite that normalization in fixed income versus the pretty extraordinary performance of 2020 overall markets revenues were only down 5% and they were up 11% versus the third quarter of 2019.

We continue to successfully execute on our strategy to grow fee revenue across the ICT businesses.

For example, L. P. T. S continues to be impacted by interest rate headwinds our fees. This quarter were the highest in a decade. You can also see how our global network uniquely positions us to help our clients navigate the supply chain challenges. So many of them are facing a dynamic that we expect to persist.

For the near future.

Similarly, we drove double digit fee revenue growth in security services, and the private bank as client assets under custody and assets under management continued vigorous growth trajectory.

In global consumer banking healthy consumer balance sheets, and persistently elevated payment rates Didnt mean that loan growth remained under pressure. The other key drivers are a bit more encouraging. However, U S branded card purchase sales are well above 2019 levels.

And the acquisitions across branded cards, Mexico, and the Asia hubs.

So old now at or above pre COVID-19 levels.

We continue to benefit from double digit growth in deposits and assets under management across the franchise.

Let me briefly touch on our U S retail strategy now.

Now all digital strategy and investments are starting to pay dividends.

Digital deposits stand at $19 billion, having grown 26% in the last year and we see more than two thirds about digital deposit balances coming from customers outside of our branch footprint isn't inherent with about half of those deposits.

Holders, who did not previously have a retail relationship with us.

Obviously, we were disappointed by Google's decision to discontinue googolplex, but we learned a lot through the effort and the vast majority of the investment will be leveraged for our proprietary efforts and future partnerships.

So all in all we ended the quarter with a common equity tier one capital ratios.

Seven 7% on a standardized basis.

Tangible book value per share increased to $79.07 up over 10% from a year ago.

So far this year, we've returned close to $11 billion to shareholders through a healthy dividend and share repurchases, we remain committed to returning excess capital over and above the amount necessary to invest in our franchise and to maintain all safety and soundness.

So overall I'm quite pleased with these results given the environment, we're operating in and while we have much work ahead. We are seeing the results of the previous investments that we have made.

Now I'd like to update you on our strategic priorities.

Turning to slide three we've included a page that clearly lays out our top priorities and some of the actions we've taken to date against them and we can assure this page with you each quarter to ensure you up to date on where we are and the milestones and progress along the way.

And as you can see we've been hard at work acting against the priorities that I've laid out the transformation our strategy refresh and our culture and talent now clearly the transformation is our number one priority right now and key to that transformation is all safety and soundness.

Addressing the consent orders by modernizing our risk and control environment.

During the quarter, we submitted our plans to our regulators and continue to have a constructive dialogue with them as we pivot now firmly towards execution, we're already well underway and the investment in our risk and control environment, and we're really bringing a culture of excellence. So this effort and we.

We are moving with urgency.

We also continue to make progress refreshing our strategy.

In addition to announcing the sale of our consumer business in Australia with deep in the second round of bids for the remaining exit market. We've begun the work on how these exits will enable us to simplify our operations in Asia and eliminate stranded costs.

And we're really looking forward to bringing you all the strategy work together for you on Investor day, and presenting our vision for the firm and it's not going to touch on we begun executing on many of the decisions that we've already made including in TTS wealth and commercial banking with investments and front office hires as well.

Enhance digital product and service offerings.

And we're already starting to see the impact of these investments emerged three key drivers across these businesses.

And finally, turning to culture and talent, we continue to attract high caliber external talent, while driving towards our diversity goals.

Turing clearer accountability and breaking down the silos that have historically impeded our progress as a company, it's a new city.

And all of this work has one overarching goal to responsibly narrowed the returns gap with our peers.

We will update you with the metrics and milestones that we will use to hold ourselves accountable. So you can hold us accountable to them as well.

With that let me turn it over to Mark to go through our performance in more detail and then we will both be delighted to take your questions.

Thank you Jane and good morning, everyone. Starting on slide four as Dave mentioned Citigroup reported third quarter net income of $10.0 billion EPS of $17.0 and.

And in Aro TCE of 11% or $19.0 billion of revenues Mb.

Embedded in these results is a pretax loss of $680 million related to the sale of our Australia consumer business.

<unk> this item EPS would have been $46.0

With an Aro TCE of 12, 5%.

As a reminder, while we received a premium to book on the sale of the business. We did incur a pre tax loss primarily related to the currency translation adjustment that has built up over time and is already included in our capital.

Upon closing the capital impact of this loss will be largely neutralize and we will release approximately $800 million of capital allocated to the business.

Revenues declined 1% from the prior year, excluding the loss on sale revenues would've been up 3% largely driven by investment banking fees as well as strong growth in equity markets and security services.

<unk> were up 5% year over year in constant dollars expenses were up 4% in the quarter.

On a year to date basis, our expenses have grown by 5% with two main drivers investments in the transformation, including the six programs to address the consent orders, which drove about 3% of the growth so far this year.

In business led investments, which focus on our front office expansion in the investment bank, well and security services and investments to improve our client experience and digitize our network.

So far this year, we added over 500 bankers advisors and other front office support and well, including the private bank and the consumer wealth businesses, and 200, corporate and investment bankers globally in high growth areas, including senior hires across tech healthcare Fintech and private equity.

Coverage.

In our services businesses TTS security services, we continued to improve client experience and digital capabilities, which is enabling us to capture significant new mandates and consumer. These investments include development and marketing for new offerings like the custom cash card and installment lending as.

Well as investments in our mobile and digital user experience. In addition, there were also increases in volume and revenue related expenses as well as business as usual expenses, which were largely offset by efficiency savings.

As a reminder, we will continue to analyze our expenses to look for opportunities to self fund investments.

And now turning to credit credit performance remained strong with net credit losses of just under $1 billion more than offset by an ACL release of $3.0 billion.

Largely reflecting continued improvement in portfolio quality.

In constant dollars end of period loans were down 1% year over year, reflecting the impact of the Australia.

Excluding this impact loans would have been up 1% year over year, driven by active client engagement in TTS private bank and markets.

End of period deposits were up 6% year over year, reflecting continued engagement with our consumer and corporate clients as well as continued momentum in client acquisition and deepening across both corporate clients and consumers.

Finally, as Jay noted earlier, we returned roughly $11 billion in capital so far this year.

And while we remain committed to continuing to invest in our franchise, we will continue to return excess capital to shareholders.

Turning now to each business slide five shows the results for the institutional clients group revenues.

Revenues increased 4% year over year and sequentially, mainly driven by investment banking equity markets and security services expenses increased 9% with about half of the increase driven by transformation and the other half driven by business led investments and higher revenue related costs, partially offset by efficiency savings.

Credit costs were largely benign in the quarter as minimal net credit losses were more than offset by an ACL reserve release.

This resulted in net income of $7.0 billion.

Which grew 21% in the quarter and 60% on a year to date basis.

<unk> delivered an <unk> of 14, 5% for the quarter and 18, 8% year to date.

Slide six shows revenues for the institutional clients group in more detail on the banking side revenues were up 11% and Treasury and trade solutions continued growth in fee revenues, a 20% year over year, the highest quarter for fees in a decade reflected solid client engagement and client acquisition as well as a recovery in commercial card.

Revenues. However, all of this was more than offset by the impact of lower deposit spreads driving total revenues down 4%.

We're continuing to see momentum across our payment business with 15% growth in cross border flows and 10% growth in clearing transactions over the past year.

As of quarter end TTS loans grew 15%, mainly in trade loans, where our technology investments in supply chain and deep local knowledge are enabling us to meet our clients' needs across the globe.

Investment banking revenues were up 39% year over year, largely driven by M&A as we continue to see the benefits from our front office investments, which positioned us well to take advantage of increased deal activity.

As Jay mentioned this was the second best quarter for investment banking revenues and the best quarter for M&A in a decade.

Private bank revenues grew 4% driven by growth in assets under management loans and deposits, reflecting momentum with new and existing clients.

This quarter, we added almost 200 bankers investment counselors and other front office support and on boarded over 200 new clients.

Our investments in talent continue to drive growth, which bodes well for our overall strategy and well.

Corporate lending revenues were up 17%, primarily driven by lower cost of funds and a modest gain on sale, partially offset by lower loan volumes.

Total markets and security services revenues decreased 4% from last year.

First income revenues decreased 16%, reflecting the continued normalization in market activity across rates and spread products. However.

However, we saw strong activity with our corporate clients engaging with them and foreign exchange products to support their global operations and hedging solutions to assist with their risk mitigation efforts.

Equity markets revenues were up 40%, our second best quarter in a decade, driven by cash equities derivatives, and prime finance, reflecting solid client activity and favorable market conditions. This is another business, where we see our investments in talent and technology paying off.

In security services revenues were up 10% here, we saw strong growth in fee revenues as the investments that we've been making in our platform and product capabilities enabled us to grow revenue with both new and existing clients, partially offset by lower deposit spreads.

Finally, looking at year to date results and ICT, we've seen a strong contribution from investment banking and equity markets as well as solid results in the private bank and security services, which helped to offset the expected normalization and fixed income markets.

Turning now to the results for global consumer banking in constant dollars on slide seven.

Revenues declined 14% and 5% excluding the loss on sale as solid deposit growth and momentum in investment management were more than offset by lower card balances and lower deposit spreads.

Expenses increased 5% with about half driven by transformation and the remainder driven by business led investments and volume related expenses, partially offset by efficiency savings and cost of credit was a modest benefit this quarter as a roughly $1 billion ACL reserve release more than offset net credit losses.

This resulted in net income of $4.0 billion.

Which grew 44%.

In GCB delivered 15% ROE TCE and a 21, 5% <unk>, excluding the loss on sale.

Finally, looking at year to date results, we've seen steady improvement in our drivers over the course of the year with purchase sales up 5% relative to 2019 and acquisitions nearing pre COVID-19 levels globally.

And the business delivered 22, 4%, our OTC E. Excluding the loss on sale.

Slide eight shows the results for North America consumer in more detail.

Total third quarter revenues were down 4% from last year as we continue to see headwinds from higher payment rates in deposit spreads that said we are encouraged by the trends we are seeing in both cards and retail banking and branded cards and retail services purchase sales were up versus the prior year by 24% and 14% respectively.

Lee with both above 2019 levels and in retail banking average deposits and within that checking deposits were both up 14%.

AUM were up 16% and Citigroup households were up 13% this quarter.

We're also making progress on our U S digital strategy.

Digital deposits grew 26% compared to the prior year and installment loan balances, including our flex loan and flex pay products have also grown substantially up 22% compared to the prior year.

Over 80% of these loans are originated digitally.

On slide nine we show results for our international consumer banking in constant dollars revenues declined 30% year over year in the third quarter.

Excluding the loss on sale revenues declined 5% with a 7% decline in Latin America, and a 4% decline in Asia.

Looking at international consumer overall, we're seeing good momentum in investment management with 10% growth in assets under management, primarily driven by Asia.

And the growth is meaningfully higher if you look specifically at the four international wealth hubs.

Purchase sales grew 8% versus the prior year and average deposits grew 3%, albeit at lower deposit spreads.

Slide 10 provides additional detail on global consumer credit trends credit remained favorable again this quarter across all regions and given the delinquency trends. We're seeing today, we do not expect credit deterioration in the U S portfolio in 2021.

Slide 11 shows the results for corporate other.

Revenues increased by over $300 million driven by higher net revenue from the investment portfolio expenses.

<unk> declined by $300 million due to the absence of the civil money penalty, which we incurred in the third quarter of last year offset by an increase in expenses related to the transformation.

Credit costs were still a benefit in the quarter, but reflect the lower ACL release in the legacy portfolio relative to last year.

Finally, EBIT was a loss of $330 million.

Slide 12 shows our net interest revenue and margin trends as well as noninterest revenues on a reported basis in the third quarter net interest revenue of $14.0 billion declined roughly $100 million year over year, reflecting lower loan balances and the impact of lower rates.

On a year to date basis net interest revenue declined by roughly $5.0 billion.

Turning to noninterest revenues on the bottom of the slot in the third quarter non NAR declined by approximately $50 million year over year, driven by the impact from the loss on the sale of the Australia consumer business.

Excluding the loss noninterest revenues would have grown by over $600 million.

Or 9% driven by strong growth in fees in ICD.

On Slide 13, we show our key capital metrics, our CET, one capital ratio ticked down to 11, 7%.

During the quarter City returned a total of $4 billion to common shareholders in the form of $1 billion in dividends and share repurchases of $3 billion.

Our supplementary leverage ratio was largely unchanged at five 8%.

And our tangible book value per share grew by 10% year over year to $79 seven.

Driven by net income.

Before we move to Q&A, let me touch briefly on our outlook for 2021.

On the top line for total Citigroup, we still expect revenues to be down in the mid single digit range on a reported basis, excluding any divestiture related impacts.

On the expense side, we continue to expect full year expenses to be up in the mid single digit range, excluding any divestiture related impacts as we continue to transform our risk and control environment and invest in our businesses and we will continue to look for ways to partially self fund these investments over time.

With that Jane and I would be happy to take your questions.

Ladies and gentlemen at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Again that is star one to ask a question.

Please limit your questions to one question.

Okay.

Your first question comes from the line of John Mcdonald with the Communist Research.

Hi, Good morning, Mark wanted to ask you about the net interest income it seems like overall it came in a little bit better than you might have expected. When you spoke at the Barclays Conference in September can you give us a little more color on what drove the improvement in the core ex markets NII this quarter and how that makes you feel about the setup for NII growth.

<unk> from here.

Sure Good morning, John.

When we look at it is on page on page 12, we came in at about $14.0 billion. I mean, there were a couple of factors that play through here, one, whereas the treasury investments that we've been making contributed to that as we put some of the excess liquidity that we have to work.

Second I mentioned earlier that we saw some loan growth in card sequentially branded cards in particular up 3%, but also within that we saw some of the late fees and <unk> fees and card kind of play through.

As you know, there's an extra day in the quarter and so the combination of those things contributed to the to the tick up here that we've seen.

In terms of kind of the balance of the year that all feeds into the guidance that I've given for total revenues and that really hasnt changed but we continue to.

To look to to.

Invest in the card portfolio through new acquisitions with a long term perspective of how we grow grow loans over time there.

Okay, and just as a follow up on capital returns. While your total return is very healthy it doesn't look like an increase much from the $4 billion.

Did in the second quarter. Despite the fed lifting as restrictions is this something you are being conservative on giving a lot of change going on at the company right now or as you free up capital from the business exits and your stock is trading at a low valuation how are you thinking about allocating that freed up capital between investing in the business and returning it to shareholders they assure us.

Look our philosophy really has not changed on this in terms of you've heard me say a number of times that.

As we as we generate income as we.

Utilize our DTA over time as capital gets released from the transactions that we do we want to ensure that we're able to serve our clients.

We want to ensure that we can invest in the business and then anything in excess of that we want to return to the shareholders. So that perspective has not changed obviously the SCB allows for us to take those decisions.

In the given quarter based on what we're seeing in terms of our expected performance and based on all of the other factors I mentioned, including the capital release, and soccer and things of that sort and so we will continue to take those decisions with that philosophy in mind, which is how do we return any excess we have to shareholders over time.

Okay. Thank you.

Your next question is from the line of Glenn Schorr with Evercore.

Hi.

Two interesting things that are outside the blender.

I Wonder if we get a quick comments on perspective, one was.

He became the first custodian to receive regulatory approval in onshore business custody business in China I Wonder if you could frame perspective on how material that opportunity is and then same kind of thing on the.

Do you plan to enter the Australian buy now pay later.

Marketing and what that means for not just Australia, but.

More globally, how youre viewing that in connection with the rest of your consumer business. Thanks, So much.

Thanks, Glenn So why would I take that one.

In terms of start up our operations and business in China, I would say we've been in that country for 100 years, we understand the dynamics in the local market well. We're currently serving.

A large number of investors in that market, 70% of the fortune 500 corporates in China, how they operate on the ground.

And gain access to China's capital markets.

And.

We're looking at we're very happy to have the custody license in China.

It also helps support our operations in Hong Kong and it's part of the growth of our security services strategy that we've got you've seen the benefits starting to play through in this quarter's results from some of the previous investments and this is just another one of the investments that we're making that business that we like a lot and we think we're well positioned.

And in terms of buy now pay later.

And I think that is one way, obviously, we're divesting our operations and not in Asia.

Asia on that front, but we are starting to take we've taken the learnings from our operations throughout the Asian REIT.

Jen and particularly been applying them to the U S.

The last few years. So we have certainly not been sitting still in them and in the U S. We've been building out our personal lending platform since 2019, and Thats part of our broader digitization strategy in the U S consumer.

We've been seeing very strong growth in our flex portfolios, both as we leverage some of our existing partnerships such as American Airlines, and we want to expand with new partners L. P O S.

One of the areas I'm, particularly excited about is the partner that we're doing with the largest e-commerce player.

Awesome.

On point of sale lending for all card customers and those capabilities are and will be leveraged with many additional partners and channels in the states and into Mexico, and finally, we've been expanding our product suite by developing of card lending capabilities and I think as you've heard from Marc.

Personal installment loans to existing card customers, 88% of those total sales or in digital channels. So as we look at all of this.

And I would say clearly this does it trend towards SaaS multiple different formats of how a customer can and wants to pay and we're really on the front foot of this sudden making some strong progress on the back of the investments that we'd be making over the last few years and we'll continue to do so.

Your next question is from the line of Betsy <unk> with Morgan Stanley.

Hi, good morning.

<unk>.

Wanted to understand a little bit more about what you think you can do in the U S card business I know, we just spoke a little bit about some of the <unk>.

Things that you have been executing on but when I look at the card business, while it's up on a year on year basis. It is trending a bit below some of the peers in terms of growth rates and then you've got the retail partner card.

Program, which has.

Some opportunities there too.

In my opinion get a little bit of a refresh to be as dynamic as some of your best in class peers. So wondering how youre thinking about that and as well on the deposit side in the U S with Google now.

Partnership not not going forward, what are you thinking about with regard to leveraging your mobile app across the U S. In a way that you know.

Might not be understood well by by the Investor community because it seems like you've got a great app and its just under penetrating your opportunity set with your brand.

Thanks, Pat why don't you why don't we get started and then Jamie may want to jump in and I'll start with kind of your comments related to cards and so look as I mentioned in my prepared remarks, particularly when you look at U S branded card.

We did start to see a tick up there as it relates to loan balances the loans were up about 1% year over year. They were up about 3% quarter over quarter. What I think is really important here is the market reentry because as as you are seeing.

Purchase sales are up but payment rates are still quite high and we've got to see how stimulus and liquidity plays out over time and so what we're focused on is how we are reentering into the market and we're doing that both through our custom cash launch, which is helping to drive new acquisitions in fact, our new acquisition volumes are back.

2019 levels over half of those acquisitions are in proprietary cards.

We're being thoughtful about that so over the last five years, we've been shortening our promotional periods and adding higher fees for balance transfers and targeting a lower mix of promotional balances and those things as you know will feed future average interest, earning balances as our experience is that <unk>.

Awfully half of those balances ultimately convert to revolving overtime. So thats an important step the second thing that I'll mention is just to reiterate what Jayne pointed out which is we're thinking about lending more broadly.

And we're driving growth on the on on card lending products like flex pay and flex loan and those don't have promotional periods associated with them and they start to generate interest from day, one and so we are keenly focused on this we're obviously a big player here. It's obviously an important part of our portfolio in <unk>.

<unk> healthy returns, but we need to be positioned to capture growth.

As the economy continues to recover and behavior normalizes, and we need to be prepared if behavior doesn't normalize as quickly as as we'd like with with things like broader lending products.

Yeah.

Your next question is from the line of Jim Mitchell with Seaport Research.

Hey, good morning.

My question, maybe just focus a little on rates I think we've been so focused on U S rates, but given your global exposure, we've seen rate hikes in Mexico, Brazil, now, we're contemplating rate hikes sooner.

The UK, how do we think about your rate sensitivity to the rest of the world and do you see some benefits coming up over the next few quarters on the NII side.

Yes look I mean, we have seen.

A number of our rate Heights, REIT Heights, and then the REIT.

The talk of rate hikes here in the U S.

As you look at kind of our IRI.

That we report we're not that sensitive to the short end or long end, but that said.

Right in Christ increases are beneficial for us.

And so we are.

Got a lot of liquidity that's available for us to.

To invest as we see rates increase.

But also to have enough dry powder to ensure that we're taking advantage of client demand as that starts to return as well, but for our firm as you pointed out the global impact to rates is quite important.

And increases internationally help to fuel our performance in parts of the franchise like TTS and elsewhere.

Your next question is from the line of Ken Houston with Jefferies.

Hey, good morning.

Mark Thanks for your update on just the reiterated cost guide for this year and I know it's early to talk about next year, but can you just help us understand just the moving parts underneath that our incentive comp transformation.

And what we should be thinking about in terms of just run rate costs from here.

And stay away from just kind of like what next year growth looks like but any color. A question that's coming up a lot for sure across the large bank group in terms of required investments versus other things going on at the bank. Thanks, Yes.

Sure. So let's look let me start by by saying as I pointed out in prepared remarks.

Our expenses in aggregate are on on guidance so to speak both as it relates to the transformation expected spend which year to date is up 3% as well as our of total expenses, which are up 5% year to date again consistent with the guidance.

As I think about this.

Those are two very important categories of spend as James pointed out transformation is our top priority.

And we're going to spend what's necessary to get that done and we need to ensure that we're investing long term across the franchise and so we're going to continue to do that but I would also highlight that expenses is something that we control right. So we're very deliberate about the spend that you're seeing and in fact I.

Scrubbing, we are scrubbing every single expense line that we have right to ensure that the dollars that we're putting to work are being put to work in an optimal fashion that theyre necessary dollars to be spent and in doing that.

We're also looking for productivity and efficiency opportunities and in fact, we've seen that play through the expense levels that you see today.

If you look at if we as we look at our expenses, we generated somewhere between $700 million a quarter inefficiencies through 2021.

Alright, So expense management is something that we're very disciplined about we're very deliberate about and we handle that in a very controlled fashion recognizing the priorities that we pointed out I am not going to give you guidance for 2022.

I will tell you that our guidance hasn't changed for the balance of 2021, we're obviously in the middle of our budget season, right and as we firm that up and finalize that we'll share that with.

With you and our investors more broadly.

Your next question is from the line of Mike Mayo with Wells Fargo Securities.

Hi, My questions for Jane again, you said on this call.

They knew Citigroup.

And I'm, just referring to the 8-K from August where it announced a.

Bonus scheme for top executives, apparently that'll be broaden out some anymore.

So we as shareholders and those who represent shareholders. We see this bonus scheme before we see the targets. So I guess my question is do you have the targets and if so can you reveal those although I suspect that won't be until March 2nd or do you not have targets yet or what's.

Happening because either way it doesn't feel good for.

US investors. Thanks.

Oh, Mike I'm actually really glad you brought this up because we hope to see surreal.

The day.

If you'll bear with me for a minute, let's just take a step back and start with our compensation philosophy, because I think it's really important for all shareholders to understand this so the compensation of the management team is designed to be performance based it's aligned with the interests of our shareholders. Most importantly.

So first any of the deferred awards, we have have downside they'll turn and we clearly saw this last year in the PSU performance, which pay down 28% of its target and then secondly, the annual process holds management accountable for its out because he also saw last year with meaningful concrete.

Actions, resulting from the consent orders.

So then if we then turn to the transformation program as I said in the opening there isn't anything that's more important than the successful execution of the program. It's our number one priority we want to make sure. The bank is modernizing its risk and control environment and it also benefit our shareholders in terms of Sun.

The performance of the other.

Inc.

The board and I hold the senior leaders driving that transformation accountable for its successful execution.

Im certainly driving this program with urgency and I also need to retain key talent because its a pretty tight talent market right now as we all know.

And we need to do they say that we can hit the milestones and deliver with excellence.

It's a whole people accountable and drive the outcomes, we need both carrots and sticks and to your question, we're going to put in rigorous metrics to determine if the rewards get paid out at all.

And if so what percentage will be paid out.

And we laid out the criteria in the 8-K and the final metrics will be ones that reflect input from the board from myself and the other stakeholders involved and we will make and those are all vascepa disclosed in the proxy et cetera, So youll see them.

So as you can see the main message for me is there will be consequences. If we fall short of what is expected just as they were last year for the management and the leaders at the program I'm accountable my teams accountable and very simply we must and we will deliver.

Your next question is from the line of Ebrahim <unk> with Bank of America.

Good morning.

I just wanted to Jane go back to you mentioned, the disappointment that googolplex pulling out.

Can you just talk to us in terms of did you view that as a critical client acquisition tool and given that that's not moving forward does that put some urgency in terms of.

Partnerships that you may strike to improve sort of the deposit gathering efforts.

Yes.

But as I said in the opening we were disappointed in that their decision, but it is just one part of our digital strategy. We certainly didn't have all the eggs in that basket.

Been talking about for a few quarters now.

And what I am pleased with the strength of the digital engagement that we are seeing across the U S. It's lagged other geographies around the world across the industry on this dimension.

Also the growth.

The key digital deposits that were seeing in the U S.

The piece I like as we deliberately invested in very reusable capabilities for future partnerships and existing ones that we have as well as our own proprietary effort. So if I can try and make that kind of a better life.

We've added 80, API, which really make it very easy to add in.

Operator.

Partners, we've developed a whole suite of embedded services that are ready to deploy that things like real time digital let's talk of branded communications and probably most importantly, and maybe this is the game King me.

Put together new tech stacks and we've learned a lot about doing this but very valuable for what we're doing right now and for partnerships going forward. So at the end of the day I think all the things that we've been doing both in some of the work with Google, but also with partnerships around the world.

Is going to further our digitization strategy in U S consumer continue.

<unk>, helping us grow and drive the returns here.

And I would say, we're always feeling urgency in improving the performance of growth and returns in consumer franchises. Thank you.

Your next question is from the line of Matt O'connor with Deutsche Bank.

Good morning.

So you submit a plan to the regulators. This quarter can you just give us a sense of when you expect to hear back from them and then what kind of things you'll be able to communicate to all of US I know there's always.

Limited ability is and what you can discuss about the regulatory stuff.

But what are some of the data points that youre looking for internally and what do you think you can share.

Yeah, I mean, I think if you had for me. This is our number one priority I think it's the benefit of all of our stakeholders that we get done with excellence and we get this done right.

And as we said we submitted our plan in the third co chair I'm, a very proud of it. It is a multiyear pan as Mark said it comprises six major programs and it will position us to operate with excellence in the years ahead in a digital world.

And in particular, it provides very clear target states for our risk and controls and for our core operating model element.

As we said, we've now firmly pivoted to executing that plan.

And I have to say, we have a very constructive and frankly, a really helpful dialogue that's been ongoing with our regulators.

So it's not as if you submit and then you haven't spoken as being this has been very constructive all the way through.

In terms of execution.

We're kind of going full steam ahead here I'm really pleased with the caliber of talent, we brought in from inside and outside of the firm is not talked about so we can ensure that we're executing with excellence.

Some of the areas on new highs in data and I and I think importantly, we're putting as much effort on culture as on Modernisation, Karen Peetz and her team are ensuring we have the capabilities and rigorous governance. So we're executing in a very disciplined way we deliver the outcomes from the investments we've made.

King we've put in a new accountability framework.

Although it is certainly holding us firmly in regularly to account card.

So and I will be sharing more.

Details, obviously at Investor Day, and you know as we go through this but I think the main message for me is we've pivoted to execution and we're getting on with this.

Your next question is from the line of Vivek, you in Asia with J P. Morgan.

Yes.

Hi, Jane.

Just wanted to clarify on this compensation 8-K that you talked about you obviously have.

It's always had bonuses for short term and you've had.

Long term incentive comp that he always paid your executives similar to everybody else.

So the transformation project seems to be over and above that shouldnt that be part of what long term compensation and incentive awards are meant for them trying to understand what the what the logic behind adding an additional payment here is because that's what matters. When it is already being partly compensated for it.

Just longer term moves and changes in performance.

Okay, I think it takes that ASI.

Well first of all thank you. Thank you vivek.

I think it says I as I.

Said earlier.

In answer to Mike's questions.

We want to drive the program with the agency.

We need to retain key talent.

And it is a very tight talent market as you know.

And I want to make sure that the that there is no question from anyone involved in these in the programs that this is the number one priority for the bank to execute this with excellence.

There are both carrots and sticks here and.

And that has come through the individual program and the individual assessments that everyone participates in every year as well as in this piece. So I think this is fully aligned with the shareholders' interests you want to have management.

Really incentive to deliver this with excellence, but equally with all the downside if we fail to do so and.

And the program is designed to do just that.

Your next question is from the line of Andrew Lim with Societe Generale.

Hi morning, guys. Thanks for taking my question, so spinning off a technical one.

Wondering if you could give a bit of a color on the S. ACL.

Implementation for the CET one ratio in terms of the quantum of the impacts.

And the timing of the implementation.

Sure. Thank you. So look we are working towards the mandatory compliance date, which.

Which will be January of 2022, we have not adopted <unk> early and we don't we don't plan to.

Obviously, the impact can range from impacting risk weighted assets to impacting ones G SIB score.

But like I said, we're working through that now I'm not prepared to share that with you, but it is it is a factor and how we're doing our planning and and we'll share that when we when we adopt it at a later date.

Your next question is from the line of Gerard Cassidy with RBC.

Good morning, Jim how are you.

Can you guys share can you guys share with us.

And looking at Europe Global consumer banking business in North America in your supplement I think it's page eight.

You guys just give us a nice breakdown between the retail banking city branded cards and Citi retail services and I noticed that in retail banking there was a loss in the quarter and can you just give us some color on whats maybe driving that.

Just the outlook for that part of the business. Thank you.

Yeah on the on the retail banking.

Performance.

The drag there is in part the higher expenses from the transformation spend that's that's playing through and impacting impacting income there.

Okay.

Thank you.

Your next question is from the line of Mike Mayo with Wells Fargo Securities.

Hi, I just wanted to follow up.

Yes.

A follow up to my other question and.

Vivek expressed.

And Mark you mentioned you have to serve regulator. It's number one I think that's clear to everybody on this call and then you mentioned serving stakeholders. So I think the comp question really gets to.

What's being done for shareholders.

And shareholders have been left behind at Citigroup over almost any timeframe and.

Why.

And Mark maybe I I might disagree with the philosophy, a little bit and your philosophy said his first serve clients in investment business than you do buybacks. What you would have any change in your philosophy, it's because the discount to book value is just getting greater and greater your discount versus peer has increased.

At worst in class.

Returns.

<unk> efficiency and stock market valuations or why not a little change that philosophy to more buybacks versus investing if you have such a great opportunity with your share price. So what can you do from the symbolic nature like everyone gets paid in stock or what can you do about these the capital freed up from the sale of Australia to us all.

That too to buyback stock or what can you do to show that obviously regulatory matters stakeholders matter, but what can you do to show that shareholders also matter given such that the underperformance of the share price and then since you're only getting one question at a time just a little bit more follow up on your U S consumer strategy as far as digital deposit.

It's cross selling credit card point of sale with Amazon a little bit more on that thank you.

Okay Mike.

It's James Bell RBC, Let me, let me kick this one off.

Unequivocally our shareholders are incredibly important to us and when we look at where we're trading on that and the underperformance around that.

Is something that we are determined and the strategy refresh in the transformation, what we're doing and in the culture and talent work, we're doing to address this.

We're going to do what is necessary to narrow the gap with our peers.

We're going to ensure we have the REIT business mix and strategies to drive up the returns and you're starting to see where that is.

Where we are headed to with that.

From the different decisions, we've already announced and obviously it will all come together investment day, but secondly, we're also going to do it by running the bank better.

<unk>.

And we've laid out on page three of the presentation what are the different priorities I'm.

So that our investors realize the value that we think lies in city and what we are going to be doing to unlock that pull that benefit.

And I think I hope, it's a it's pretty clear in terms of the framework that we're using and the principles around that.

And in terms of as Mark said from a not only unlocking the value that we see in the city, which I really do think is pretty tremendous and I'm quite excited about.

It's also then what will we do with our excess capital.

You've heard me say, given where we trade so disappointingly below book, obviously share repurchases makes sense for.

For our shareholders.

We also do have a healthy dividend yield but.

And that's an important part of the mix but.

There's no question around the attractiveness for shareholder relatively at the stock buybacks.

And we will certainly be returning excess capital to our shareholders and be very mindful of the bar that is required for investment internally and you've seen that with the decisions that we've made on the exits in Asia around consumer and some of the other moves that we will exit.

The businesses, we think are lower returning.

We invest where we where appropriate but we'll return that to shareholders and I can see my CFO is chomping at the bit here to jump in as well yeah. Thanks, Dan I'll just add just I think you answered it very well I'll just add a couple of quick things one that.

That when we invest in the business.

Towards clients or more broadly in the business we're doing it.

Where returns are above our cost of capital. So, we're making smart decisions about how to redeploy that capital to ensure that we're narrowing that gap to peers.

The second thing I'd point out is that in the first couple of quarters of the year, we've maxed out.

Capital return that was available for us to deliver before the FCB came into play and that is because our shareholders are so important.

And then the third as Jay mentioned is that we have a skew towards buybacks again, just given where the stock is trading and given where our dividend yield is.

For the question.

Your final question is from the line of Stephen to back with Wolfe Research.

Hey, Thanks for squeezing me in here.

Good morning, Jean Marc Jean I was hoping to just ask on the wealth management opportunity and this is an area of great competitive intensity you have a large many large peers have been investing heavily in this space for years and I know youre going to cover some of this at Investor day, and provide more detail, but just at a high level. It was hoped.

You could speak to what differentiate cities value prop from some of the peers in the space, whether you have the technology or infrastructure in place to support some of your growth ambitions.

Just lastly, whether you can engage in M&A or is that precluded under the consent order. If you will look to expand into that arena and organically.

Yeah. Thank you so much Stephen.

So I'm I am I'm pretty pleased around our opportunities here, because we have all the pieces to be very successful.

We have a strong brand in amongst the affluent.

Not just here in the states so far our retail banking franchise.

We've got a very a pretty heavily affluent base, but around the world and when you go into Asia. In particular this is the aspirational wealth management brand on the ground.

We've also got real breadth of client relationships and this is where the connectivity points also become important in those four principles that we laid out the strategy refresh.

We have commercial banking operations in certain geographies around the world that have been operating for many years now. They this is the engine of wealth creation in the world and we have the relationship with the owners already and the synergies that we will be able to generate by much more closely connecting them will be to our import.

Similarly, the elevator from the affluent client base and our consumer franchise, all the way up to the ultra high net worth and the private bank is oversee and natural area to build out that we haven't really invested in that in the data.

I'm thinking of it that way we have a great we have some great Pat phones.

Our institutional client.

Client business around the world means that we've got top two platforms for our private banking clients in particular to take advantage of them, but it's also ones that all can see mirth clients have as well. So the opportunity here is bring all these different pieces together into a single <unk>.

Integrated offering across the full spectrum of clients in the U S.

And in the global offshore wealth Ventas and I would also point to the fact that we're already at the top three player in Asia, It's not as if we don't have scale and that this is a startup business here.

And we are already seeing but it is coming into fruition quickly, we obviously announced the focus on wealth at the beginning of the year. We've already acquired 21.5000, new to bank clients in Asia.

So far this year.

We've added over 500 bankers advisors and other front office support it to date, we've done one of the biggest tech really Cisco wealth in the third quarter of this year with over 70, plus features going live on the back of the digital platform, we launched last quarter.

So that.

I think the fact that we've got all these different pieces, we are putting them altogether is really giving us momentum.

And accelerating the opportunity for us and this is a trend the wealth trend is going to be one that's one of those unstoppable trends, particularly out of Asia. In the years ahead, we will look at acquisitions at the moment, obviously its more focused around what our.

Digital capabilities, what are other things to enhance the value proposition and the technological side.

Those aren't just acquisitions its partnerships and the like that we've been investing in.

We really said so a wealthy clients across the full spectrum of their needs rather than just narrowly as some of the other players are in justice of investment products, We've got the benefit across the board.

There are no further questions I will turn the call over to Jim Landers for closing remarks.

You all for joining today's call. Please feel free to reach out to IR with any follow up questions have a great day. Thank you.

This concludes city third quarter's earnings call.

May now disconnect.

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Hello, and welcome to city third quarter 2021 earnings review with the Chief Executive Officer, James Frazer and Chief Financial Officer, Mark Mason today's call will be hosted by Jan Atlantis head of Citi Investor Relations, we ask that you.

Please hold all questions until the completion of the formal remarks at which time you will 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 Mr. Fernandez you may begin.

Thank you operator, good morning, and thank you all for joining us 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 expectation and are subject to uncertainty and changes.

And circumstances.

Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings.

Before we get started I'd like to thank Lynn Lynn for being such an incredible partner during these last few months.

I really enjoyed getting to know the entire city team and I'm honored to be the next head of Investor Relations.

And I look forward to working with you all with that I will turn it over to gene.

So thank you Jane and good morning, everyone.

Like to join you today, so let's kick off the call with what we're seeing from macro perspective, and the tremendous engagement. We continue to experience with clients before I give you an update on our results and priorities.

Certainly the recovery from the pandemic continues to drive corporate and consumer confidence I, particularly like the robust pipelines, we see through the rest of the year and beyond.

Corporate client sentiment remains very positive.

With healthy cash flows and liquidity driving M&A activity and deleveraging and consumer balance sheets remained unusually strong on the back of the increasing consumer natwest during the pandemic.

Now all that said growth has come off the ball and attach.

We're watching three things very closely the slowdown in China and its impact on global growth.

Inflation and supply constraints and labor materials and energy.

Finally, what happens next with the U S debt ceiling negotiations visa.

These are also the issues, which repeatedly surface and all conversations with clients.

So turning to the quarter, we reported net income of $10.0 billion and EPS of $17.0 embedded in these results is a pre tax loss related to the sale of our Australia consumer business, which mark is going to provide the details.

Excluding this transaction our third quarter revenues would have been up 3% in the last year and our EPS would have been $46.0

And the institutional clients group.

We grew revenues by 4% year over year as we continued to see strong client engagement with momentum in investment banking equity markets and securities services more than offsetting the 16% decline in fixed income market.

I'm very proud to tell you that it was the city's best M&A quarter, and the second best investment banking quarter.

Kate.

And lending in the ICD grew again this quarter, albeit modestly.

Also had a very strong quarter and equity markets with revenues up 40% here I think yeah. So despite that normalization in fixed income versus that's pretty extraordinary performance of 2020 overall markets revenues were only down 5% and they were up 11% versus the third quarter of 2019.

We continue to successfully execute on our strategy to grow fee revenue across the ICT businesses.

For example, a T T S continues to be impacted by interest rate headwinds.

Fees. This quarter were the highest in a decade you can also see how our global network uniquely positions us to help our clients navigate the supply chain challenges. So many of them are facing.

We expect to persist for the near future.

Similarly, we drove double digit fee revenue growth in security services, and the private bank as client assets under custody and assets under management continued vigorous great trajectory.

And acquisitions across branded cards, Mexico, and the Asia hubs are also old now at or above pre COVID-19 levels.

We continue to benefit from double digit growth in deposits and assets under management across the franchise.

Let me briefly touch on our U S retail strategy.

Now all digital strategy and investments are starting to pay dividends.

Total deposits stand at $19 billion, having grown 26% in the last year and we see more than two set about digital deposit balances coming from customers outside of our branch footprint isn't inherent with about half of those deposits.

Holden who did not previously have a retail relationship with us now.

Now obviously, we were disappointed by Google's decision to discontinue group Opex, but we learned a lot through the effort and the vast majority of the investment will be leveraged for our proprietary efforts and future partnerships.

So all in all we ended the quarter with a common equity tier one capital ratios.

Seven 7% on a standardized basis, and our tangible book value per share increased to $149%.

Up over 10% from a year ago.

So overall I'm quite pleased with these results given the environment, we're operating in and while we have much work ahead, we're seeing the results of the previous investments we have made.

Now I'd like to update you on our strategic priorities.

And as you can see we've been hard at work acting against the priorities that I've laid out the transformation, our strategy refresh and our culture and talent.

Now clearly the transformation is our number one priority right now and key to that transformation is on safety and soundness and addressing the consent orders by modernizing our risk and control environment.

During the quarter, we submitted our plan to our regulators and continue to have a constructive dialogue with them as we pivot now suddenly towards execution.

Already well underway and the investment in our risk and control environment, and we are really bringing a culture of excellence to this effort and we are moving with urgency.

Also continuing to make progress refreshing our strategy.

In addition to announcing the sale of our consumer business in Australia with deep in the second round of bids for the remaining exit market. We've begun the work on how these assets will enable us to simplify our operations in Asia and eliminate stranded costs.

And we're really looking forward to bringing you all the strategy was to get that for you on Investor day, and presenting a patient for the firm and it's not going to touch on we've begun executing on many of the decisions that we've already made including in TTS wealth and commercial banking with investments and front office hires as well.

Well as enhance digital product and service offerings.

And we're already starting to see the impact of these investments in March three key drivers across these businesses.

And finally, turning to culture and talent, we continue to attract high caliber external talent plus driving towards our DFAST vehicles.

Turing clear accountability and breaking down the silos that have historically impeded our progress as a company.

City.

And all of this work has one overarching goal to responsibly narrowed the returns gap with our peers.

We will update you with the metrics and milestones that we will use to hold ourselves accountable. So you can hold us accountable to them as well and with that let me turn it over to Mark to go through our performance in more detail and then we will both be delighted to take your questions.

Thank you Jane and good morning, everyone. Starting on slide four as Dave mentioned Citigroup reported third quarter net income of $10.0 billion.

<unk> of $17.0

And in Aro TCE of 11% or $19.0 billion of revenues Mb.

Embedded in these results is a pre tax loss of $680 million related to the sale of our Australia consumer business. Excluding this item EPS would have been $46.0

With Anoro TCE of 12, 5%.

Upon closing the capital impact of this loss will be largely neutralize and we will release approximately $800 million of capital allocated to the business.

<unk> were up 5% year over year in constant dollars expenses were up 4% in the quarter.

And business led investments, which focus on our front office expansion in the investment bank wealth and security services and investments to improve our client experience and digitize our network.

Coverage.

And our services businesses TTS and security services, we continued to improve client experience and digital capabilities, which is enabling us to capture significant new mandates and consumer. These investments include development and marketing for new offerings like the custom cash card and installment lending as.

Well as investments in our mobile and digital user experience. In addition, there will also increases in volume and revenue related expenses as well as business as usual expenses, which were largely offset by efficiency savings.

As a reminder, we will continue to analyze our expenses to look for opportunities to self fund investments.

And now turning to credit.

Credit performance remains strong with net credit losses of just under $1 billion more than.

Offset by an ACL release of $3.0 billion, largely reflecting continued improvement in portfolio quality.

In constant dollars end of period loans were down 1% year over year, reflecting the impact of the Australia eggs.

Excluding this impact loans would have been up 1% year over year, driven by active client engagement in TTS private bank and markets.

Finally, as Jay noted earlier, we returned roughly $11 billion in capital so far this year.

And while we remain committed to continuing to invest in our franchise, we will continue to return excess capital to shareholders.

Turning now to each business slide five shows the results for the institutional clients group revenues increased 4% year over year and sequentially, mainly driven by investment banking equity markets and security services expenses increased 9% with about half of the increase driven by transformation and the other half driven by business line.

Investments and higher revenue related costs, partially offset by efficiency savings credit costs were largely benign in the quarter as minimal net credit losses were more than offset by an ACL reserve release.

This resulted in net income of $7.0 billion, which grew 21% in the quarter and 60% on a year to date basis.

<unk> delivered an <unk> of 14, 5% for the quarter and 18, 8% year to date.

Slide six shows revenues for the institutional clients group in more detail on the banking side revenues were up 11% and Treasury and trade solutions continued growth in fee revenues of 20% year over year, the highest quarter for fees in a decade reflected solid client engagement and client acquisition as well as a recovery in commercial card.