Q4 2022 Citigroup Inc Earnings Call
Okay.
[music].
Hello, and welcome to city fourth quarter 2022 earnings review with the Chief Executive Officer, Jane Fraser, and Chief Financial Officer, Mark Mason today's call will be hosted by Jim Atlanta as head of Citi Investor Relations. We ask that you. Please hold all questions.
<unk> 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. Lantus 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.
With that I'll turn it over to Jane.
Thank you Jen and happy new year to everyone joining us today we.
We are very much often running as we start 2023 today I'll share our perspective on the macro environment before recapping our performance in the fourth quarter and then we'll take a few minutes to reflect on our progress in 2022, and our strategic priorities for the coming year.
The global macro environment played out largely as we anticipated during the second half of last year.
As we enter 2023 environment is a tad better than we all expected for the time being at least despite the aggressive tightening by central Bank.
In Europe , a warmer December reduce the stress on the energy supplies and inflation is beginning to ease off its peak.
That said, we still expect softening of economic conditions across the year is there in this year given some of the structural challenges it is grappling with.
In Asia, while the public health impacts in China off Unfortunately light ECP severe the abrupt end of Covid zero should begin to drive growth and improve sentiment generally.
And here at home the labor market remains strong and holiday spending was better than expected in part because consumers have been dipping into the savings.
The state remains resolute in tackling core inflation however.
And therefore, we continue to see the U S entering into a mild recession in the second half of the year.
Now turning to how we performed.
For the fourth quarter, we reported net income of $2 $5 billion and EPS of $1 16 a.
Our full year revenue growth of 3% ex divestitures was in line with the guidance. We gave you at Investor Day as was the case with our expenses.
We delivered and are a TCE of nearly 9% and the CET one ratio of 13%.
This quarter, our businesses performed similarly to how they did throughout the year and we're quite pleased with Sun and less happy with the performance of others.
Services continues to live our cracking revenue growth.
Our markets businesses and navigating the environment very well and we're seeing good momentum in U S personal banking.
On the flip side investment banking felt the pain of a drastic leaseholder wallet in 'twenty two and.
And the environment for wealth remains a challenging one.
Unpacking that a bit services delivered another excellent quarter and we have gained significant share in both treasury and trade solutions and security services.
P. P S. The business most emblematic of the power of our global network had revenues up 36% year over year as we execute on the strategy, we laid out for Investor day.
Thanks to strong business drivers, coupled with higher rates GTS is performing ahead of our expectations.
Likewise security services was up a strong 22%.
We ended the year, having on boarded one two trillion dollars, if new assets under administration and custody.
In line with our guidance.
Built reserves in personal banking this quarter on the back of volume growth as well as in anticipation of a mild recession.
And in the U S net credit losses in cards continued to normalize as we had expected still well below pre COVID-19 levels.
Corporate credit remains healthy and our low overall cost of credit was similar to last quarter, reflecting the quality of our corporate loan portfolio.
In terms of capital we increased the CET one ratio by about 70 basis points to 13% during the fourth quarter and finally, our tangible book value per share increased to $81 65.
And we returned $1 billion.
To our shareholders through our common dividend.
Now, let me step back and discuss what we accomplished in 2022.
One of our major goals last year was to put in place a strategic plan designed to create long term value for our shareholders.
And to get that Pan swiftly off the ground.
I am pleased with the significant progress we've already made.
We simplified the bank.
<unk> sales of our consumer businesses in five markets, including three in the fourth quarter.
And we have made rapid progress winding down our consumer business in Korea, as well as our franchise in Russia.
We continue to invest in our transformation to address our consent orders and to modernize our bank.
We're streamlining our processes and making them more automated whilst improving the quality and accessibility of our data.
This will make us a better bank.
We brought in very strong talent meta representation goals and strengthened our culture by increasing accountability and shareholder alignment.
Does that end I am pleased we delivered against our financial guidance for the year.
We also released our first plan to reach net zero emissions by 2050, <unk> expanded our impact investing and announced the finding from an external law firm, which reviewed our ratio equity efforts in the U S.
Finally.
I'm very proud of how our people handled the macro and geopolitical shocks, which defined 2022 and supported our clients and our communities with excellent.
And compassion throughout.
Before I hand over to Mark, let's turn to the next few years and in particular, the path to achieving our medium term return targets that we laid out on page five.
At Investor Day, we talked about the Pos coming in three phases with phase one characterized by both disciplined execution and investment.
<unk> 2023 is a continuation of phase one laying the foundation for driving long term shareholder value.
We are focused on changing our business mix to drive revenues and returns with the expectation that our businesses will close out 2003 competitively stronger.
Services entered 'twenty, three with strategic momentum and a pipeline of major new innovations a market leading product capabilities.
Market to continue to benefit from our active corporate client base with the franchise further advancing on the back of investments and the businesses focus on capital productivity.
Banking and wealth are well positioned for when the cycle turns.
The investments we've made in top talent and technology as well as the synergies realized across the franchise.
As you saw we felt this was the right time to make a change and well and we started a search to identify the next leader of this business.
I ask Jim Macdonald to take on a new role.
Hassan senior clients across the firm.
This will leverage his deep expertise and relationships and when combined with the new <unk> additional role as North America head is designed to help us capture more of what is a significant business opportunity.
Market.
U S personal banking will continue to benefit from the recovery in borrowing taking full advantage of our market, leading digital platforms and new products, particularly in the card space.
We will make further progress on our international consumer exit, enabling us to simplify the firms and reduce our cost base.
And we will of course focus on our clients deepening relationships and bringing on new clients in line with our strategy.
We will continue making disciplined investments in our franchise, including the investments in our transformation and controls. However, we will pay some of our business investments to reflect the operating environment.
Looking further out we will begin to bend the curve of our expenses to deliver against all major term target will.
We'll do so through a combination of our divestitures.
Realizing the financial benefits of our transformation and further simplification.
Mark will cover this in more detail shortly.
We fully recognize that depresses our returns in the near term.
<unk>.
We are deliberately taking the tough strategic actions and the investments necessary to reach our medium term return targets and to create long term shareholder value.
We are carrying not just our momentum, but all determination into 2023.
Despite the macro headwinds we are very much on track to reach the medium term return targets, we shared with you on Investor day.
We intentionally designed to strategy that can deliver for our shareholders in different environments.
We are running the bank differently with a relentless focus on execution and we will continue to transparently share our proof points with you along the way.
With that I'd like to turn it over to Mark and then we will be delighted as always 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 with the fourth quarter and full year financial results focusing on year over year comparisons unless I indicate otherwise.
I'll also discuss our progress against our medium term <unk> target and with our guidance for 2023.
On slide six we show our financial results for the full firm.
In the fourth quarter, we reported net income of approximately $2 5 billion.
And EPS of $1 16, and our TCE of five 8% on $18 billion of revenue.
Embedded in these results are pretax divestiture related impact of approximately $192 million.
Driven by gains on divestitures.
Excluding these items EPS was $1 10, with an all a TCE of approximately five 5%.
In the quarter total revenues increased by 6% or 5%, excluding divestiture related impacts as strength across services markets and U S. Personal banking was partially offset by declines in investment banking wealth and the revenue reduction from the closed exit.
Our results include expenses of $13 billion.
A decrease of 4% versus the prior year <unk>.
Excluding divestiture related costs from both the fourth quarter of this year and last year expenses increased by 5% largely driven by investments in our transformation.
This led investments and higher volume related expenses, partially offset by productivity savings and the expense reduction from the exits.
Cost of credit was approximately $1 8 billion.
Primarily driven by the continued normalization in card net credit losses, particularly in retail services and an ACL build of $645 million.
Largely related to growth in cars and some deterioration in macroeconomic assumptions.
And on a full year basis, we delivered $14 $8 billion of net income and an RFP CE.
For the full year revenue walk on slide seven in.
In 2022, we reported revenue of approximately 75 billion up 3%, excluding the impact of divestitures in line with our guidance of low single digit growth.
Treasury and trade solution revenues were up 32% driven by continued benefits from rates as well as business actions, such as managing deposit repricing deepening with existing clients and winning new clients across all segments.
<unk> wins have accelerated due to the investments that we've been making and market leading product capability.
These products include the first $24 seven U S dollar clearing capability in the industry.
The seven day cash sweep product that we launched earlier this year and.
In instant payments, which is live in 33 markets, reaching over 60 countries.
So while the rate environment drove about half of the growth this year business actions and investments drove the remaining half.
In security services revenues grew 15% as net interest income grew 59% driven by higher interest rates across currencies, partially offset by a 1% decrease in noninterest revenue due to the impact of market valuation.
For the full year, we on boarded approximately one two trillion dollars of assets under custody and administration from significant client wins and we continue to feel very good about the pipeline of new deals.
And markets, we grew revenue, 7%, mainly driven by strength in rates and FX as we continued to serve our corporate and investor clients, while optimizing capital.
This was partially offset by the pressures in equity markets, primarily reflecting reduced client activity in equity derivatives.
On the flip side banking revenues, excluding gains and losses on loan hedges were down 39% driven by investment banking as heightened macro uncertainty and volatility continued to impact client activity.
And cards, we grew revenues, 8% as we continue to see benefit from the investments that we made in 2022, along with a rebound in consumer borrowing level.
And in wealth revenues were down 2% largely driven by market valuations in China Lockdowns <unk>.
Excluding Asia revenues were up 3%.
Corporate other also benefited from higher NII in part as the shorter duration of our investment portfolio allowed us to benefit from higher short term rates.
And as you can see on the slide and legacy franchises, excluding divestiture related impact revenues decreased by about $1 3 billion.
As we closed five of the exit markets and continued to wind down, Russia and Korea consumer.
Going forward, we would expect legacy franchises to continue to be an offset for overall revenue growth as we close and wind down the remaining exit market.
On slide eight we show an expense walk for the full year with the key underlying drivers.
In 2022, excluding divestiture related impact expenses were up roughly 8% in line with our guidance.
Transformation grew 2%.
With about two thirds of the increase related to risk control data and finance program.
And approximately 25% of the investments in those programs are related to technology.
About 1% of the expense increase was driven by business led investments, which include improving and adding scalability to our TTS security services platform.
Enhancing client experiences across all businesses and.
In developing new product capabilities.
We also continue to invest in front office talent, albeit at a more measured pace given the environment.
And volume related expenses were up 1%.
Driven by markets and card.
The remainder of the growth was driven by structural expenses.
Which include an increase to risk and control investments to support the front office as well as macro impacts like in place.
These expenses were partially offset by productivity savings as well as the benefit from foreign exchange translation and the expense reduction from the exit markets.
Across the firm technology related expenses increased by 13% this year.
On slide nine we show our 2022 results versus the medium term API targets that we laid out at Investor Day, which we will continue to show you as we make progress along the way.
Macro factors and market conditions, including those driven by monetary tightening at levels, we didn't anticipate at Investor day impacted some kpis positively and others negatively how's.
However, we were able to offset some of the impacts as we executed against our strategy.
In TTS, we continue to see healthy underlying drivers that indicate consistently strong activity from both new and existing clients as we rollout new product offerings and invest in the client experience, which is a key part of our strategy.
Client wins are up approximately 20% across all segments.
And these again include marquee transactions, where we are serving as the client's primary operating bank.
Third quarter year to date, we estimate that we gained about 70 basis points of share and maintained our number one position with large institutional clients.
In addition, we've on boarded over 8700 suppliers this year, helping our clients manage their supply chain to address the evolving global landscape.
And in security services, we onboard a new client assets, which offset some of the decline in market valuation.
And we estimate that we've gained about 50 basis points of share in security services through the third quarter of this year, including in our home market.
And markets, we strengthen our leadership position in fixed income by gaining share, while making progress towards our revenue to <unk> Park.
And card loan growth exceeded our expectations in both branded cards and retail services.
Card spend volumes were up 14%.
End of period loans up 13% and most importantly interest earning balances up 14%.
That said in areas like investment banking, we lost share this year, but maintained our market position.
And then well while we have brought on new advisors and new client assets.
Given the impact of market valuation this didn't translate into growth in client assets or top line growth at this point.
So in summary, we made good progress against our medium term API targets. Despite the significant changes in the macroeconomic backdrop since investor day.
This highlights that our diversified business model is adaptable to many environment.
And we have the right strategy to achieve our return targets over the medium term.
Now turning back to the fourth quarter on Slide 10, we show net interest income deposits and loans.
In the fourth quarter net interest income increased by approximately $710 million on a sequential.
Unsure basis, largely driven by services.
<unk> end markets.
Average loans were down as growth in cards was more than offset by declines in ICD and legacy franchise.
Excluding foreign exchange translation loans were flat.
And average deposits were down by approximately 1% largely driven by declines in legacy franchises and the impact of foreign exchange translation.
Excluding foreign exchange translation deposits were up 2%.
Sequentially average deposits were up driven by growth in ICD and PWM.
And our net interest margin increased by eight basis points.
On Slide 11, we show key consumer and corporate credit mix.
We are well reserved for the current environment with over $19 billion of reserve.
Our reserves to funded loan ratio is approximately two 6%.
And within that PWM and U S cards is three 8% and seven 6% respectively.
Both just above day, one seasonal level.
And we feel very good about the high quality nature of our portfolio.
MPW M, 45% of our lending exposures are in U S cards and of that branded cards makes up 66% and retail services makes up 34%.
Additionally, just over 80% of our total card exposure is to prime customers.
And NCL rates continue to be well below pre COVID-19 levels.
<unk> portfolio of our total exposure over 80% is investment grade.
The international exposure, approximately 90% is investment grade or exposure to multinational clients or their subsidiaries.
And corporate non accrual loans remained low.
We are in line with pre pandemic levels at about 39 basis points of total loans.
That said, we continuously analyze our portfolios and concentration under a range of scenarios.
So while the macro and geopolitical environment remains uncertain, we feel very good about our asset quality exposures and reserve levels.
On slide 12, we show, our summary balance sheet and key capital and liquidity metrics, we maintain a very strong balance sheet of our two four trillion dollar balance sheet about a quarter or just under $600 billion consists of HLA.
And we maintain.
And our tangible book value per share was $81 65.
Up 3% from a year ago.
On slide 13, we show a sequential CET one wall to provide more detail on the drivers this quarter.
And our targets over the next few quarters.
Walking from the end of the third quarter.
First we generated $2 $3 billion of net income to common which added 19 basis points.
Second we returned a $1 billion in the form of common dividend, which drove a reduction of about nine basis points.
Third the impact on OCI through our investment portfolio drove an eight basis point increase.
And finally, the remaining 56 basis point increase was largely driven by the closing of exit.
<unk> optimization and market move towards the end of the quarter.
We ended the quarter with a 13% CET one capital ratio approximately 70 basis points higher than the last quarter.
As you can see we hit our 13% CET, one target, which includes a 100 basis points internal management pumps.
That will allow us to absorb any temporary impacts related to the Mexico consumer exit at signing while continuing to have ample capacity to serve our clients.
And as it relates to buybacks this quarter.
We'll remain on pause and continue to make that decision quarter by quarter.
On Slide 14, we show the results for our institutional clients group for the fourth quarter.
Revenues increased by 3% this quarter with TTS up 36% on continued strength in NII.
Security services revenue up 22%.
Markets revenue up 18% on strength in fixed income, partially offset by a decline in equity.
In investment banking revenues down, 58%, which is in the range of the overall decline in industry volumes.
Expenses increased 6% driven by transformation business led investments specifically in services and volume related expenses.
Actually offset by FX translation and productivity savings.
Cost of credit was $56 million driven by net credit losses of $104 million.
Actually offset by an ACL really.
This resulted in net income of approximately $1 9 billion.
Down, 18% driven by higher cost of credit and higher expense.
ITG delivered a seven 9% <unk> for the quarter.
And average loans were down slightly largely driven by the impact of foreign exchange translation and our continued capital optimization efforts.
Excluding FX loans were up 1%.
Average deposits were roughly flat excluding the impact of foreign exchange translation deposits were up 3% and sequentially deposits were up 4%.
As for the full year ICD grew revenues by 3% to 41 billion.
<unk> delivered approximately $10 $7 billion of net income with Anoro TCE of 11, 1%.
Now turning to slide 15, we show the results of our personal banking and wealth management business.
Revenues were up 5% as net interest income growth was partially offset by a decline in noninterest revenue driven by lower investment product revenue and well and higher partner payments and retail services.
Expenses were up 7% driven by investments in transformation and other risk and control initiatives.
Cost of credit was $1 7 billion.
Which included a reserve build driven by card volume growth and a deterioration in macroeconomic assumptions.
Npls were up reflecting ongoing normalization, particularly in retail services.
Average loans increased 6%, while average deposits decreased 1% largely reflecting clients putting cash to work in fixed income investments on our platform.
And PWM delivered in our OTC E. A one 4% driven by the ACL build this quarter and higher expenses.
For the full year PWM delivered in our OTC up 10, 2% on $24 $2 billion in revenue.
On Slide 16, we show results for legacy franchise.
Revenues decreased 6%, primarily driven by the closing of five exit markets as well as the impact of the wind down.
Expenses decreased 38% largely driven by the absence of divestiture related impacts last year related to Korea.
On Slide 17, we show results for corporate other for the fourth quarter revenues increased largely driven by higher net revenue from the investment portfolio.
Expenses were down driven by lower consulting expense.
On slide 19, we summarize our guidance for 2023.
As Jay mentioned earlier 2023 is a continuation of phase one we will continue to execute and invest laying the foundation for the future with an eye towards driving long term shareholder value.
With that as a backdrop, we expect revenue to be in the range of 78 to 79 billion.
Excluding any potential 2023 divestiture related impact.
Expenses to be roughly 54 billion.
Also excluding 2023 divestiture related impacts.
Net credit losses and cars are expected to continue to normalize.
And as we said earlier, we met our 13% CET one target and we will continue to evaluate the target as we go through the next DFAST cycle and close additional exit and announced others.
On slide 20 on the right side of the page we show our revenue for 2021, and 2022 and our expectations for 2023, excluding the impact of divestitures.
In 2023, we expect the revenue growth I, just mentioned to be driven by NII and NII.
In TTS, we expect revenues to grow but at a slower pace driven by interest rates and business actions.
And for security services, we expect a bit of a tailwind from increased market valuation and onboarding of additional client app.
We also assume somewhat of a normalization in well.
As lockdowns in China and in market valuations start to rebound.
And we expect investment banking to begin to rebound as the macroeconomic backdrop becomes more conducive to client activity.
As for market, we expect it to be relatively flat given the level of activity we saw in 2022.
Now turning to the NII guidance for 2023.
We expect both ICD and PWM to contribute to NII growth as we grow volume, particularly in card and we continue to get the benefit of U S and non U S rate hike and our services businesses.
As a reminder, the guidance for revenue includes the reduction of revenue from the exit and legacy franchise that we closed in 2022, and we expect to close this year in 2023.
Turning to slide 21.
In 2023, the increase in expenses that I just mentioned reflects a number of decisions that we've made to further our transformation and execute on our strategy.
And the main drivers are first transformation as we continue to invest in data risk and controls and technology to enhance our infrastructure and ultimately make our company more efficient.
Second business led investments as we execute against our strategy.
Third volume related expenses in line with our revenue expectations.
And for elevated levels of inflation, mainly impacting compensation expense, partially offset by productivity savings and expense benefits from the exit.
And we are investing in technology across the firm with total technology related expenses, increasing by 5%.
While we recognize this is a significant increase in expenses. These are investments that we have to make and I am certain that these investments will make us a better more efficient company in the future.
And finally, let's talk a little bit about the medium term targets.
At Investor Day, we said the medium term with three to five years.
That timeframe represented 2024 to 2026.
So while a lot has changed in the macro environment since Investor day, our strategy is not and we are on a path to the 11% to 12% ROE TCE targets in the medium term.
We continue to expect top line revenue growth.
Material expense reduction and capital levels, largely consistent with our medium term CET, one target range to contribute to the achievement of our 11% to 12% <unk> target.
So let me walk you through where we stand today.
From a revenue perspective rates have moved much higher and at a faster pace across the globe, which accelerated NII growth and that coupled with the execution of our strategy has allowed certain businesses to accelerate.
At the same time other businesses, such as wealth and investment banking have slowed.
Despite this consistent with Investor day, we expect a 4% to 5% revenue CAGR in the medium term, including the ongoing reduction of revenue from the closing of the <unk>.
From an expense perspective, as we showed at Investor day expenses will need to normalize over the medium term.
And we now expect to bend the curve on expenses towards the end of 2024.
The three main drivers of the necessary expense reduction will be benefits from the exit which will be included in legacy franchise for.
The benefits from our investments in transformation and control.
And the simplification of the organizational structure.
Let me remind you at this point the ongoing expenses in legacy franchises are approximately $7 billion.
Of the $7 billion.
Roughly $4 billion is transferred to the buyer upon closing or through a transition services agreement that typically last about a year.
The remaining 3 billion relates to potentially stranded costs and wind down which takes time to eliminate.
Second as our investment in transformation and control initiatives mature, we expect to realize efficiency as those programs transition from manually intensive processes protect.
The technology enabled.
And finally, we remain focused on simplifying the organization and we expect to generate further opportunities for expense reductions in the future.
From a credit perspective, we still expect net credit losses to continue to normalize and any future ACL build or releases will be a function of macro assumptions and volume.
So to wrap up while the world has changed significantly and the components have shifted we remain on our path to achieve the 11% to 12% ROE TCE in the medium term.
And Jane the rest of the firm and I are prepared to continue to show proof points, along the way and demonstrate our progress.
With that Dana and I will be happy to take your questions.
Thank you at this time, if you would like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing star Q and the interest of time, we do ask that you. Please limit yourself to one question and one follow up again that is star one to ask a question.
We will pause for a moment to allow questions to queue.
Thank you our first question will come from Glenn Schorr with Evercore. Your line is now open.
Thanks, so much.
Definitely appreciate all these outlets slides, they're very helpful.
So my question on the outlook is.
If you take a look at the current.
Yes.
Medium sized return on tangible and getting to your target.
Many comments about the path to getting there is on track is it. The expense then at the end of 'twenty for that is.
The material step up from here to there if you will.
<unk> credit like a really big determinant in the process.
So I'm trying to bridge the gap just the numbers from today's.
Tangible targets. Thanks.
Yes sure good morning, Glenn Thanks for the thanks for the question so we.
We did give you some guidance here, we gave you see both on the topline and the Middle line for 'twenty three and then importantly, when we talk about the medium term. It's both the continued revenue growth of 4% to 5% CAGR that I referenced but it's also bringing the expenses down from this 23 forecast.
And I mentioned in the prepared remarks, the drivers of what is going to bring these expenses down the combination of the exit of the businesses.
And the expenses going away associated with that with the benefits that we start to generate from the transformation spend and then on simplification.
This type of strategic restructuring, if you will and exiting all of these countries.
We will create.
Create an opportunity for and so it's a combination of revenue growth expense.
Bending that curve and coming down.
The cost of credit is kind of as we've been talking about for some time now which is it normalizes.
Over the next couple of years at levels that are consistent with what we've seen kind of prior to this COVID-19 cycle that we've been managing through.
Okay I appreciate that thank you just one quick follow up on wholly.
Not my norm, but I'd normally try to respect this type of process, but mark we considered a super important part of this transformation.
The news out there that you're talking to one of my other companies.
But would.
Would you be able to make any comments you mentioned a commitment staying on.
Sorry to put you on the spot, but I think a lot of people.
I appreciate that Glen.
City is an important firm I'm the CFO of this firm in this strategy and something that I'm focused on with Jane ensuring that we execute on right and in a way that creates shareholder value for our investors.
And so so we're committed to getting that done.
Together together.
Yes.
Thank you. Our next question will come from John Mcdonald with Autonomous Research. Your line is now open.
Hey, Mark I wanted to dig into the revenue outlook for 2023, you've got about the midpoint kind of implies about a 4% revenue growth. This year kind of consistent with what you've talked about for that 4% to 5%. So for this year of the 2023 guide it looks like the NII is guided to be up about three five.
Percent and the markets Youre, assuming kind of flat so what's enabling you to get to the 4% where the drivers that are above for us at some of those fee businesses and just a little more color there would be helpful.
Sure. So let me make a comment first on the on the NII just keep in mind with that that number that I've given on the page is both the the growth that occurs in.
Some of our important services businesses and that really comes from both the annualized <unk> of rate increases that we saw in the back half of the year.
But also expected continue increases, particularly outside of the U S and given the makeup of our franchise, we will that will contribute to the NII growth and then keep in mind that we're growing over the legacy franchise reductions in NII and NII that we would see in 2023 so underneath.
That has some real momentum.
In the in the NII, notwithstanding a slower pace. The fact that it would be a slower pace than what we saw in 2022 from NAR point of view I did mention that we do expect to see some normalization in market valuation.
And that would play out both in banking normalizing certainly relative to what we saw this year with wallets down 50% to 60%.
And as well as some normalization in wealth and those would hit the <unk> line as you.
<unk> as you point out.
Okay, and then sorry, if this is clear already but just in terms of the idea of the cost curve bending at the end of 2024 is that kind of mean that for the early part of 2024 expenses kind of rise above 2023, and then they kind of peak out plateau towards the back half of 'twenty four is that how we should envision it.
I'm not going to kind of get into 'twenty for guidance what.
We'll kind of get through 'twenty, three and I am confident about our ability to to get to that roughly 54 number that I would point out for 'twenty three I'm equally confident that we will bend this curve and we will bring it down.
To the levels that it needs to be in order for us to get to the <unk> target, but I'm not going to kind of get into John .
The specifics of 2004, except to say that by the end of 'twenty four we will see that curve bending.
Thank you. Our next question will come from Erika Najarian with UBS. Your line is now open.
Hi, good morning, good morning.
Yes.
My first question is again, thank you for all the clarification on the slide great job, John and Tom.
Mark obviously, but as we think about.
What it means to bend the curve I think your investors are appreciative that you are accelerating the investment relative to your transformation.
As we think about.
<unk> city can hit that medium term ROTC.
Hmm.
How should we think about what bending the curve.
Really means and I'm not looking for guidance necessarily but as we think about.
Going past that hump, let's say whats a better way of measuring should we get an efficiency ratio.
I think you mentioned something like is it a 60% to 63% efficiency ratio.
Again that 4% to 5% revenue CAGR that you think youll be youll be able to hit by 2025 should we think of it that way.
Yes so.
At Investor Day, we did talk about and we remained consistent and committed to that we talked about getting to an efficiency ratio that's less than 60% in the medium term period.
So that certainly will be part of the metric that we deliver on as we as we bring our cost down I think the other thing I'd mention just you mentioned the how and I think there are couple of important aspects to that the exits are obvious in terms of those.
Cost going away at least a portion of it is.
The portion thats tied to stranded cost.
Jane has been very very clear with our entire management team of the importance of rethinking.
The organization and ensuring that the strip potentially stranded costs go away and that means rethinking the way, we do business in the way we operate different parts of it.
Our operations I think the third piece is that technology right and so right now.
A lot of what we're doing is manual.
And as we continue to invest in technology and technology is up pretty significantly this year, 2014% or so we expect it to be up 5% next year that technology.
<unk> out if you will will allow for us to reduce a lot of that manual activity and that will bring down the operational cost for running the firm and so those are a couple of examples I hope of the house, but I think importantly, you will start to see it in and improve operating efficiency.
Over that period of time and getting to the target that we talked about at Investor day.
I would say you can get set and confident.
Around the pause on many of these.
By the speed with which we're executing the divestitures for example on getting those transactions closed and we've also tried to provide you as much.
Clarity as possible about the timing.
<unk> will be actually it will be kind of thing and.
You'll see that the wind down.
Thanks, Paul.
That will help as Mark said, it three big structural drivers.
Okay.
Yes.
Thank you Mark.
Im sorry for Misspeaking I was looking at the wrong borrowing efficiency I'd like 15 slides.
The second question and maybe this is TJ and I think that your investors have appreciated your sense of urgency with regards to divestitures I think the elephant in the room continues to be.
I think investors sort of expected announcement on banamex right now.
And I'm wondering if you're still considering.
Just selling <unk>.
Panamax or are you thinking about that.
Brent options on the table touches.
The IPO.
So we're in active dialogue with the amendments so I'm, obviously not going to comment in great detail here.
We do.
<unk> to pursue a dual path as you would expect because based on both a very viable options here.
When we are in.
<unk> to give you clarity.
We will do so I think we've been pretty clear about the timing. We're also separating out the franchise base, our institutional franchise from the consumer franchise that we're selling because we see the institutional franchise is a very important part of the global network.
As you can imagine in today's environment, Mexico at scale for many of our corporate clients around the world today is.
Supply chains.
Play very important roles at that is that is a lot of work in that separation I am extremely pleased with the progress that we're making.
The underlying loss, but we.
We are pursuing.
And when we have something to announce we will be delighted to do so.
Thank you. Our next question will come from Mike Mayo with Wells Fargo Securities. Your line is now open.
Hi.
I'm still trying to get over this.
Revenue and expense guidance so.
So are you implying youll have at a minimum flat operating leverage.
Positive operating leverage for 2023 am I reading that correctly. So no one hand, youre not bending the cost curve until late 2024 on the other hand youre guiding for positive operating leverage in 2023.
Reading that correctly, yeah, Mike Mike when you do the math I don't think it'll get to positive operating leverage in 2023.
But we are as you as you see on the slide targeting a range that does reflect growth in the top line.
Growth will likely be a little bit less than the growth of 54 number would.
Roughly 54 number would suggest.
But we are on the right track and we are.
Getting there in a way that's consistent with the strategy that we talked about and and we do feel confident in our ability to deliver on the guidance that we've put out here similar to delivering on the guidance. We gave last year recognizing there are a lot of things going on in the broader environment.
Okay, and then a second follow up.
A follow up and then ill re queue. If my other question.
Your CET one ratio was 13% now and I think thats two quarters earlier.
Then consensus had expected you said it was up 70 basis points. So it does not allow you to repurchase stock now.
I understand that if you can go ahead and sell <unk> that could have a <unk>.
Temporary negative capital hit so I'm, just thinking like don't sell banamex.
Don't have that temporary capital hit.
We're buying back stock at a fraction of your tangible book value. So.
What's wrong with biologic or what part of that can you comment on.
I haven't jumped in on B cell bottleneck, Mike as you could imagine so we're selling the consumer franchise. It does not fit with the strategy that we laid out in Investor day.
Say.
Emerging market consumer franchise, and we are clearly focused around the multinational clients.
Institutions and.
High net worth individuals with cross border needs as we laid out.
<unk> in businesses that have strong connectivity.
Across it.
Between between each other so we are we don't see panamax, having strategic fit in the consumer franchises in that perspective.
When we run all the math.
It is in the in the shareholders' interest.
That we sell that franchise.
And deploy that capital to share.
Shareholders.
Some of the investments.
At higher returns.
And what you're suggesting is a very short time move and I think as you can see from the actions. We're taking we're very focused on our medium and long term and not taking.
The short term path that we would regret in the medium and long term.
Thank you. Our next question will come from Ebrahim <unk> with Bank of America. Your line is now open.
Hey, good morning, guys.
Just one question for you.
So up on capital as we think about the second half of the year, let's say you've taken to hit some.
And the mix.
Out of this cancer test and any sense Mark.
Any reason why <unk> would have an outsized negative impact.
The Basel and game reforms.
Give us a sense I'm just wondering hopefully we don't get another disappointment or get a hold tight for buybacks in the back half and if something idiosyncratic about the business mix that could come back to hurt the bank would love any perspective there.
Yeah. So look as we pointed out we built a significant amount of capital over the course of the year.
We are ahead of the target we set for the middle year or middle of the year.
We do have some exits that will have a temporary impact on the CET one ratio and we do obviously have a DFAST us in front of us that we will have to see what the outcome is.
That work I think the Basel and game and final views and decisions on that are still outstanding and I think we'll have to take those into consideration when.
When they become available that is an industry dynamic that will play out however, it plays out.
And similar to <unk>, we will get after it.
And in a very significant way to make sure that.
That we're able to handle whatever headwinds are tailwind may come along with that but it really is difficult at this point to opine on exactly what that means for the industry in light of the fact that there arent final rules out just yet.
And just back to your medium term targets I guess, if we hit that bending the curve at the end of 'twenty four it implies that this company should have an earnings power of North of 10 Bucks by 'twenty five even at the lower end of the guidance.
Seeing anything there or.
Does that makes sense.
The only thing I would point out.
Is what we've described what I've described with James described as the medium term is 24 through 2026, and we've given you guidance for 'twenty three we intend to get to those return targets.
In the medium term I haven't given you specific guidance on any of those individual years, and we'll kind of take that year by year and so just factor and I think what's important is you've got a view on 'twenty three.
And I think we've given you additional clarity on how we intend to get to that medium term and I think that's important.
Thank you. Our next question will come from Betsy <unk> with Morgan Stanley . Your line is now open.
Hi, good morning, good morning Betsy.
I did want to ask a little bit about the.
Strategy with personal and wealth management I know Jane earlier, you talked about the fact that in which you have announced looking for a new head to move that business forward could you just give us a sense as to where you think the opportunity sets our greatest within the franchise for growth.
Because there's a bunch of different pieces.
Some on the advice channel some on the more fee channels. Some of the more balance sheet piece I already indicated U S. As an opportunity to expand into so I'd just like to understand from your perspective, which pieces are the most important to execute on and that could help us understand.
How you.
Planning on shaping this business going forward. Thank you.
Yes.
Great question, Betsy Malkin NIE base lining here, because I think the answer is all of the above.
Firstly, if we break it down.
Hi.
Where do we see the various elements of upside.
As an important recovery thats kind of occurring in Asia, and you can see from our results last year.
And across the board with.
The other competitors with an Asian bank.
That was materially impacted by Covid.
China and the Lockdowns.
Slowly pulling out of Covid.
And that market compare so DNA is that compared to the U S.
So we see some exciting growth opportunities there.
With pure fundamentals and.
In Asia across the board.
Youre absolutely right in the USA.
Our smallest scale there we've been bringing in different parts of that business together. The wealth franchise is one that has had particularly pleasing growth in it.
And we've also been seeing some good growth as we've pulled a comprehensive offering to get that for all customers the biggest upside there.
Investment product.
We've got a strong balance sheet franchises, it, particularly the deposit some of the larger one analyte mortgages, but this is really about.
The investment offering in this space.
Yes.
And then finally I'd say, there's also a tremendous opportunity and the synergies we've been showing you. This.
In terms of linkages between our commercial bank.
Banking franchise.
It was up from the U S personal banking, we've had about 60000 referrals. This year in the U S alone.
That market also provides important referrals and even gtx.
Client referrals.
The business synergies between them common platforms. So we really see an opportunity for its multi dimensional growth drivers in well over and above the recovery.
In the in the investment space, but everybody in the market should be able to benefit from and will continue.
Things in appropriately.
Appropriately and building out that frontline as well. So this is a very important part of our strategy.
Cited apparel.
Key pillar as assistant business mix as we go forward as well look at the medium term.
We're looking forward to the next phases.
At growth and focus here.
And would you say that the investment spend required to execute on those revenue opportunities.
Is.
Likely to accelerate from here or you have already done that investment spend and the.
Investment is more sideways as opposed to accelerating.
I think look at in this current environment.
We as we've said Mark and I have both said.
The.
It may be the middle of last year. This is something that we are pacing, but we're continuing to invest behind you and you can see that growth in our clients advisers and remember that net growth in client devices.
With the divestiture, we made in Uruguay for example.
It's pretty strong.
Would that have a huge amount that we need to invest because we have many pieces of the platform in place and it's moving a store is integrating them and then making sure that we're putting the right digital one of the other investments behind it but it is.
It's not such a large one in order to achieve the upside in the business and we'll pace that.
With market conditions, Mark anything to add.
This is a normal part of the cycle. This is a high margin high returning business and we've seen that in the past and so we want to be well positioned for as the market turns having brought on client advisors, having brought in new clients, new client acquisitions, which were up 24% in 2022, and so I think where were we.
Well positioned for that but as Jean mentioned, given where we are we want to be smart about how we deploy the dollars and so we will repay as necessary, but ensure that we're we're ready for when things turn and I'll just add a couple of years ago that we put that we announced the scratch and started executing on it until we have the benefit.
The historic investments.
And we're seeing that drive is playing out well and as I say, well, we should be well positioned.
Market trends here.
Thank you. Our next question will come from Matt O'connor with Deutsche Bank. Your line is now open.
Hi, I just wanted to follow up on the comments about expecting markets to be relatively flat in 23, obviously, a very good fortune.
I was concerned about some of the <unk> management in India.
In recent quarters, and I think proves that.
To be an issue as you think about leadership in revenues.
But as you think about 2003, the wallet has been strong in recent years.
Point your leadership was strong this year, how confident are you in kind of that flat markets and maybe what was driving that.
It's a market business right and so you know very well kind of the volatility that can come with any markets business with that said, we've got a very very strong FIC franchise, we had a very good year.
Good year. This year I think we're well positioned with the client base.
And we are well positioned to maintain our number one position as we go into 2023 now how that market end market, while it moves I think is.
Is going to predicate on a number of things, including how the macro continues to evolve.
How central bank activity continues to evolve and how currencies move into light, but again I feel like we are well positioned to hold our position if not gain more share as that plays out so I think flat relative to a.
Year that we've had up as significantly as it is is a is a reasonable call based on what we know now.
So seeing some some depression of areas of strength in them.
As well the equity derivatives are examples of real strength.
It was an equity derivatives.
Seven.
And the corporate world with the volatility that's out there from a macro geopolitical environment is another real strength above than the.
For better for worse, we're expecting that that.
That strength to continue that journey.
Thanks, Paul.
Okay. Thank you.
Thank you. Our next question will come from Jim Mitchell with Seaport Global Your line is now open.
Hey, good morning or afternoon.
Yes.
Mark maybe just digging into NII a little bit.
If you look at <unk> annualized you have.
Decent step down, but when you take a look at your deposit franchise your mix of business very.
Versus your peers, where theyre seeing probably lagging retail deposits in the U S pricing, that's going to hurt second half NII. If we look at you guys already have high betas, mostly institutional you mentioned the benefit from non U S rates and you're growing deposits. So.
Why is sort of a similar trend in NII versus peers. When you have a pretty different dynamic going on just trying to think that through because it doesn't look like the legacy drag it's very big and your chart.
Similar dynamic you stay in 'twenty, three or Youre talking about fourth quarter, Andrew I'm not sure I followed.
Trying to talk about versus peers, some have guided similarly to down from.
<unk> annualized run rates, but do you have a very different dynamic in terms of deposit growth.
Benefits from non U S rates and a much higher beta right. Yes. So I think I mean, I think I would point to a couple of things on the NII side, just as it relates to US one importantly that that I mentioned in and you point out is when you think about our mix of deposits we've got.
65% or so are in <unk>, and the balance, 35% and our <unk> business.
We certainly skewed too.
To U S dollar, but we've guided 30% or so that is a non U S dollar and when I speak about the potential and look forward curves and how rates will likely move.
Next year, we will get the benefit of further rate increases on the non U S side.
And and so.
I think about our international presence.
Betas tend to not be as high as they are here in the U S with our corporate client segment and so I think there is some repricing opportunities that will continue to actively manage as we did here in the U S and so I do think it's an international footprint that <unk> of our franchise that plays to our strength in 2000.
'twenty three the other thing.
That is apparent to us as we forecast. This out is the continued growth from a volume point of view.
Volume growth you've seen the momentum already pick up on the card side with significant growth in interest, earning balances and we'd expect that to continue particularly as.
As we see.
Npls normalize.
And as we see payment rates start to temper.
And so I think those things will be two major contributors mixes is obviously a factor as you point out we will be growing over some of the drag or reduction from legacy but is that active management of the client engagement that we have across both portfolios that I think will be important.
Factors to us delivering the growth that I talked about.
No that's all fair, but I guess, maybe I didn't phrase my question right, but affiliate ex markets I think you or your forecast for 2013 would be less than the <unk> run rate ex markets and yet.
Yes.
Yes, but again shared a bunch of me I'm sorry.
Finish your question I'm sorry.
You shared a bunch of reasons why you have sort of a differentiated franchise. So I'm just trying to get a sense of what's driving the decline from <unk> levels. I think the thing you've got to pick up is really the the legacy franchise and the NII a large part of the legacy franchise revenues. Our NII revenues. When you look at the mix of the products and the clients that we cover them.
And so I think that's the important element here that we haven't quantified to one dollar amount, but that is explaining why it seems like muted growth relative to what you would've seen in.
In the fourth quarter, obviously, there is other factors, but that's important.
Thank you. Our next question will come from Gerard Cassidy with RBC capital markets. Your line is now open.
Hi, Mark and James.
Good afternoon.
Mark can you share with us on your comments regarding this is true for your peers as well and the normalization of credit losses going forward.
The industry has experienced incredibly low levels of credit losses. So when you look at branded cards or retail sales on our retail services.
How do you see that progressing through 'twenty three one of your peers pointed out I think that by the end of 'twenty three they may be at that normalization rates that they.
Move to for their numbers, but I'm just trying to see what the trajectory is for what you guys are thinking.
Yes, let me jump in and I'll hand, it over to Mark So I think.
We are expecting under the current trajectory, you'll see the loss rate to reach the pre COVID-19 levels more at the year end early 'twenty four level.
If you think of branded card if I had to quantify is it 20% of the way that now.
Crs, where about 40% of the way there now.
Obviously, we have the benefit in Crs as Sherry.
The loss sharing with our partners.
That helps us, but I hope that that gives you a sense around that probably the most important driver that we'd be worried about.
And with what was happening with payment rate.
Is that much more clarity, okay start date that normalization Paul.
That's driving a fair amount of.
Okay.
More certainty around what the direction is happening there Brian is it take questions more what's happening with spending.
And it fits with.
Normalization right now, it's a bit uncertain.
Okay.
Mark any other observation the only thing I'd add is that you could see just depending on how this plays out you could see kind of NCL rates.
Pick up above normal levels, and then come back down to normal levels.
And the timeline that Dane described again, just depending on how the macro factors continue to play out but again as we sit here and talk about these NCL rates.
It's important to point out as well that we're very well reserved across all of these portfolios and so to some extent if you put macro assumptions aside and volumes aside.
<unk> kind of get funded by the reserves that had been established but the trend line is exactly as Jane described just recognizing that you could see a tick up above normal levels and then come back down.
Okay.
Such an unusual market in the sense that we've got such strong labor market driven by frankly supply shortage not just demand.
And we've also got the consumers with still very high savings that's a good thing.
<unk> and <unk>.
And we're seeing a bit more of that movement.
Movements happening at the bottom end of that day, but this is not set to be like.
Session at <unk>.
<unk> will be about the manageability of the mountainous slightly if we do have one.
And what kind of unemployment rates are you guys, assuming going into that kind of trajectory.
Is it when we get the 5% unemployment by first quarter 'twenty four.
Yes.
I think a couple of things for one our base case scenario.
If you think about what we just talked about include kind of a mild recession and it just and as we forecasted at the downside would be something a bit more.
Severe than that I'd say, we reserve for approximately a 5% unemployment rate.
Just kind of overall when you look at when you average across the across the different scenarios that we have.
Thank you. Our next question will come from Ken Houston with Jefferies. Your line is now open.
Hi, Thanks.
Just two quick questions. So first one just on card.
Ni card NIM has been kind of flattish and I know that obviously has to do with just how you show how you internally allocate the funding towards it but can you just kind of talk us through what's happening either.
Rewards are.
Either incremental teaser rates on some of the new relationships and should we see the card NIM.
Expand from here.
Yes.
Not going to get into Ken kind of guidance on on NIM.
What I will say is that we have seen good traction in the early part of the year as it relates to acquisitions on the card side. We've made very good traction and Jane you may want to comment on kind of the relationships that we have with some of the partners.
And with American and we want to have launched a number of new products that I think is helping to fuel the growth that we've seen on the heels of those investments and some of the.
Some of the increase that we've seen in spend rates as well as some of the the average interest earning balances and loan growth that we've seen but I really don't want to cut into the NIM guidance at the current level or the aggregate at this point.
Yes, I mean.
We have we have.
Fabulous franchise.
Look at strong track record in the digital the other organizations that are driving quite it's driving the profitability driving the returns both in our proprietary products as well as with our partners.
And we're really seeing OLED based drivers performing very very strongly at the moment <unk>.
Some cost and cash it was 28% of new account acquisition.
An important new product.
Refresh that.
Ed that's driving things, 80% of customers engaging basically innovations like America and hate to say fantastic partner Pas really taking that to the next level and you can see that with the growth in spend in the category. So I think there's a lot of reasons to be appropriate.
Im excited about the growth.
In the returns.
And the margins in the upper trajectory.
And as I say.
Our prime portfolio.
Yeah.
Rich.
It's always a good thing.
Great. Thanks, and my second question was that there was an article about.
Changing management up in the wealth management business. This week and I was just wondering if you can talk talk about that but also just about the progress that youre, making inside the wealth management relative to your.
Kpis and the goals that you've discussed at analyst day. Thanks.
We also made two years ago I asked the ILS given they don't have to put to work.
All statements together from the various components that we had around the firm.
And now as we move through the next phase, but as we've said strategically important business.
I believe it's the right time to change that need a ship.
Is that because.
Jim is going to play an important role moving forward supporting Packer with IPG strategy that we laid out at Investor day.
A lot of relationships with investors family alternatives private equity sovereign wealth funds and he is going to be helping.
Dry days along with other investors.
To make sure we bring the firm's full capabilities based clients.
I felt the time was right.
To make the move.
And we will be.
Indicated.
Swiftly moving to.
<unk> got out there and have a look for.
The next leader of that business.
In the meantime, it business as usual.
As we grow and follow the strategy that we have and we're looking for the market to a name as I'm sure everyone is.
And feel that we're well positioned to do so.
Thank you. Our next question will come from Steven <unk> with Wolfe Research. Your line is now open.
Hi, Good afternoon. This is actually Sharon Leung filling in for Steven.
On the topic of credit one of your peers noticed this morning that they would expect to see an incremental 6 billion ourselves reserves that they assume 6% unemployment under Stifel.
Can you just wondering if you could provide some similar sensitivity to reserve levels.
And how should we think about the provision trajectory versus the <unk>.
Just on your macro outlook and potential growth math headwinds.
Yes, Thank you Doug why don't I.
Take that I'm not going to kind of.
Do sensitivity scenarios with you are here on the fly what I will say is that as.
As we build these reserves we are building them against.
Three scenarios.
That base scenario that I mentioned.
The downside scenario and upside scenario and we weight those scenario and the base that we use this quarter built in a mild recession.
And in that baseline unemployment was call it 444% or so in terms of the unemployment assumption.
Also had a downside scenario unemployment in the downside scenario guide to a six nine or so.
And then we had an upside scenario the weighted average cost across the quarters.
It was about the 551 that I mentioned and those were factors that went into.
The reserve that we established in the in the quarter and largely when you think about the weightings, we've put on those scenarios.
Waiting skew towards that base and that downside.
The reserve we built this quarter.
Was largely in the consumer business, PV, Wm, and specifically around cards and that really had to do the change quarter over quarter with the change in <unk>.
But what I, what I would say is that it also.
Reflects a as I mentioned earlier, a card portfolio that remains a very good quality and with loss rates that are that are well below what they would be in a normal cycle and it does pick up the fact that there is volume growth.
That we saw in the quarter, there, so I'm not going to kind of run scenarios for you, but hopefully that gives you some perspective as to what's underneath the models that we've used to establish these reserves and obviously, we do that on a quarter by quarter basis. I'd also just jumping OLED areas. It sometimes.
This totals about this.
Credit <unk>.
Yes, when we when we look at.
Corporate client portfolio don't equate, where we take credit risk with the global footprint.
When I look internationally, 90% of our international exposure with multinational firms, particularly that neither invest all of this is investment grade, but I think that's another area, where as we look at the quality of the corporate loan portfolio.
As you saw with Russia and others.
We'll be conservative.
Having repaid but.
It's important to understand the nature of.
Where we can take that corporate credit risk.
That's really helpful. Thanks, and then as a follow up it seems like a part of your revenue targets for 2023.
It depends on some improvement in the environment for example, stabilizing equity markets Ivy rebound.
Dan You also noted that the medium term targets are designed to be achievable in the current environment.
If the revenue backdrop continues to be challenged like we saw in 2022 can you just talk about some of the levers you might be able to afford that might provide an offset.
Well what I'd.
It kind of depends on what the drivers are of a different environment right because you could have.
I don't anticipate this which you could have continued pressure.
In investment banking, but you can also have continued volatility in rates or currencies and that could mean more upside than flat.
The market's business. So there are a lot of puts and takes.
That one can scenario and I think what's really important is that we.
We have a diversified portfolio of businesses that have strategic connectivity to them and so what that allows for is that as the environment shifts in some way that we may not have predicted that we were often able to still drive significant performance as we did this year.
Pierre that's what gives us the confidence to two around the guidance and really to remain steadfast on the strategy that we've talked about and really push execution and thats exactly what were doing and an important part of 'twenty three if not just.
The impact of the cycle, but I don't think youll see the impact of the different investments that we've been making and we've certainly seen that takes all important services. This year and we've been very transparent around the 70 basis points.
Great.
We've seen and wallet share.
In the 12 months.
Leading up to the third quarter.
Even though they thought drivers here in terms of what's happening in the market, but you've also got the strategic drivers.
Taking in more and more.
As Mark referred to the synergies great point, Jane because it may not always show up in the top line, which is why we put those kpis out there theyre often indicators of some of the upside that's on the come as the market evolves.
Thank you our last question will come from Mike Mayo with Wells Fargo Securities. Your line is now open.
Hi, Mike.
Yes, So one question one follow up.
So you have a.
Your slide says you have a CET one target of 13% by mid year, but youre already there.
So.
I guess.
Go back to the Vantiv X thing I guess is that kind of assuming potential capital impacts from divestitures or Bob do you have a target six months out plenty of you've already met it.
Yes.
To tell you that I'm surprised as you are asking about about Mexico, just given given our history together, but what I understand it and what I, what I would say is that a couple of things one we.
Clearly see where we trade right and we're not happy about where we trade and we.
Our strategy warrants us trading better than where we trade today.
So we could buy back right, we could do buybacks as soon as we're able to do buybacks. We will right I mean that is that as part of the way we deliver value for our shareholders. The second thing I'd say is we did get to the 13% sooner.
And that was again in accordance with executing against our strategy and parts of our business, particularly the markets business has done a really good job at delivering against the metric we've put out of revenue to <unk> and we've been able to get there without damaging the franchise, which is what you see in the continued strength and performance in that business, particularly.
<unk> in fixed income.
What's ahead of US as you rightfully pointed out is that we've got a number of exits that have to take place that puts and takes across many of them with Mexico. In particular will have a temporary temporary impact on our CET one ratio and so we want to be mindful of that as we manage over the next two quarters. So that we can.
Absorb that.
And we also want to make sure that we're positioned to continue to serve our clients over the next couple of quarters and always split, but certainly over the next couple of quarters, while we manage the headwind temporary headwind from that exited so hopefully that gives you a better sense for it.
But we are actively managing this and we have not lost focus on the importance of.
Returning capital to shareholders.
I want to reiterate that as well.
It's very important to us and as Mark says, we know where we trade we've made a number of news.
To align ourselves to all shareholders interest and compensation and management interests. All these various dimensions.
And.
We just wanted to make sure that we.
What we say, we're going to do and continue delivering against what we say we're going to be delivering.
And with the Cta impact essentially in Mexico, we want to make sure that we were.
<unk> that into account.
Alright.
Clear and then lastly.
Your NII.
NII guide excluding market related.
Is higher for 2023, but I think that implies a little step down from the fourth quarter level not as much as JP Morgan was guiding down 10% from fourth quarter level.
I was thinking there might be some delayed benefits from being outside the U S. What are some of the and put out there.
Yes, we got a couple of you had a couple of.
Points here. So one is we won't see NII momentum as we've seen in 2022, just as beta start to increase.
On the ICD side and get to terminal levels.
That's obviously going to slow or put pressure on on the pricing as we go into 'twenty three but some of the other important drivers of the growth will be the annualized nation of the rate hikes that happened late in the quarter late in the year and so that'll be a plus in 2023 Youll also see us.
As I mentioned earlier some of the rate increases that we anticipate outside of the U S and given our mix that will benefit us.
In 2023.
And then there'll be a volume will contribute to NII growth, particularly as we continue to see good momentum, which we anticipate on the card side, the offset will be that the legacy franchises right and so as those exits occur as the wind Downs continue as I mentioned earlier that revenue mix does.
View towards NII, and so we'll have to grow over that and we will grow over that to kind of get to the target that we've set so those are the puts and takes.
Thank you there are no further questions I will now turn the call over to Jim Landers for closing remarks.
Thank you everyone for joining us today, if you have any follow up questions. Please reach out to IR have a great day. Thank you.
This does conclude the city fourth quarter 2022 earnings review call you may now disconnect.
Okay.
Yes.
Yes.
Okay.
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