Q4 2021 Citigroup Inc Earnings Call
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Hello, and welcome to Cds fourth quarter 2021 earnings review with the Chief Executive Officer, James Frazer, and Chief Financial Officer, Mark Mason.
Today's call will be hosted by Gen 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'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. Linda you may begin.
Thank you operator.
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 expectation 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.
With that I'll turn it over to Jane.
Thanks, Jen and happy new year, everyone I am delighted to join you again today.
Well, we've been busy and we have a lot to talk about today I'm going to start with an update on our strategy refresh and then I'll share my thoughts on our fourth quarter and and on all the progress that we've made against all major priorities.
As you saw earlier this week, we announced that we intend to focus our franchise in Mexico solely on our institutional and wealth management businesses, and therefore to exit the consumer small business and middle market banking operation back.
This was not a decision we took lightly.
We took a clinical look at our franchise in Mexico, and we drew a hard comparison, but the non institutional businesses do not fit unused strategic direction.
Now to be clear these are terrific the scaled high returning franchises.
With our strategic goal is to invest in businesses that are fully aligned with our core strengths and to simplify off.
As we did the work. It was also clear that there continues to be a tremendous opportunity for our institutional clients group in Mexico.
T is mexico's leading institutional bank reserve corporate clients and investors that for almost a century and that isn't going to change.
Mexico has a bright future and we are committed to playing an important role in building it.
We expect Mexico will be a major recipient of global investment in trade flows in the years ahead.
Therefore, we plan to maintain a significant locally licensed spank sag and invest to capture growth in a cool and high returning hub of our institutional network.
This won't be a simple transaction.
We have spent the last several months working through how to get the best results for all shareholders.
And be true to our local stakeholders.
We will begin the separation process immediately and expect to begin the sales process in the spring.
And of course, there will be an opportunity to return excess capital from the transaction to our shareholders.
This is a final decision in terms of market exits as we conclude our strategy refresh and approach Investor day.
I'm really looking forward to talking to you about the future city on March 2nd.
Today, we are going to talk you through the changes, we're making to align our organization and financial reporting with our refresh strategy.
These changes will also allow us to reduce structural complexity and its associated costs.
Amongst other things this is going to help make citi easier for our investors to understand.
You'll be able to see and assess more simply.
Businesses that make up the city going forward.
First we are creating a new personal banking and wealth management segment, which will be run by an in cell phone.
This will consist of two distinct reporting units our U S personal banking businesses and our global wealth management business, which is going to include the private bank.
Second on the institutional side of the house, which will continue to be run by pack with Barbara We will begin reporting under three unit.
Services banking and markets.
Services will include Treasury and trade solutions and security services.
And this reflects just how important we believe these businesses are two cities feature.
Finally, we will create a new segment legacy franchises, which will house all of the businesses, we intend to exit.
We're going to begin reporting our financials, along these segments and reporting units no later than the second quarter to ensure you have the information you need to measure our progress and hold us accountable.
And we really look forward to sharing our strategy and plans for how these businesses will work together and deliver for all shareholders on Investor Day in March.
Now turning to earnings.
A decent end to 2021 as you can see on slide two we closed out the quarter with net income of $3 2 billion and EPS of $1 46.
That includes a $1 2 billion hit to EBIT, primarily related to the wind down of our Korean consumer business. Excluding those impacts our net income would be $4 2 billion with an EPS of $1 99.
Net income for the full year of $22 billion reflected an improved credit environment, and we had the resulting R. O T C E. A 13, 4%.
And I see Gee, we had another strong quarter in investment banking and gained share for the year in M&A.
We continue to make significant investments in talent and we see a very solid pipeline of transactions ahead of us.
Now, while we could've had a better balanced performance in fixed income in the quarter equities finished 2021 up 25% for the year.
The rebound G. T. S is seeing and trade flows and cash volumes wasn't quite enough to offset the current rate environment, but it bodes well for 2022. Indeed, we think the cycle has turned for this business and it is poised to benefit as monetary policy changes and growth.
Accelerates.
Mark and I talk about improving the revenue mix of our institutional business is as a priority.
And it's yielding results with another quarter of strong momentum in feed growth across the products.
Oh, it's about consumer businesses are still weathering COVID-19 disruptive impact on customer behavior.
In the U S strong purchase sales continued to be offset by elevated payment rates, but we did see loans increase in branded cards this quarter.
Deposits and a U N continued to grow with digital deposits up nearly 20% for the full year.
For the year, we returned nearly 12 billion in capital to our shareholders and we grew our tangible book value per share by 7% to $79 16.
We ended the year with a CET one ratio of 12, 2% on a standardized basis as we built the capital needed to absorb the impact of circa now keep in mind that regulatory change didn't take effect until January one.
While this caused us to temporarily pause our stock buybacks, we will resume buybacks. This quarter now that that impact has been addressed.
Finally, as slide three shows we are executing and delivering against our priorities the strategy refresh the transformation and our culture and we are doing so with a real sense of urgency.
First on the strategy, we are laser focused on swiftly and successfully implementing the strategic decisions. We made over the past year to improve returns to our investors.
We have signed deals in six of the Asia consumer market, including the agreement to sell full market, we announced yesterday.
This means that within eight months of making the decision to exit East 13 businesses, we have a clear path and a majority of them and we are well into the process in the remaining markets.
In Korea, we were decisive in determining the best path for our shareholders with the wind down all consumer operation and we're able to get most of that charge behind us this quarter.
Another area, where we haven't wasted anytime its wealth management, where we grew our ranks why a net 800 advisors relationship manager and others over the course of the year.
They helped us that about 750 private bank clients and 45000 Citi go Cod in 2021.
And what will be known as U S personal banking.
Good uptake of new products, such as the custom cash card and we've been building out digital platforms to capture opportunities and installment lending.
In addition to the progress we're seeing in T. G. S. We've also been building out our security services platform.
We couldn't be more pleased to deepen our relationship with Blackrock, becoming the largest custodian for that I shares E T X.
Second priority, we continue to execute on our transformation agenda in order to demonstrably strengthen our risk and controls as well as modernize a bang for a digital world.
This work is foundational to everything we want to achieve we are enhancing our operating model to improve long term efficiency and all service to clients.
As it relates to the consent orders, we are deep into execution mode. We continue to be in constructive dialogue with our regulators as we get their feedback and incorporate it into our ongoing execution and project plans.
Third and Relatedly, we are building a culture that expects excellence and demands accountability, we're driving this effort in a variety of ways.
<unk> a more robust performance management process at this past year and shifting the mix of compensation to better align with shareholder interests and various culture changing initiatives.
Our culture of excellence also means creating a record of achievement that our people can be proud off.
One area that our people take particular pride in is our ESG efforts.
Later this month, we will share with you our plan to reach net zero by 2050.
It meant I made on my first day as CEO 10 months ago.
And of course, we're going to do all this with a singular focus on our clients as we help them navigate COVID-19 .
We'd certainly hope all micron is the final disruptive phase of this pandemic.
There were also quite a few other issues to navigate where the macroeconomic such as inflation or geopolitical.
Tensions with Russia.
We have seen the resilience and the importance of city as we supported our clients through unchartered waters, and we will be with him in the next chapter as well so now I'd like to turn it over to Mark and then we would be delighted to take your questions.
Thanks, Dan and good morning, everyone. We have a lot to cover on today's call I'm going to start by walking you through the financial reporting changes, we plan on making in more detail.
Then I'm going to walk you through to 2021 financial impact from the 13 Asia market exits as well as Mexico and.
And changes, we are making to our financial disclosure.
And then finally the quarterly results.
As part of our strategy refresh we've started to make changes to better align with our vision and strategy.
We've refreshed our earnings presentation and included additional metrics and key drivers for the ICT business.
Our goal is to simplify our financial reporting to make it much easier for our investors to understand our performance and our key assets.
Turning to slide four we lay out the details of the changes in financial reporting that Jane mentioned.
First we intend to move the consumer small business and middle market banking operations of Citi, Banamex, and 13 Asia consumer exits under a new segment called legacy franchises.
This will allow you to better understand the financials of the remaining company that will exist post these exits.
We've experienced managing businesses being divested or putting a dedicated team in place to manage the new segment.
This will free up the management teams of the go forward businesses to fully focus on executing on the firm's strategy.
Second we are reorganizing our reporting units to help you better understand the financials of our businesses and the value they bring to the city.
Starting with IC G. We will move TTS and security services to a reporting unit called services.
These businesses are foundational for us as they have a unique position given their global footprint and full suite product offering.
Markets will therefore, no longer includes security services and instead will only include equity and fixed income markets.
And lastly, when I see Gee. Thank you we will only include advisory equity underwriting debt underwriting and corporate lending.
The global consumer Bank, GCB will be renamed personal banking and wealth management C. B W. M.
The private bank will move from IC G to PWM.
As a reminder, we announced in January of last year, we created a single wealth management organization under Citi Global well now called global wealth management, which is a distinct reporting units.
Creation of this unit unifies the wealth management teams, creating a single integrated platform serving clients across the world continuum from the affluent segment to the ultra high net worth clients.
North American consumer will be renamed to U S personal banking and will remain a reporting unit under PWM.
This unit will continue to include branded cards retail services and retail banking.
We plan on providing the financials for the new reporting units on this page under the IC G and PWM segments, starting no later than the second quarter earnings.
In our Investor day will be a natural opportunity to bring together all the work over the past year.
Les out our medium term vision and strategy for the firm.
Slide five shows the contribution of the Citi Banamex businesses that we plan to exit as well as the contribution from the 13 Asia markets. Hopefully this gives you a better sense of the financial results for the combined exits and in the appendix on page 18, we have more detail on the 13 Asia exit markets and the deals that we've announced to date.
Turning to Mexico as Jane mentioned, we remain committed to Mexico and will continue to serve our institutional and private bank clients there.
That said upon very careful consideration and analysis, we decided that we are no longer the optimal owner for the businesses that we're exiting.
The Mexico consumer and small business banking operations included in the intended exit represents the entirety of the Latin America, a global consumer banking unit and the Mexico Middle market banking business that is currently included in cities institutional clients group segment.
On the left side of the page, we show key figures for 'twenty, and 'twenty and 2021 for the businesses, we intend to exit in Mexico.
In 2021, the businesses contributed $4 $7 billion of revenue and $1 $1 billion of netting.
Businesses in total had $20 billion of loans $31 billion of deposits and approximately $4 billion of allocated TCE.
Again, we do not yet have a transaction and are pursuing multiple divestiture path. So the ultimate financial impact of a transaction is not yet no.
We will keep you updated on our progress as we run a thoughtful process that takes into consideration what is in the best interest of our shareholders as well as our clients and employees in Mexico.
In addition to the opportunity to return additional capital to shareholders. These divestitures will also allow us to simplify the management and organizational structure across the firm.
Now turning to slide six.
We've gone through our strategy refresh and simplification, we have been reviewing our disclosure in terminology and have decided that now was the right time to more closely align with our peers.
<unk> revenue that we previously referred to as net interest revenue will now be called net interest income.
And revenue that we previously referred to as non N. I R will now be called noninterest revenue.
Second as you can see on the page we've revised how we account for insurance paid on our deposits, including FDIC and foreign deposit insurance.
We have previously accounted for the deposit insurance as a contra revenue and net interest income.
However, beginning this quarter, we will report it as an expense and remove it from net interest income.
And as a reminder, this change is earnings neutral.
We've made this change to make it easier for you to compare us to our peers.
We have revised prior years to reflect the same reporting treatment to assist with comparability for 2019 to 2021 and the rest of the presentation. We will also reflect these two changes.
On slide seven we show financial results for the full firm.
As Jay mentioned earlier in the fourth quarter, we reported net income of $3 $2 billion and an EPS of $1 46, and Aro TCE of seven 4% $1 $17 billion of revenue.
Embedded in these results are costs of approximately $1 2 billion primarily related to the voluntary retirement program. We offered in conjunction with the wind down of our Korea consumer business as well as some additional Asia exit impacts, which I will collectively referred to as the Asia divestiture impacts going forward.
Excluding these impacts EPS would've been $1 90, not with an R O a TCE of approximately 10%.
In the quarter total revenues increased by 1% from last year as strength in noninterest revenue driven by IC G. Specifically TTS security services and investment banking was mostly offset by lower net interest income across GCB and ICD.
Our results include expenses of 13, and a $5 billion, an increase of 18% versus the prior year excluding.
Excluding the Asia divestiture costs expenses would have increased by 8%.
Increased expenses were largely driven by investments in our transformation.
This led investments and higher revenue related expenses, partially offset by productivity savings.
Cost of credit was a net benefit in the quarter, primarily driven by an ACL release of approximately $1 $4 billion related to the improved macro backdrop and continued improvement in portfolio quality.
Now turning to the full year.
Our revenues were down 5% driven by the normalization in markets as well as elevated payment rates in consumer.
Somewhat offset by strong noninterest revenue growth across IC G and in particular in investment banking TTS and security services.
Our full year expenses were up 9%, but excluding Asia divestiture costs, our expenses were up 6%.
Also for the full year, we generated <unk> of <unk>.
<unk>, 13% and 14% excluding Asia related divestitures insights.
As a reminder, we had a benefit of close to $9 billion in ACL releases for the full year.
On slide eight we show an expense walk with a full year with the key underlying drivers in 2021, excluding Asia divestiture impacts expenses were up 6% inline with previous guidance.
Looking forward, we recognize that we have a lot more work to do.
The divestitures provide an opportunity to simplify our management organizational structure.
We're also taking a hard look at our structural expenses with an eye towards operating as efficiently and soundly as possible and self funding investments.
We have a lot more to say about this at our Investor day.
On slide nine we show net interest income deposits and loans.
In the fourth quarter net interest income increased by approximately $130 million on a sequential basis, driven by North America consumer.
Sequentially net interest margin remained relatively stable.
On a year over year basis net interest income was flat.
Also on a year over year basis average deposits grew in the quarter as we continued to deepen relationships with our institutional clients as well as our consumer clients, particularly in North America.
Average loans were roughly flat year over year as growth in the IC G was offset by a decline in GCB.
As the probability of higher rates has increased over the last few quarters, Let me make a few comments regarding the potential impact from higher rates.
And our 10-Q, we disclose interest rate sensitivity, assuming a parallel shift and a run off balance sheet.
This is different from our peers methodology, which tends to assume a static balance sheet.
Assuming a static balance sheet and a 100 basis point parallel shift we would expect cities total net interest income across all currencies to increased by over three times more than what was disclosed in our third quarter 10-Q, or roughly two and a half to $3 billion of net interest income.
On slide 10, we show, our summary balance sheet and key capital and liquidity metrics, we maintain a very strong balance sheet of our $2 three trillion dollar balance sheet about 25% or $530 billion consist of HQ L a and.
And we maintained total liquidity resources of approximately $960 billion.
And we continued to optimize our balance sheet deploying excess liquidity into securities as we took advantage of opportunities in the market.
As well as reducing our short term and long term debt sequentially and year over year.
On the loan side corporate loans represent approximately 60% of total loans with loans to corporates outside of the U S representing approximately 30% of total loans.
And as we've mentioned in the past about 80% of our total corporate loans are investment grade.
From a capital perspective, we ended the year with a CET one capital ratio of approximately 12, 2% as we prepared to adopt <unk> on January one.
Having adopted soccer and maintained our capital ratio target, we are resuming buybacks this quarter to similar levels to what you saw in the second and third quarter of 2021.
As we look into the remainder of the year. There are a number of variables with respect to cap.
These include regulatory headwinds that are impacting us along with the rest of the industry such as elevated G. SIB surcharges as well as the timing and impact from the divestitures of the 13 Asia exits in Mexico.
In light of this you should expect us to manage to our CET one ratio closer to 12% by the end of the year due to the expected G. SIB surcharge increase at the beginning of 2023.
That said, we remain focused on all aspects of capital with a goal of maintaining our CET one ratio of 11, 5% and.
And as you know under the SCB framework, we can assess on a quarter by quarter basis, the right level of buybacks and we will continue to do so throughout the year with a goal of returning excess capital to shareholders.
On Slide 11, we show the results for our institutional clients group for the fourth quarter.
Revenues increased 4% year over year, driven by investment banking private bank in security services fees, partially offset by a decline in markets expenses increased 10% year over year, driven by transformation business led investments and revenue related expenses, partially offset by productivity save cost.
Credit was a net benefit of approximately $300 million as net credit losses were more than offset by an ACL release, and we continue to see strong credit performance with net credit losses declining on a year over year basis, and non accrual loans down sequentially and year over year.
This resulted in net income up to $5 billion down approximately.
Awesome really 22% from the prior year, largely driven by the higher expenses and a smaller ACL release versus the prior year.
And ICD delivered a 10, 8% of our OTC E for the quarter.
We also saw a 5% growth in both loans and deposits on a year over year basis, as we continue to see good momentum and deepening of existing client relationships and new client acquisitions.
As for the full year ICD delivered approximately $16 billion of net income on $44 billion of revenue with an oral TCE of roughly 17%.
On Slide 12, we show revenue performance by business and key drivers for ICD business for the fourth quarter.
Treasury and trade solution revenues were slightly down versus the prior year driven by continued headwinds from rates offset by 18% growth in fees and in fact, our highest speed quarter ever.
Revenue did increase sequentially driven by both net interest income and strong fee growth.
We continue to see strong underlying drivers in TTS on a year over year basis that indicate continued strong client activity.
Since this is the first time, we are showing key metrics that demonstrate this momentum I want to briefly walk you through each one and what it represents.
U S dollar clearing transactions were up 4%, which reflect the clearing and settlement activity of commercial and treasury flows for financial institutions.
Cross border flows were up 15%. These flows represent our global payment flows where we provide cross border solutions for our clients that are fully integrated across our TTS and markets business and over 145 currencies.
And importantly, this client activity drives recurring fee revenues and generate significant operating deposits.
Commercial card volumes, which reflect travel purchase and virtual card activity across all clients are up 48%.
Again, these metrics are indicators of client activity and feeds and on a combined basis drive approximately 50% of total TTS fee revenue.
Investment banking revenues were up 40.
43% year over year, driven by growth across products, including record advisory performance. The best Advisory quarter, we've had in over a decade.
Private bank revenues were up 6% year over year as we continue to see strong momentum in new client acquisition.
Overall market revenues were down 17% versus last year and while there were different dynamics that played through fixed income and equity market performance. The performance is against a very strong quarter last year.
Fixed income markets revenues were down 20% year over year, while we had solid growth in FX and commodities. This was more than offset by a decline in rates and spread products.
Equity markets revenues were down 3% year over year as continued growth in prime finance balances and structured activities was offset by a decline in cash.
Security services revenues grew 5% year over year as fees grew 11% driven by higher settlement volumes and higher assets under custody, partially offset by interest rate headwinds.
Now turning to slide 13 here, we show the results for our global consumer banking business for the fourth quarter in constant dollars.
Revenues declined 6% year over year, driven by lower revenues across regions expenses were up 34% year over year, driven by the Asia divestiture cost <unk>.
Excluding these costs expenses were up 9% driven by transformation in business led investments, partially offset by productivity savings.
Cost of credit was $105 million benefit this quarter as an ACL release more than offset net credit losses.
The NCL rate for the quarter was one 2%.
A decline of 61 basis points year over year, and 20 basis points sequentially.
We released over $900 million of ACL this quarter related to continued improvement in our economic outlook and portfolio quality, partially offset by volume growth.
This resulted in a net income decline of 42% and Anoro TCE of 8%.
<unk> the Asa divestitures impacts net income would have grown 44% and resulted in an aro TCE of 20%.
As for the full year GCB delivered $6 billion of net income on $27 billion of revenues with an <unk> of 17%.
And 22%, excluding Asia divestiture impacts.
On slide 14, we show GCB revenues by product as well as key business drivers and metrics for the fourth quarter.
Branded cards revenues declined 3% year over year on higher payment rates and portfolio mix.
We're seeing encouraging underlying drivers with new accounts up 43% card sales volumes up 24% and average loans up 3% in fact, the fourth quarter acquisitions exceeded the same quarter in 2019 by 2% the first quarter to do so since the onset of the pandemic.
Retail services revenues declined 10% year over year, driven by a 2% decline in net interest income due to elevated payment rates as well as by higher partner payments driven by improved credit performance.
But despite this we are seeing positive underlying drivers with account acquisitions up 6% and spend up 16% on a year over year basis.
While we are encouraged by these underlying drivers in both cards businesses payment rates do remain stubbornly high impacting our loan growth and revenue growth in both cards businesses.
Retail banking revenues declined 6% year over year, driven by lower deposit spreads as well as lower mortgage revenue.
However, underlying drivers remained strong with deposits up 13% city gold households, up 9% and assets under management up 8% year over year as we continued to execute on our North America retail strategy with a focus on our global wealth you with it.
Asia revenues declined 7% year over year, largely driven by rate headwinds and higher payment rates.
Performance in the wealth hubs exceeded that of the overall region with deposit growth of 12%.
AUM growth of 13% and 16% growth in city gold and CPC clients.
Latin America revenues declined 3% year over year, mainly due to lower loan volumes in both retail and cards.
On Slide 15, we show results for corporate other for the fourth quarter.
Revenues increased year over year, largely driven by higher net revenue from the investment portfolio.
<unk> were down year over year, largely due to the wind down of legacy assets.
Cost of credit was benign.
At this point, we typically give our full year outlook. However, since we have our investor day coming up one more second we plan on bringing everything together at that point to talk about 2022, and the full context of our strategy and medium term performance expectations as part of our strategy refresh our goal is to be as simple and transparent.
As possible.
And I hope you like the new earnings presentation, and we will continue to evolve it going forward.
And with that Jan 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 followed by the number one on your telephone keypad again Thats Star one to withdraw your question press the pound key.
These limit your questions to one question and one follow up we will pause for just a moment to compile the Q&A roster.
Your first question is from the line of John Mcdonald with Autonomous research.
Good morning.
Mark Thanks for the all the detail there and Jane for the strategic update Mark I wanted to ask if you could just go over the restatement of the net interest income sensitivity.
Just want to make sure we caught that what what's the difference that's driving the the new presentation. There and just what are the key drivers for your net interest income outlook. This year, you might have to give a number but kind of when you think about trading.
And then core NII in card growth, maybe some of the thoughts there. Thanks.
Thank you and good morning, good morning, John So on slide on slide nine is where I kind of covered that.
You will recall John that historically, we have looked in our disclosure at a run off balance sheet.
And.
That obviously has deposits running off as they term out that has loans running off as they mature others taken approach, where they look at a static balance sheet.
Alright, and so we've run the analysis around assuming a static balance sheet and assuming a 100 basis point parallel shift.
And in a rising rate environment, obviously across all currencies, we obviously have a mix of U S dollar and foreign currencies as well and when we run that analysis now assuming that the balance the balance sheet as static that is the deposit levels loan levels et cetera that that delivers three times more than what we disclosed in the Q in the <unk>.
Third quarter, so thats, the two and a half to $3 billion of.
Net interest income, so obviously retaining them or assuming that the deposit levels stay the same.
Allow us to generate more net interest income and that's a major driver in the.
And the number of range or the range that I provided.
Got it terms of.
Sorry.
No that's helpful great and in terms of.
The forward look I'm not going to give you guidance as you mentioned, but I think there are a couple of things that are important to keep in mind that we're looking at for 2022. One is the drivers that we mentioned earlier so a lot of the underlying drivers in our franchise look very strong and are driving healthy fee revenue growth and I would expect with.
<unk> outlook for positive GDP that that's going to continue to play to our advantage in 2022. The second thing I'd point out is the.
The assumptions around interest rate hikes in 2020 to as many as three or four depending on them on the economists' view that you listen to and that obviously is going to play to our favor as well when you think about the number of accrual businesses that we have whether it's our TTS franchise or our private bank et cetera et cetera. So those are.
Important factors that impact the topline.
And that we expect to help contribute to some growth coming out of the coming out of 2022, I mentioned the loan growth on the branded cards portfolio.
For cards, it's really going to be about payment rates and how they taper off.
Billy taper off they've been stubbornly high through all of 2021.
So hopefully we start to see some of that taper off and we get a little bit of growth in average interest, earning balances in the back half of the year, but those are important factors that need to play through into 2022.
Okay, Great and then just as a follow up as you're managing capital you mentioned Youll return to some level of buybacks.
This quarter and you've got a lot of capital that you expect to free up in transactions that haven't happened yet. So I guess, how are you kind of thinking about that that future capital is something that youll deploy as you get it.
It's part of your long term thinking, but youre not planning on using that throughout this year I assume.
Yeah. So so obviously, we look at capital planning with a.
In the context of our strategy.
And our ability to actually deploy that capital, but to return as much excess capital as we tend to our shareholders and so as we think about the divestitures, which are underway as that capital frees up we're going to factor that into the capital plan for the year in the quarter and where we can we're going to return that to shareholders. So a number of deals.
Are scheduled to close in 2022 that will be part of our plan and we'll be looking forward to taking those those actions in the outer part of the year.
Your next question is from the line of Mike Mayo with Wells Fargo Securities.
Okay.
Hi.
Miami.
Hey, how are you.
For your chain.
To re queue. After my two questions. So that so many but the most of the bankers with it.
Thank you for the new presentation, but the biggest question.
Debt.
And I think many investors have is when all is said and done who is citigroup. What's the most simple statement you can give.
And you know who.
Who and what Citigroup represents.
Oh I love that question.
So I would say that our vision for city is to be the preeminent bank for institutions with cross border needs.
We'll be a leader in global leader in wealth, a major player in consumer payments and lending in the home market.
And that that is.
City and outpatient for it it says simpler.
More focused it's much better connected.
Suddenly simpler to operate.
Characterized by a culture of excellence and accountability and I think as I hope we've shown today, one that should be easier for everybody to understand and fully aligned with our shareholders' interests.
And along those lines, you're freeing up what about $11 billion of capital now.
And intention and I Mark I always hear you say, you're going to invest in the business unit to.
Supply for growth and then you're going to buy back stock, but in terms of our stock price at this low.
I mean, the stock price relative to the financial index is one of the all time lows.
Wouldn't you move buybacks up in the priority order what else can you do or say to show that shareholders matter Jane I mean, you've done so much on the he side you certainly have done a lot on the S side, but the G and ESG when it relates to shareholders shareholders have been left back for so long just say.
What else you might be able to do or say as it relates to.
Recognizing shareholders and their desire to have a stock price that does better.
All shareholders are a an enormous priority for us.
Mike I know, we need to make the bank more shareholder aligned unfriendly and we are doing so so let me give you four examples.
<unk> will generate and we will return excess capital to shareholders and as you say given where the stock is trading it makes buybacks highly attractive second.
We're taking the structural and strategic decisions to put the bank in the best position to drive shareholder value.
And you can see we are executing and we are delivering with urgency and with very driven to get the valuation in our fall Hyatt place than it is today.
But we're changing many elements of the financial reporting thats easier for O'shea helped us to understand the bank and we're going to be as transparent as possible. So you can measure our progress and results structure that mark laid out and I gave the high level alarm.
Is it will make that job much easier.
Then finally on the topic I know you've been quite vocal around we are also making changes to compensation. So that more of a senior business leaders will be on the psus, but this coming year, we've moved to 100% deferred stock versus the mix of stocking cash in the geographies that we're permitted to do so.
We're increasing the importance of returns in determining performance evaluations is it there is a marriott and the different actions that we're taking on because they all.
All shareholders matter to us and we want to get our valuation up to one that we think has some realize its full potential.
Your next question is from the line of Glenn Schorr with Evercore.
Hi, Thanks, so much.
I don't know.
Turn it on its head just juxtapose that they can hear your answer.
I personally love when management teams are.
Buried in the staff that they have.
Uh huh.
So in that sense.
Hmm.
Be a leader in all those areas that you want to be an emphasis that the city question.
We'll spend a lot to keep up.
So my question is.
How do you balance doing all of that and opening profitability gap with.
Spending enough and feeding your franchises to be leaders.
And yet to be expensive.
So hard just love to hear your thoughts.
I have to apologize you broke up through much of that question would you mind, just repeating the tail end of it.
A lot of static on the line.
Right right, absolutely sorry, I'll speak about that.
With me better.
Okay.
More because we're getting a lot of static so we come back.
Sure thing.
Great.
Your next question is from the line of Betsy <unk> with Morgan Stanley .
Hi, good morning.
Yeah.
Can you hear me okay.
Hello.
Hi, Okay.
So a couple of questions one just thinking through the walk from where you are today in CET one until the end of the year. When you mentioned you'd be ending the year at 12%. You know you have some businesses that are exiting which should reduce our W. As I would think but then you've got.
Got.
Debt buybacks as well.
Coming through and and at the same time I would expect that you'd probably want to grow your your R. W. As I know you are WNS were down 5% Q O Q and maybe that was part of the reason why <unk> was a little light. So could you help me understand just how we should think about.
That trajectory and the drivers of that C. T. One.
Change because it will have some impact on how we're thinking about the the Rev. Rev growth in the or.
And in the markets business.
Yeah good.
Good question. So so we are.
We are looking at obviously, how we continue to.
Invest in the franchise, particularly where there are areas of growth at the same time ensure that we're delivering buybacks where share on return to shareholders as I look at the CET one ratio, we're ending the year at about 12, 2%.
As you know sacredh kicks in or has kicked in on January one.
Ending therefore in January 1st said roughly around where our target is and over the course of the year, we'll be able to absorb growth in the businesses, where there's a need to do that while continuing to identify offsets.
To both soccer, but also low returning.
Assets that we may have in ridding ourselves of there of those and generating income as well as the capital.
From the divestitures that we will be able to close throughout the course of the year and so as we look at that plan.
The start of the year, which is close to our target.
Towards the end of 2022, we will have to build that back up to about 12% in order to absorb the G. SIB headwind, assuming theres no relief provided to that which then kicks in at the beginning of 2023 and so through the course of the year will utilize through RW.
<unk> will free up capital and return capital to shareholders, we'll generate more earnings but at the end of the year will need to kind of and on the higher end or towards that 12%.
Do you have a sense as to how much the benefit to like G SIB or SCB should be from all the divestitures Youre doing I was actually thinking when I saw the Mexico News. This week that maybe that was one of the reasons why you decided to.
Put to exit the Mexico consumer businesses is potentially the pick up that you'd get since you mentioned it makes it a simpler company and and that should feed into C. J I would think yes, it's not a major driver as to the decision as Jane and kind of is kind of framed out but it is but it does factor into the points that you've raised.
So from a <unk> point of view there is I don't know $31 billion or so of deposits that are tied to our Mexico consumer business that would drive about 10 basis points or so or 10 points I should say on the on the G SIB score.
The total for the divestitures that were that we've earmarked or it's about $85 billion in deposits and so you can do the math that we'd get some benefit from that youre.
Youre right and we'd I don't have numbers that I would share at this point, but in part because the fed has to run their analysis, but youre right from a CCAR point of view.
When you think about the stress capital buffer there is an impact to <unk>, but more importantly to stress losses that will play through as well as you know that impact as well as the deposit impact won't really come into play until we've closed on these transactions, but it certainly is a factor to how we think about the.
Our longer term capital planning and it certainly is something that I'm going to talk more about at Investor day on March 2nd.
Okay. Thanks, and the low returning assets that you were talking about exiting is that like.
That's basically something like rates and the fixed income business and should we expect some impact there again I'm just trying to tie together the 5% decline in our <unk> and the comment that you know fixed fixed income business was a little light this quarter get yeah, there's I'm I'm not looking to be specific on where the low returning assets, we're getting out but we're certainly looking at our mark.
<unk> franchise to see where those low returning assets exist as well as to see where.
Their client relationships that are single product and don't necessarily link across the franchise and so this is something that Jane and I as well along with pocket. We're keenly focused on we realized that while we are seeing growth in markets and in fact, it has it has come with growth in the balance sheet and we want to make sure that we're.
<unk> the use of the capital.
Your next question is from the line of Erika Najarian with UBS.
Yes, Hi, good morning. My first question is from Mark Please and by the way. Thank you. So much for this new way of disclosing financials I think this will be very helpful.
NII sensitivity as well I know, we're going to get a lot more detail in March but.
As we think about the expense base that would be remaining post the exits you've identified could you help us get a sense of.
How much more growth would there be left.
The remediation related expenses.
How aggressive do you plan to be in terms of investment spend in 2022.
And do you think you've identified enough inefficient expenses within the franchise to help fund some of those both initiatives.
Yes.
Great question, I'm, not going to give guidance on 2022, but let me, let me try and frame out how we're thinking about it because I think it is I think it is important.
Both Jane and I recognize that we've got.
With a lot of static we're getting excuse me.
Yeah.
So in term in terms of the in terms of the expenses. We obviously have a large expense base, we're seeing growth play out.
This year, well I think there's some real opportunities over time.
To attack the expense base and Thats exactly what we intend to do so if you think about the divestitures I'll start there for a second there is some $6.8 billion of expenses tied to divestitures as those divestitures.
Get closed out.
Some of that will naturally go away the balance of that which tends to be referred to as stranded cost.
We're already putting in place a team to focus on attacking and driving out.
That stranded costs the.
The second point that I'll bring up around this is the transformation. The transformation has driven three percentage points of growth this year.
I do expect that there is more growth.
Associated with that particularly since we are still doing more hiring is more tech spend that will be required but the transformation over time will deliver efficiencies will reduce the manual touch points will drive straight through processing.
And therefore will allow for us to bring our expenses down and the final piece that I'll mention.
Is the strategy and.
And so Jean mentioned in our strategy a focus on core businesses and that's going to allow for us to look at the organizational structure and identify more simplification opportunities and the way, we manage and run the firm we do about.
$300 million to $400 million of productivity.
Savings a quarter.
That's not enough, we think theres more opportunity.
For efficiencies than that and it's those opportunities that we're going to chase down in order to fund some of this investment spend that we expect in the next couple of years more on that at Investor Day.
Thank you for framing that.
This next question is for you. When you responded to Mike's question about your vision of Citi.
You lead with your vision.
City as the world's corporate bank, if I could rephrase.
Hum.
How has your vision.
Of Citi.
It include in terms of your funding base, there's a lot of conversation, particularly in the beginning of a rising rate environment about the natural gap that you have to your largest U S peers with regard to your.
Naturally higher.
Right deposits right and so you know.
How do you envision your funding base evolving over time.
Do you have any interest in significantly building out your U S retail deposit franchise.
Hmm, So Erika we've got a pretty diverse funding base.
When we look at it from the institutional side, we've got the number one.
TTS franchise globally.
And that that has material.
Funding from our for our cash from our cash management and dominant position in cash management, our wealth franchise.
Based on that the ultra high net worth down to the affluent clients is also a source of material and very attractive deposits and funding for us.
Obviously, we are making the exits on the on the international consumer banking front.
And we've been focused in the retail bank in the U S and driving digital deposit growth.
And are continuing to make sure that that business generates a stable low cost funding for the fun I'm here in the U S and we'll expect to continue growing that going forward.
Your next question is from the line of Mike Mayo with Wells Fargo Securities.
Oh, hi sooner than I expected just to follow up on the compensation changes yes.
It's a good news.
People are paying in stock instead of just cash and stock, but you had the new bonus.
Arrangement I did not think that was finalized but as part of the new bonus arrangement based on the next three year financial targets.
Thats still all cash or is that cash.
Cash and stock or if that stock.
I assume you're referring to the transformation award is that correct Mike.
Yes, yes.
Yes, so that one.
It's while it's paid in cash for the first two pieces.
50%.
Is pegged to all three year stock performance.
We felt that that was the appropriate balance here as they say.
Transformation is our highest priority we need to successfully address the concerns raised in that 100% and our shareholders' interests. I mean, one of the pieces. It's important in that is that we need to have collective accountability.
To succeed in in addressing these concerns the shift in our culture.
And this award is one that is.
It is therefore dependent upon shed success.
For us as individual incentives here.
And so it out and it's an important part of delivering and of course, if we fail.
To deliver.
The outcomes of the transformation and they're not successful in the execution there will be no award.
And when would we find I guess, we'll find out about those targets at Investor day.
And that question as it relates to the Psus how.
How much was given in stock cash before.
And how many people will the supply to versus where it was before.
Okay.
Hi.
The psus are given to the executive management team and now we're extending that to the broader operating team, which concludes the leaders of all major businesses.
And you'll see that information.
<unk> delivered in the proxy when we issued that and not say, you'll you'll get all of that information at roughly the same time.
Your next question is from the line of Ken Houston with Jefferies.
Hi, Thanks, a lot good morning.
I was wondering if you could just talk a little bit about the card business in aggregate definitely starting to see a little bit of that balance, but I wonder if you could touch on number one like just how you're expecting that balanced trajectory to go number to spend versus lend and how much youre seeing in that and then three just the losses are obviously just amazed.
We low.
We would anticipate card normalization. Thanks.
Sure so.
As I've mentioned before I mean, when you when you look at what's going on with cards.
Across the board, we are seeing increases in spend volume so branded card spend volume is up 24%.
Retail services spend volumes up 16%. So very healthy spent two and volume people are using our cards, which is which is a good thing.
And in terms of.
The liquidity, that's still out there in the market, even though savings rates have started to normalize there's still a significant amount of liquidity that's out there in the market and thats showing up in payment rates in both branded cards and retail services and frankly in some of the international card businesses as well and that that has not <unk>.
Sided and so.
We did start to see growth in branded cards loans average loans are up 3% branded cards at the end of period loans were up 5% what matters a lot when you come out of a crisis like this is how you reinvest and so we've spent.
A lot of time focused on targeting new customers and driving new new account acquisition. So our new account acquisitions are up 43% in branded cards.
And we've been also driving that just generally across the board in retail services as well so getting a good a very good response in terms of new accounts coming on board. We've also been focused on how we drive installment lending activity just kind of to broaden the lending that we're doing with this customer base and we've seen significant.
Growth in our flex loan flex pay products.
As we've as we've as we've targeted customers who have historically been trans actors too.
Two to really move them onto onto that product. So so very good growth there and in fact in 2019 in 2021.
We've not only gotten the growth just in aggregate, but if I look at kind of installment lending.
We've got 90% of the total installment sales are in digital sales, which is another kind of low cost acquisition approach that we've that we've taken so so good good underlying indicators there, but again, it's not until payment rates start to subside, we would expect hope that that would start to show up.
The back half of 2022.
In terms of the losses, which was the other part of your question.
Very low loss levels, you heard me mention of linked Quincy rates earlier, when I look at why the loss rates earlier, when I look at delinquency.
Trend Theres really nothing to focus on their they remain.
Quite low and we don't see any any signs or any areas of concern I would say, but I would imagine those two would start to normalize as as payment rates start to come down.
Great Mark Thanks, and then just a follow up you mentioned that the record or the strongest quarter in advisory and a while I was just wondering if you can just comment broadly on investment banking pipelines across the product groups. Thanks a lot.
Yes, the investment banking pipeline looks very strong we ended the year with.
Significant growth in advisory up 146% year over year, well above the wallet, we've grown share there.
ECM was up about 16% again.
Above the above the wallet.
And really that reflecting some of the fees coming from from a spec activity.
So very good growth.
And North America are both up year over year due to <unk>.
Continued momentum in M&A. So we feel we feel very good about it we think the pipeline still looks very strong we think the investments that we've made in bringing on bankers and some of the sectors, we needed to beef up sectors, such as health care technology sponsors group. Those those investments are certainly certainly starting to pay off so we.
Feel good about it.
Your next question is from on the line of Glenn Schorr with Evercore.
Alright, let's try this again.
Oh, my God that Glenn.
Alrighty alright so.
I think we have a good long term process in motion and measured in more than one year, but.
What do you think of the sort of it.
It feels like returns have to go down before they go up I know you have the overall goal to close the gap to peers, but.
Between the capital that gets freed up the G. SIB buffer in the denominator the capital markets, partially normalizing some stranded expenses unsold franchises and then continuing to execute on its transformation.
Is it okay and is it normal I think it's partially in our models that we go down first and then rise up.
Yeah. So thank you Glen So look if you look at 2021 with a 13, 4% our OTC and reserve releases that get close to $9 billion I'd have to say, yes, right. Because those were those reserve releases drive a considerable amount of that now it's important to compare that to 2020.
We had the opposite effect, because we were building meaningful reserves, but as I as we look at the forward look which will take you through.
In more detail as Jane mentioned, we're focused on core.
Core parts of the franchise that show the opportunity for growth and the promise for higher returns.
And we all were.
That's where our energy is going to be focused and we think thats whats going to help to drive improved returns over time.
Fair enough the reserve releases have a big impact.
Okay, and then in terms of that growth I think a couple of questions danced around this so you can be short but.
Given your answer to what city is and wants to be in terms of premier franchise in all of those.
Industries.
Or business lines I should say.
How do you balance the doing what's right for stockholders near term drive stock return.
Versus making sure you invest for the future because each one of those is super competitive each one of them has competitors as much as early as today or as reasons today spending a ton of money to compete in those spaces. How do you balance that invests for the long term be great versus improve the stock short term.
Yes, So let me let me start and then Jan feel free to add in if you'd like so the first thing I think it's important to remember is the the focus that we're trying to put.
On these core franchises that drive returns overtime. So we're prioritizing how we're going to allocate our resources and our investments in part through the divestiture activity. The second thing I'd say is that we are we are investing in the franchise for the long term right as opposed to trying to hit some short term metric.
And so that does that does involve us putting that money to work, where there is client demand and where it leverages the competitive advantages that we have developed.
And so that that is the way we approach this with again an eye towards ensuring that we are clear and transparent with our investors and that if there is excess that we're returning that to our shareholders.
So theres not just sitting on the sidelines and not generating returns that they would expect of us.
I'd also just jump in when you look at the different businesses that we're investing in as Mark said, they're high returning one seller services business is up much capital light high return wealth management. The same Ah I think the opportunities that we've been seeing to continue.
The increase share in investment banking and other high returning business. So that that will certainly be helping us overtime on that makes it youre talking about and not everything needs not everything needs an enormous investment if I look at wealth. For example, you put the different pieces together.
We've already got.
And we're putting them into a single integrated.
The business proposition.
It's not things that we're starting from scratch. So a lot of this is incremental.
Ladies and gentlemen, please limit your questions to one question and one follow up.
Your next question with some on the line of Vivek <unk> with Jpmorgan.
Yeah.
Hello James.
A quick one firstly.
Now that he is sitting Mexico, Singapore, and Hong Kong would not part of the exits when you announced the exit from the 13 markets from the consumer business.
Are you going to stay on with the consumer business in those markets.
Meaning a traditional consumer business as you had four years or is that going to change.
Now we find out that the franchises, we have in Singapore, and Hong Kong, just given the nature of them are really naturally tight to the wealth franchise.
We are building and investing in our existing very strong platform. As you say so we expect to continue to provide the range of different services and capabilities that we have because they all sell complementary and and and help support our friends our wealth.
Business in in two of the most major wealth hubs in the world.
Okay great.
A follow up question, if I may have.
NII change month that you made what deposit beta are you assuming there and how much of the change is coming from U S. Net interest income versus the rest of the currencies.
Yes, so we havent, we havent shared.
Our deposit betas, but as you would imagine the betas tend to be higher on the institutional side than on the retail on the retail side and.
And so that's that piece and I'm sorry, the second part of your question was what.
Vivek.
Yes.
Yeah.
Okay.
Hello.
Hello Vivek.
Yes can you hear me, yes, I can hear you now what was the second part of your question I'm sorry. The second part was how much of the change in net interest income from the interest rate sensitivity changed much if youre, making.
U S net interest income versus the rest of the currencies.
The increases.
Roughly.
Roughly skewed.
Skewed towards the towards the international so I'd say.
A $3 billion increase I'd say.
About two thirds, one third international.
Okay.
And that's because that's where you were assuming that runoff.
Sorry.
That's why you're assuming more of the balance sheet right now yes.
Yes.
Okay. Thank you.
Your next question is from the line of Charles Peabody with Portales.
Yes.
A question regarding the regulatory and political risks to share buybacks.
And I ask that because earlier this week and the Palo Verde nomination hearings.
We listened to the last two minutes.
Minutes of that testimony Trog Brown went on a rail against buybacks and the banking industry.
Then last year, I think president Biden had two speeches in which he spoke out against buybacks.
So I'm trying to understand.
Is there I mean transaction taxes and kind of stop you guys from doing buybacks.
There are other things being discussed out there other than just moral suasion to.
Discourage buybacks.
Yes.
We're going to do the right thing for our shareholders sudden right now, particularly given where the stock's trading buybacks.
And then a very very important and probably top of the stack for us action that we take so.
No.
Okay in terms of the importance of giving all shareholders back on excess capital.
But you want to I'm, just trying to understand what the risk to your desires are.
The regulatory smaller political side I don't believe there is one we're extremely well capitalized I. Thank God, we've had consistently from Washington, the confidence in that in the capitalization of the bank.
It's coming into and coming out of the pandemic and we all that we had not.
Any concerns on that front, we'll obviously adhere to regulatory guidelines as they exist or however, they evolve, but thats exactly right.
Alright.
Then as a follow up just on that subject. Assuming these regulators are just getting into their seats are probably not going be able to do anything this year on buybacks, but.
Assuming that though.
Try and do something on buybacks next year so.
No.
You want to do as much buyback short term as you can and you've talked about getting back to like a $3 billion pace here in the first quarter, how sustainable is that $3 billion pace.
Yes, so look I mean first of all with the SCB framework.
We take decisions on.
The capital actions on a quarter by quarter basis, obviously theres. Another CCAR run that will all go through that we'll determine at least part of the capital stack.
And then obviously, there's the the G SIB that's coming into play so we factor all of those things in an.
In our case as we as we develop the capital plan. We also will take a look at the divestitures in some instances the divestitures will generate TCE for us to return to two shareholders. There may be other impacts from from divestitures that are temporary in nature that need to be factored in but it's part of an entire.
Annual capital planning pre.
Process that we go through that factor is all of those things in.
Your next question is from the line of Gerard Cassidy with RBC.
Thank you good morning, Marc Good morning, Zane Hydra.
Can you guys share with us.
Can you think about the strategy refresh that is underway.
75% complete 80% complete Mark you alluded to maybe some of the markets businesses that may not have the return as you want it could be some area, but where are you there.
And by the Investor Day can we assume that will be completed.
I'm.
In terms of the timeline for this one this particular exercises drawing to a close and Ken says, so but I called the big step back is it and you see a sale I mean it. We said this is the last major structural decision that we're taking.
In Mexico, and we're now focused on pulling to get that everything from Investor day in and that's why they at the new reporting structure I think that we've announced today is also very important foundation for that so I'm confident that we've made the right big structural decisions.
And that will love and we're looking forward to Investor day laying out the vision the strategies and the plans are going forward.
Let me be clear Gerard just in case I wasn't.
Not suggesting we're exiting parts of our markets business that is not what I'm, suggesting at all what I'm, suggesting is that as we would always do we're constantly looking for opportunities to optimize the way we use our balance sheet capital <unk> et cetera, and where we identify the need to rid ourselves of.
Low returning.
And assets that we have we do that alright, and so with <unk> rule changes like soccer and the like either pricing will adjust or we'll have to take a hard look at some of those assets to see if it still makes sense and that's more of what I meant than ever suggesting we were exiting part of the market's business no. That's very clear. Thank you Mark.
And just as a quick follow up.
Obviously some of the businesses you are committed to the TSS ear and the investment banking area. You guys. Clearly are players. There you have economies of scale. When you look at the other businesses that you are committed to staying with the heavy lifting going to come from where you really kind of step it up to get those economies of scale similar to the ones that are quite obvious.
Yeah, Youre right, we have a we have a number of businesses that are already in.
Extremely scaled.
In both markets in fact, we look at TTS when moving four trillion dollars of volume daily that so.
So those are ones, where the investments are much more around digitization around data.
And in terms of where we were looking at getting more to them.
Increasing our scale commercial bank is obviously, one where we have a.
Commercial banking presence in 30 different markets.
Around the world and they're very focused on the same target market I talked about in the fishing.
There is a there is mid market companies with global needs or multi multimarket needs and then the other areas in terms of wealth I'm glad we've already begun as you can see from our earlier remarks building out our front our frontline scale.
On the back of the platforms and other investments that we're making.
And to your point is a commercial bank this year, a huge opportunity to leverage more of the TTS offering that we have we're already seeing diversification in the commercial bank in terms of CMO and other markets products and the revenue this year was up 12% year over year.
Similar strength in acquisition of new clients in wealth, but those are two key areas I agree.
As a reminder, please limit your questions to one question and one follow up.
Your next question is from the line of Ebrahim <unk> with Bank of America.
Hey, good afternoon, just quick kind of follow up Mark on the capital return I just wanted to make sure. We hear you correctly. When we think about the $3 billion piece youre going to get back to on <unk>. Moving forward is there more upside risk to that $3 billion or could that be actually lower I just want to make sure we have that.
In terms of expectations.
Yes, I am not giving expectations for the quarter by quarter capital buyback decisions in part because as I mentioned.
With the new Seb role, we're able to look at it on a quarterly basis, so I'm not giving guidance beyond that we'll talk more about the capital plan on March 2nd broadly right.
And just I guess going back on gene on U S E T and I think the question is.
Is there something more meaningful that we should expect at the Investor day, and it's fine if you want to hold it till then because.
If I recall correctly, you were a partner with Google that didn't play out. The big question that investors have is is that a better definition to the U S retail franchise and I'm. Just wondering will we get that March investor day or.
Theres nothing radical.
How do you feel that you have in store at least in the near term as far as U S. Retail is concerned.
You'll be sudden hearing directly from on and the who is responsible for that is this on investor day and he'll lay out.
All of our U S front I've personal banking strategy of what we're looking at both from a.
Top two cards franchise.
And what.
What were doing in personal lending as well as what we're doing in wealth and then obviously the retail banking a supporting role.
It's it is playing for those two coal.
Drivers of growth for us in the states so yes.
Thank you.
Your next question is from the line of Jim Mitchell with Seaport Research.
Hey, good afternoon.
Mark maybe on just the expenses I appreciate all the moving parts with the divestitures and you're not going to give us a full year expense guidance number but can you help on the jumping off point at the first quarter we had.
Compensation was up about $1 billion quarter over quarter, how much of that was just sort of the comp changes or is that a good run rate to think about so if you could just help us just the jumping off point for first quarter would be helpful.
Yes, you know what I am.
I'm not going to be able to give you kind of more more guidance on that.
I would say is again.
<unk> got a couple of things that play through 2021 that will be important factors in 2022.
One the hiring that we've that we've done we're going to get a full year impact of that at least for part of that in 2022, So that's going to play out the.
Some of the if you think about the mix for the transformation spend which is a mix of both hires.
Third party spend as well as technology that mix will start to shift over time away from away from third party for sure and towards the others and so we're going to have some of that dynamics start to play out in 2022 in terms of the comp specifically in the in the fourth quarter.
We obviously tie the comp performance for the full year is tied to revenues and so as we would expect to see some some forward.
Broke based on the drivers I mentioned earlier, we would expect to see comp related to that.
Play out over the course of 2022, but I'd, rather not get into the specifics here given that we're going to give you a better sense for it in early March.
Okay, just maybe as a follow up on that just so just so I understand the sequential drivers. So you are saying, it's mostly incentive comp or was that more new hires or both just <unk> change in.
In <unk>, you've got both hires as well as incentive comp.
Okay.
Thanks.
Your next question is from the line of Matt O'connor with Deutsche Bank.
Hi, I just wanted to follow up you had said.
Sale of Mexico wouldn't be an easy transaction, which was hoping you could elaborate on that and then just related.
You talked about the capital is allocated to the business being freed up but any kind of additional thoughts on whether the transaction. The acts of the business will generate a gain or loss.
As you think about the combined our total capital impact. Thank you.
Why do I keep that often.
And I just said it wouldn't be a simple transaction because we separate the banking to the institutional business from the businesses that we're exiting and that's something that we kicked off yesterday.
That process and then we'll be looking to go to the market in the in the spring.
And to be active with buyers potential buyers in and a few in a few months' time. So it's it's more just the complexity of separating the bank. We've got good plans behind this and.
As I said in my remarks, he's a terrific scale. These are great franchises and Ah. There's obviously a lot of speculation in the press, which really is too early to comment on.
But we do think this is a this is a job for someone it's just not for US yes, I agree and I think it's premature to speculate on structure of the deal and things of that sort youre right. We do have about $4 billion of TCE allocated to the business the other layer of complexity.
It was around the Cta and you've heard us spend some time on that when we talked about the Australia sale and I introduce it as a complexity because.
There is an accounting treatment associated with the Cta that happens at signing.
That is separate from the capital implication.
That happens at closing so with a cta of the capital impact flows through Aoc I it but its neutral once the deal is closed and in Mexico. The consumer business would have a DTA of little bit less than $3 billion or so and so that's another factor that's involved with with the trends.
T a lot of D T I <unk> I'm, sorry, Cta currency translation adjustment attention. Thank you Cta. Thank you very much James.
Thank you.
Your next question is from the line of Stephen Ju back with Wolfe Research.
Hi, good afternoon.
Hey.
Well actually even before asking my questions just wanted to echo some of the earlier remarks that new presentation. The additional detail its really helpful. So I appreciate the new disclosure.
Marc It wasn't going to ask well I guess typically one question, but it's really a three part or you might need to grab a pen and paper, but I wanted to just unpack. Some of the comments you made on the NII sensitivity and reporting differences versus peers. You noted the more than three times increase in NII, assuming a static balance sheet, but theres still.
A lot of investors that just question your rate sensitivity profile, given the fairly modest NII growth that we saw in the last cycle and the first question just wanted to start by asking given your heavier institutional deposit gearing wouldn't it be reasonable for us to expect that your deposit run off would actually be greater than peers to Disney.
NII guidance contemplate liability sensitivity in the markets business and could you help us size that potential drag and then just lastly, it's more of a catch all any idiosyncratic factors that you can speak to that would support a better NII kind of outcome or higher rate benefit versus what we saw in the last cycle.
Yeah sure so.
Look we provided the sensitivity because we.
I think comparability is important here.
And you can see the magnitude of that difference is pretty sizable there's still going to be a difference between between us and peers, but that difference narrows when you put it on a comparable basis.
We do have a skew towards institutional clients.
Clients and they do carry a higher beta associated with them, but we also have a SKU.
Towards international currencies, and we make good good spreads there.
Well.
In terms of the impact through markets.
The impact.
I think I think the market's impact can come in any number of ways I think rate moves and other uncertainty and volatile in the market volatility in the market can drive broader markets revenues.
We would.
Which we would potentially see depending on how investors have to had to reposition their books in terms of the last part of your question I don't think there's.
Anything else.
That I would point to I mean, obviously with the excess liquidity that we've seen and been carrying in the market.
We've been putting that to work.
In investments, we've increased our investment portfolio by some $70 billion, we expanded the duration.
About 2.85.
And we still have significant.
Dry powder to put to work with are either client demand or in an increasing rate environment, which we expect.
That's great color Marc Thanks, so much for accommodating the multipart question.
Your next question is from the line of Jeff Harte with Piper Sandler.
Hey, I'm, sorry, guys I, just thought I'd taken myself out of the queue of my questions have been answered and you all must be getting tired so I'm done.
[laughter] Thanks, Jeff.
Your final question is from the line of Mike Mayo with Wells Fargo Securities.
Mr. Matt Hey, one more question, what's the hardest part of the cultural change.
And.
Probably its been breaking down some of the silos and that's that the the point on the principles, we laid out Mike is connected.
It is really a key piece of it we've we've rolled out some new leadership principles last year.
And it's very much around how do we get the fun very well connected and maybe realize the full synergies.
So breaking some of those old habits, I would say the new structure is certainly helping us at the different initiatives we're taking.
And how long do you think that will take because you're breaking down a culture, that's been ingrained for quite some time.
Yeah, I would say I'm really happy with the progress that we've been running the first things I did was later from two on our culture out.
When I took over and we've got a terrific team of people, saying why can't this for you. So I'm I'm I'm very happy with the progress we make I think everyone's clear we want the culture to be one of accountability of excellent and are acting with urgency and part of that is.
Is well underway.
But it will take a little bit longer.
There are no further questions I will turn the call over to Jim Landers for closing remarks.
Thank 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 <unk> fourth quarter earnings call you may now disconnect.
Okay.
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