Q4 2024 Citigroup Inc Earnings Call
Hello and welcome to Citi's fourth quarter 2024 earnings call. Today's call will be hosted by Jen Landis, head of Citi Investor Relations.
Speaker Change: We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ms. Landis, you may begin.
Speaker Change: Thank you, operator. Good morning, and thank you all for joining our fourth quarter 2024 earnings call. I am joined today by our Chief Executive Officer, Jane Fraser, and our Chief Financial Officer, Mark Mason.
Speaker Change: I'd like to remind you that today's presentation, which is available for download on our website citygroup.com, may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances.
Speaker Change: Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filing. And with that, I'll turn it over to Jane.
Thank you Jen and a very good morning to everyone.
Jane Fraser: I'm going to start with a macro backdrop and then walk you through our results for the full year. I'll share some thoughts on the progress we're making executing our strategy and then conclude with why we have decided to adjust our 2026 return target.
Jane Fraser: We enter 2025 with strategic clarity and good momentum across all our businesses.
Jane Fraser: From the global macro perspective, economies have done a good job tolerating hikes from central banks and inflation has clearly been receding.
Jane Fraser: While policies will certainly impact economic activity, whether in the form of tariffs or taxes, 2025 doesn't look that different from 2024. The U.S. remains at the heart of the macro picture.
Jane Fraser: Growth is not only being driven by the higher-end consumer, but also by a strong, innovative corporate sector.
Jane Fraser: China's growth has been slower than expected, but there is still the prospect of further stimulus.
Jane Fraser: Europe continues to underachieve and many emerging markets have re-emerged as bright spots, a trend which certainly benefits us given our global network and deep presence in countries such as India and throughout the Middle East and ASEAN.
Jane Fraser: I told you 2024 was a critical year, and I'm proud of what we accomplished and how our businesses performed.
Jane Fraser: We finished with a very strong fourth quarter, which Mark will detail shortly. For the full year, our net income was up nearly 40% to $12.7 billion.
Jane Fraser: We exceeded our full year revenue target, with revenues up 5% extra best years.
Jane Fraser: Fee revenue was up 17% and we saw a smaller impact from Argentina's currency devaluation. We delivered expenses within our guidance and improved our efficiency ratio by 340 bits, whilst increasing investment in our transformation.
Jane Fraser: Our ROTC-E grew over 200 bits, albeit from a low level.
Jane Fraser: Our five core businesses each generated positive operating leverage for the full year, which we also achieved at the firm level.
Jane Fraser: Services was up 9% and had another record year, despite the low rate environment, as a result of new mandates and our emphasis on fee growth.
Jane Fraser: We grew share in both TTS and security services. Tapped by our best fourth quarter in a decade, markets was up 6%. The performance of this franchise in a low volatility year shows the benefits of our diversified product mix.
Jane Fraser: Equities was strong throughout and was up 26% in what was a record year for us.
Jane Fraser: Banking was up 32% as we gained share across all three investment banking products and we announced an innovative 25 billion dollar private credit partnership with our long-term client Apollo.
Jane Fraser: Under BIS's leadership, we expect to continue to gain on our competition in 2025 and beyond.
Jane Fraser: 2024 was the turning point for wealth as we sharpened our focus on investment, right-sized the expense base and improved the client experience.
Jane Fraser: Revenue is up 7% for the year, including fee growth of 18%.
Jane Fraser: Citigold and Asia were particularly strong and net new investment asset flows grew a very pleasing 40%.
Jane Fraser: We attracted top talent throughout the year in Wealth, most recently bringing in Kate Moore as our CIO and Anne McCosker as our Head of Lending.
Jane Fraser: This business has tremendous potential with both new and existing clients and we're really leaning into it.
Jane Fraser: USPB revenues were up 6% driven by borrowing across both card portfolios and by fee growth.
Jane Fraser: We announce a 10-year extension of our co-branded partnership with American Airlines.
Jane Fraser: ensuring that this valuable relationship enters into its fifth decade. With the acquisition of the Barclays portfolio, we will become American Airlines' exclusive partner in 2026, and we expect to deliver more value for our cardholders and high returns for our shareholders as a result.
Jane Fraser: We grew our tangible book value per share by 4% and ended 2024 with a CET1 ratio of 13.6%, approximately 150 bits above our regulatory capital requirement.
Jane Fraser: After repurchasing $1 billion in common shares during the fourth quarter, we returned almost $7 billion in capital to our common shareholders in 2024.
Jane Fraser: Given how committed we are to returning capital, I am particularly pleased to announce that our board authorized a 20 billion dollar share repurchase program.
Jane Fraser: You can see the very tangible progress we're making in executing the strategy that we laid out at our Investor Day three years ago. We have materially simplified our firm since then.
Jane Fraser: We exited consumer businesses in nine countries, a near completion of wind downs in three, and are on track to exit the final two.
This includes Banamex.
Jane Fraser: which we legally separated from our institutional business in December. We're now fully focused on getting ready to IPO, with the timing heavily dependent on regulatory approvals and market conditions, of course.
Jane Fraser: To align our structure with our strategy, we went through a significant simplification of our organisation, removing management layers and the regional construct. This has accelerated decision making and made us a better partner to our clients.
Jane Fraser: We have strengthened our culture by better aligning compensation with our shareholders' interests, enhancing our school cards to ensure we're delivering for clients.
Jane Fraser: We attracted top industry talent throughout our organisation and that includes new leaders around my table for banking, wealth and technology.
Jane Fraser: We have raised the bar on what we demand from each other and what we expect to deliver to our clients.
Jane Fraser: We have continued to innovate to improve the client experience and our efficiency. We are now live with Citi Payments Express in 18 countries and have converted 4 million retail bank customers to our simplified banking platform in the US.
Jane Fraser: We accelerated our use of AI, arming 30,000 developers with tools to write code, and launched two AI platforms to make 143,000 colleagues more efficient.
Jane Fraser: The investments we're making to modernize our infrastructure, streamline processes and automate controls are changing how we run the bank.
Jane Fraser: We consolidated our balance sheet reporting to one unified ledger. We implemented a cloud-based solution for risk analytics to better value trading assets.
Jane Fraser: We have closed out three long-standing consent orders. Our capital, liquidity and reserves are robust.
Jane Fraser: Our focus strategy, simple structure and targeted client selection have all reduced our risk profile significantly. We have made considerable progress on our transformation.
Jane Fraser: While there are areas that are more advanced, there are others where we still have a lot more work to do, particularly around data and regulatory reporting, as last summer's regulatory actions reinforced.
Jane Fraser: We have reviewed the entire data program and made changes to its governance and structure, as well as increased the level of investment.
Jane Fraser: As CEO, I want this company set up for long-term success.
Jane Fraser: and to ensure that we have enough capacity to invest for that. In terms of expense guidance, therefore, most of the saves from the org simplification and stranded costs will be used to fund the additional investments we need to make this year in both transformation and technology.
Jane Fraser: As a result, we expect our total expenses in 2025 to be slightly below the 2024 level and to deliver another year of positive operating leverage.
Jane Fraser: We expect our elevated expense level to be temporary and for it to keep coming down beyond 2025.
Jane Fraser: However, when we take the required investments into account, we now expect our 2026 ROTCE to be between 10 and 11%.
Jane Fraser: The 2026 ROTC is a waypoint. It is not a destination. Our intention is to continue to improve returns well above that level and we are accountable for doing so.
Jane Fraser: We are relentless in our determination to run the bank more efficiently, fulfill Citi's potential and meet the expectations of our shareholders.
Before I turn it over to Mark...
I'd like to acknowledge the catastrophic wildfires in Los Angeles.
Jane Fraser: Many of our clients and several of our colleagues have lost their homes.
Mark Mason: and we will do whatever we can to help them recover from this devastating event. They and their loved ones are in all of our thoughts at City. Now, over to Mark.
Mark Mason: Thanks Shane and good morning everyone. 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 focus on our current expectations for 2025 and 2026.
Mark Mason: On slide 7, we show financial results for the full firm, which reflect improved performance both in the quarter and the year.
Mark Mason: As a reminder, in the fourth quarter of last year, revenues were significantly impacted by Argentina currency devaluation. Adjusted revenues and non-interest revenues for the full firm and services are shown in the appendix of the earnings presentation on slide 36.
Mark Mason: This quarter, we reported net income of $2.9 billion, EPS of $1.34, and an ROTCE of 6.1% on $19.6 billion of revenues, generating positive operating leverage for the firm and in each of our businesses.
Mark Mason: Total revenues were up 12% driven by growth in each of our businesses and a smaller impact of Argentina currency devaluation.
Mark Mason: net interest income excluding markets was roughly flat with growth in USPB and wealth offset by declines in corporate other and banking
Mark Mason: non-interest revenues excluding markets was up 40% driven by continued strong fee momentum across services banking and wealth along with lower partner payments in USPB as well as a smaller impact of Argentina currency devaluation
and total market revenues were up 36%.
Mark Mason: Expenses were $13.2 billion, down 18%, largely driven by the absence of the FDIC special assessment and restructuring charge in the prior year. Excluding the impact of the FDIC special assessment and divestiture related impacts, expenses were down 7%.
Mark Mason: driven by the absence of the restructuring charge in the prior year and savings associated with our organizational simplification partially offset by higher volume related expenses.
Mark Mason: Foster Credit was $2.6 billion, largely consisting of cards, net credit losses, and ACL bills.
Mark Mason: At the end of the quarter, we had over $22 billion in total reserves with a reserve to funded loan ratio of 2.7%. And on a full year basis, we delivered $12.7 billion of net income with an ROTCE of 7%.
Mark Mason: On slide 8, we show full year revenue trend by business from 2021 to 2024.
Mark Mason: This year we delivered $81.1 billion of revenue, up 5% on an ex-divestiture basis, driven by growth in each of our businesses and a smaller impact of Argentina currency devaluation.
Mark Mason: Services revenues increased 9% to $19.6 billion, benefiting from a smaller impact of Argentina currency devaluation, fee growth, and higher deposit volumes.
Mark Mason: markets revenues increased 6% to $19.8 billion, primarily driven by growth in equities, which had its highest annual revenue in a decade, and spread products.
Mark Mason: Banking revenues increased 32% to $6.2 billion, largely driven by growth in investment banking, with fees up 42% as we gained approximately 50 basis points of share on an increased wallet.
Mark Mason: Wealth revenues increased 7% to $7.5 billion, primarily driven by a 15% increase in non-interest revenue as we continue to grow client investment assets.
Mark Mason: USPB revenues increased 6% to $20.4 billion, driven by growth in cards as we continue to see strong customer engagement and an increase in interest earning balances, as well as lower partner payments.
Mark Mason: On slide 9, we show the full year expense trend from 2021 to 2024.
Mark Mason: excluding the impact of the FDIC special assessment, our full-year expenses were 53.8 billion dollars in line with our target.
Mark Mason: Expense reduction was driven by savings related to our organizational simplification and stranded cost reduction, as well as lower restructuring and repositioning charges.
Mark Mason: Organizational simplification, stranded cost reduction, as well as efforts to drive efficiencies across the businesses contributed to a net decline of roughly 10,000 direct staff.
Mark Mason: These savings were mostly offset by higher volume related expenses, as well as investments in the transformation and other risk and controls, and the civil money penalties.
Mark Mason: As you can see at the bottom of the page, we spent $2.9 billion on transformation this year, which includes investments in our infrastructure, platforms, applications, and data.
Mark Mason: Transformation investments were up 1%, driven by an increase in certain programs, including data, largely offset by a reduction in the Transformation Bonus Award.
Mark Mason: And we spent $11.8 billion on technology, focused on digital innovation, new product development, client experience, and other areas such as cyber security.
Mark Mason: Turning to slide 10, we provide details on our $2.4 trillion balance sheet, which decrease 3% sequentially, largely driven by the impact of foreign exchange translation.
Mark Mason: In the fourth quarter, we deployed some of our excess liquidity into loans, while maintaining 116% LCR and $933 billion of available liquidity resources.
Mark Mason: Our 1.3 trillion dollar deposit base remains well diversified across regions, industries, customers, and account types.
Mark Mason: We maintain strong capital, ending the year with a preliminary 13.6% CET1 capital ratio, approximately 150 basis points above our regulatory capital requirement of 12.1%.
Mark Mason: and for the year we returned nearly 7 billion dollars in the form of common dividends and repurchases to our shareholders. Turning to the businesses on slide 11 we show the results for services for the fourth quarter and full year
Mark Mason: services revenues were up 15% driven by a smaller impact of Argentina currency devaluation and reflecting continued momentum across security services and TTS both of which gained share this year
Mark Mason: NIR increased 61% given by a smaller impact of Argentina currency devaluation as well as continued strength in underlying fee drivers such as U.S. dollar clearing, commercial card spend, cross-border transactions, and assets under custody and administration.
Mark Mason: NII was roughly flat as the benefit of higher deposit volumes was offset by the impact of lower interest rates in Argentina.
Mark Mason: expenses increased 1% driven by continued investment in technology and platform modernization, partially offset by productivity savings.
Mark Mason: Foster credit was $112 million with a net ACL bill of $84 million and net credit losses of $28 million.
Mark Mason: Average loans increased 5%, primarily driven by continued demand for export and agency finance, as well as working capital loans.
Mark Mason: average deposits increased 4% as we continue to see growth in operating deposits.
Mark Mason: services generated positive operating leverage and delivered net income of 1.9 billion dollars and six and a half billion dollars for the year.
Mark Mason: and continues to deliver a high ROTCE coming in at 29.9% and 26% for the year.
Mark Mason: On slide 12, we show the results for markets for the fourth quarter and full year. Markets saw its highest fourth quarter revenue in a decade and increased 36% with broad-based gains across all products.
Mark Mason: Fixed income revenues increased 37%, driven by rates and currencies which were up 39%, and spread products and other fixed income up 30%, both reflecting increased client activity.
Mark Mason: rates and currencies also benefited from a conducive trading environment compared to a challenging prior year quarter
Mark Mason: equities revenues increased 34% driven in part by strong execution of strategic client transactions in cash equities and momentum also continued in prime with balances up approximately 23%.
Mark Mason: expenses decreased 8% primarily driven by lower legal expenses and productivity savings.
Mark Mason: The cost of credit was $134 million, driven by a net ACL bill primarily related to spread products.
Mark Mason: Average loans increased 6%, primarily driven by asset-backed lending and spread products, as well as margin loans in equities.
Mark Mason: Average trading account assets increased 15 percent, largely driven by client demand for U.S. Treasuries and foreign government security.
Mark Mason: Marcus generated another quarter of positive operating leverage and delivered net income of a billion dollars and 4.9 billion dollars for the year
Mark Mason: and delivered an ROTCE of 7.4% and 9.1% for the year.
Mark Mason: On slide 13, we show the results for banking for the fourth quarter and full year. Banking revenues were up 27%, largely driven by investment banking, with fees up 35%, as we saw growth across all products.
Mark Mason: DCM was driven by continued investment grade issuance momentum and increased leverage finance activity.
Mark Mason: ECM saw strong issue in activity particularly in follow-on and convertible instruments.
Mark Mason: In M&A, growth was driven by continued strong client engagement as well as the completion of previously announced acquisitions given the more conducive macro environment.
Mark Mason: corporate lending revenues excluding mark-to-market on loan hedges decreased 24% driven by lower revenue share and volumes partially offset by a smaller impact of Argentina currency devaluation
Mark Mason: Expenses decrease 9%, primarily driven by benefits of headcount reduction, as we right size the workforce and expense base, partially upset by higher volume related expenses.
Mark Mason: Foster Credit was a benefit of $240 million, driven by a net ACL release of $247 million, primarily driven by improved macroeconomic conditions.
Mark Mason: Banking generated positive operating leverage for the fourth quarter in a row and delivered net income of $356 million and $1.5 billion for the year and delivered an ROTCE of 6.5% and 7% for the year.
Mark Mason: On slide 14, we show the results for Wealth for the fourth quarter and full year.
Mark Mason: As you can see from our performance this quarter, we're making good progress against our strategy and expect that momentum to continue.
Mark Mason: Revenues were up 20% driven by a 22% increase in NIR as we grew investment fees with client investment assets of 18% including net new investment assets of $16 billion.
Mark Mason: NII increased 20 percent, driven by higher average deposit spreads and volumes.
Mark Mason: Expenses decreased three percent, driven by the continued benefit of headcount reductions as we right-size the workforce and expense base.
Mark Mason: and the period client balances increased 8% driven by higher client investment asset flows and market valuation.
Mark Mason: Average deposits increased 3% reflecting the transfer of relationships and the associated deposits from USPB, partially offset by a shift in deposits to higher yielding investments on Citi's platform.
Mark Mason: Average loans decreased 1% as we continue to optimize capital usage.
Mark Mason: Wealth generated a pre-tax margin of 21% and another quarter of positive operating leverage, delivering net income of $334 million and $1 billion for the year.
Mark Mason: and delivered an ROTCE of 10.1% and 7.6% for the year.
Mark Mason: On slide 15, we show the results for U.S. personal banking for the fourth quarter and full year. U.S. personal banking revenues were up 6 percent, driven by NII growth of 5 percent and lower partner payments.
Mark Mason: branding cards revenues increased 7% with interest earning balance growth of 7% as payment rates continue to normalize and we continue to see spend growth which was up 5%
Mark Mason: Retail services revenues increased seven percent, driven by lower partner payments and interest earning balance growth of three percent.
Mark Mason: and retail banking revenues were roughly flat as the impact of higher deposit spread was offset by the impact of the transfer of relationships and the associated deposits to our wealth business.
Mark Mason: Expenses decreased 2%, driven by continued productivity savings, partially offset by higher volume related expenses.
Mark Mason: Cost of credit was $2.2 billion, largely driven by net credit losses, as well as a build primarily for volume growth.
Mark Mason: Average deposits decreased 18 percent, largely driven by the transfer of relationships and the associated deposits to our wealth business.
USPB generated another quarter of positive operating leverage.
Mark Mason: and delivered net income of $392 million and $1.4 billion for the year and delivered an ROTCE of 6.2% and 5.5% for the year.
Mark Mason: On slide 16, we show results for all other on a managed basis, which includes corporate other and legacy franchises, and excludes divestiture-related items.
Mark Mason: revenues decreased 34% primarily driven by net investment securities losses as we reposition the portfolio.
higher funding costs, and closed exits and wind-out.
Mark Mason: Expenses decreased 51%, primarily driven by the absence of the FDIC special assessment and restructuring charge in the prior year, as well as the reduction from the closed exits and wind-out.
Mark Mason: and cost of credit was $397 million with net credit losses of $257 million and a net ACL bill of $140 million primarily driven by Mexico.
Mark Mason: Turning to slide 18, where I will walk you through our current expectations for 2025. As a reminder, what underpins our current expectations is a reflection of a number of scenarios that include different macro and capital market environments.
Mark Mason: And based on what we know today, we expect revenues to be around $83.5 to $84.5 billion, a roughly 3% to 4% increase year over year.
Mark Mason: We expect a continuation of the NIR X markets momentum we saw this year.
Mark Mason: driven by investment banking as we continue to gain share in the areas of strategic focus such as health care, technology, as well as leveraged finance and sponsors, assuming a constructive industry wallet.
Mark Mason: Wealth, supported by a continued focus on growth in client investment assets and banker productivity, which will drive investment revenue.
Mark Mason: services as we execute the strategy we laid out at our Investor Day in June, expanding our leadership position with large institutions and growing our market share with commercial clients and TTS.
Mark Mason: and in security services continuing to gain share through investments in our digital and data capabilities while deepening with asset managers and asset owners.
Mark Mason: Turning to slide 19, we expect NII X-Markets to be up modestly this year. However, there are several tailwinds and headwinds that I will walk you through.
Mark Mason: Looking at the left-hand side of the page, we expect most of the increase to come from volume growth and mix, primarily driven by higher loan volumes in USPB, mainly in cards, and deposit volumes in services.
Mark Mason: We expect a continued benefit from lower-yielding investment securities rolling off and being repriced into higher-yielding assets such as cash, loans, and securities.
Mark Mason: Quarsely offsetting these tailwinds are several headwinds, including various scenarios around lower rates, both in US and non-US, which we expect to be mostly offset by repricing actions across the franchise.
Mark Mason: as well as the potential impact of card latency reduction and FX.
Mark Mason: Turning to slide 20, we expect expenses to be slightly lower than $53.8 billion for 2025.
Our expectations reflect continued benefits from our organizational simplification.
Mark Mason: reduction in stranded costs and productivity savings from our prior investments.
Mark Mason: However, offsetting most of these benefits are increased investments in the transformation
Mark Mason: technology and the businesses as well as higher volume related expenses.
Mark Mason: Embedded in our outlook for the year is roughly 600 million dollars for repositioning.
Mark Mason: which remains elevated as we continue to reduce stranded costs, drive efficiencies across the businesses, and as benefits from investments in transformation and technology allow us to eliminate manual processes.
Jane Fraser: As Jane said, we recognize that our expense base remains elevated, and we remain very focused on bringing down our expenses each year while ensuring that we have enough capacity to invest in the company.
Jane Fraser: Now turning to slide 21, I'll talk you through our expectations for returns going forward.
Jane Fraser: As we enter 2025 and think forward to 2026, we continue to have a clear path to improve returns.
having gone through another robust planning process.
Jane Fraser: and having provided revenue and expense targets for 2025, we want to update you on our 2026 ROTCE target range.
Jane Fraser: In 2026, we expect continued revenue growth from both NII and NIR, with drivers largely consistent with recent performance.
Jane Fraser: We expect expenses to decline from 2025 and are targeting an expense level below $53 billion.
Jane Fraser: The reduction in our expense base will come from a decrease in legacy and stranded costs.
Jane Fraser: a more normalized level of severance and an increase in productivity savings from our prior investments.
Jane Fraser: We will maintain strict discipline on the entire expense base, looking for more opportunities to drive further efficiencies as we go into 2026.
Jane Fraser: We also remain laser-focused on continuing to optimize RWA, but as you know, the future of capital rules, and therefore requirements, remain uncertain.
Jane Fraser: In light of all of this, we are now targeting an ROTCE in the range of 10 to 11 percent in 2026.
Jane Fraser: We're committed to driving positive operating leverage and improving our returns every year for both the firm and the businesses, and we will do so in a sustainable way, which will set this company up for long-term success.
Jane Fraser: With that in mind, as part of the $20 billion share repurchase program, we plan on buying back $1.5 billion of common stock in the first quarter.
Jane Fraser: As we take a step back, 2024 represents another year of solid progress and a set of proof points towards improving firm-wide and business performance, as well as continued execution against our transformation.
Jane Fraser: And as we enter 2025, these priorities remain critical as we continue to make progress on improving our returns.
Jane Fraser: With that, Jane and I will be happy to take your questions.
Speaker Change: At this time, we will now open the floor for questions. If you would like to ask a question, please press star 5 on your telephone keypad. You may remove yourself at any time by pressing star 5 again. Please note, you will be allowed one question and one follow-up question.
Again, that is star 5 to ask a question.
And we'll pause for just a moment.
Speaker Change: Okay, our first question will come from Jim Mitchell with Seaport Global. Your line is now open, please go ahead.
Thank you.
Hey, hey good morning everyone
Speaker Change: You know, you kind of backed off the lower end of that, given higher investments in the transformation.
Speaker Change: But also talked about it being somewhat temporary. So when we think about and we appreciate the below 53 for 26
Speaker Change: But how much more is there to go beyond that in terms of eliminating running parallel systems, reduced consultant spend and all that stuff? Is there still that path to a 60% or lower efficiency ratio? Thanks.
Speaker Change: Happy New Year Jim. I know you want to talk about the guidance, so let me put it into context here.
Jim Mitchell: Last year you've heard me be very clear about our two priorities. First one is driving the business performance and the second is executing the transformation. You've seen this quarter, you've seen last quarter, you've seen the full year. Our businesses are delivering the progress we wanted them to.
The strategy is working.
Jim Mitchell: We've changed the business mix. We're generating more fee-based revenues. You see that in services, with NIR up 37% this year. Wealth, NIR up 15%, IB fees up 35%. An important part of the mix around the quality of our earnings.
Jim Mitchell: We said services is a crown jewel, it's delivered growth, high returns, it's taken share, it's a crown jewel.
Jim Mitchell: We made a strategic play in wealth and you've seen us very steadily prove out why we can be a force globally with a clear path to delivering the financial performance that we said we would do.
We've consistently delivered on our revenue and expense targets.
Jim Mitchell: and I see a lot more opportunity and more upside to strengthen our business performance.
Jim Mitchell: We're very tangibly getting after it. We're pretty excited by it.
The second priority, transformation.
Jim Mitchell: I've got to tell you, I'm broadly pleased with the progress we've made in risk, in compliance, in accountability, kind of excited by the work we've got going on in controls for the business as well at the moment.
Jim Mitchell: We've been very transparent. Data is an area we have more work to do in.
Jim Mitchell: We increased our investments last year as you know and then as part of the annual planning process we took a big step back to reassess our plan.
Speaker Change: and I decided, along with Mark and the management team, we needed to expand the scope and accelerate some of the work to satisfy our regulators' expectations.
Speaker Change: I'm confident that the decision to do that, you know, it was the right one. It's the right one for our transformation effort. It's certainly the right one for the firm overall. I could have taken a short-term decision to cut other investments for the importance of our long-term and competitiveness.
Speaker Change: I'm just not going to do that. You shouldn't want me to do that. And as I said in the opening comments, this 26 target is a waypoint, not the final destination.
Speaker Change: I just wanted to address the second part of your question, Jim, in terms of the path to
Speaker Change: to less than 60%. I think James Fraser framed it out quite nicely in that, you know, we're building a franchise that will have continued and sustainable top line revenue momentum.
Speaker Change: We are focused on driving out the inefficiencies and stranded cost and legacy franchise expenses from the organization and the benefits from these investments we've made in the transformation will yield
Speaker Change: a lower cost structure over time as well. And so the combination of those things will get us to, you know, that targeted operating efficiency as we come out of 2026 at less than 60%. So, yes, there is still a path, and we are focused on that path.
Speaker Change: Okay, great. That's very helpful. And then just maybe pivoting to the buyback, great to see that the $20 billion reauthorization obviously can't help but ask about beyond 1Q. If we do sort of get this more certainty maybe
Speaker Change: Maybe no increase in capital requirements. Does it does that start to help you? Maybe at least temporarily lower the buffer to take advantage of your you know Trading both tangible book and getting the accretion and accelerating the buyback or how do you think about the rest of the year on the buybacks?
Speaker Change: Look, I'll make a couple of comments. So one, you know, we're very pleased to have announced the buyback program at $20 billion. I think in many ways that is a demonstration, if you will, of continued confidence.
Speaker Change: in the earnings generation and momentum that we have around that, as well as the recognition that we are trading, you know, below book and not where we want to be. And you've heard both Jane and I speak to the importance of...
Speaker Change: increasing and doing more in the way of buybacks. We've increased that to a billion and a half. I think that supports that same.
Speaker Change: degree of confidence that we have in the momentum. We are constantly looking at every year on an annual basis as we go through our planning process at the management buffer that we have of 100 basis points. And despite the last couple of quarters at running above the 13-1, our target is the 13-1.
Speaker Change: and so as we get, you know, as we go through the balance of the year, as we get clarity on reg rules and what have you...
Speaker Change: you'll see us continue to manage down to that to that 13-1 and obviously the two the two important characteristics that we keep or drivers that we keep in mind is the opportunity to invest more in the business at accretive returns.
Speaker Change: and where we're trading and the need to do more buybacks in order to reflect the underlying values. So target 13-1, we continue to look at that management buffer as the regulatory environment evolves.
Speaker Change: and we'll continue to do more in the way of capital actions as that makes sense.
Speaker Change: Our next question comes from the line of John McDonald with Truist Securities. Your line is now open. Please go ahead.
John Mcdonald: Thank you. Mark, I just wanted to follow up on your answer to Jim right there. So when you look at the 10 to 11 ROTC target for 2026, is that kind of assuming you'll be around the target or like using the 13-1 as the target? And then longer term, you hope to bring that target down as rules get clarified and the franchise gets simplified?
John Mcdonald: Hey John, good to hear from you. In fact, yes, the 10-11% ROTCE.
John Mcdonald: target we've set for 26, does assume that we are running and using a 13-1 CET-1 ratio. Obviously, there'll be an SCB that comes out, you know, sometime later this year. The rules are continuing to evolve and what have you, and we'll factor those in as we know more about them. But yes, it does assume the 13-1, which is our our management target, if you will, for CET-1.
Speaker Change: Okay, great. And then my next question is could you clarify what you're expecting this year for card net charge-offs?
Speaker Change: understand the quarterly cadence has seasonality, but for the full year it sounds like you're expecting...
Speaker Change: the charge-offs to be in the range of last year's guidance. Can you just kind of clarify that and then maybe just talk about provision build, which you had a lot of in 2024, and whether that could slow down as...
the maturation of balances slows down. Thank you.
Speaker Change: Sure, so in terms of the net credit losses in the forecast that we have, we are expecting that the net credit losses will be at the high end of the range that we've given.
Speaker Change: So in the case of branded cards, that 3.5% to 4% is the full year range.
that we've given in the case of retail services.
Speaker Change: 575 to six and a quarter excuse me and so so right now retail services is at that high end at 628 for 2024 we'd expect it to stay at that high end although and I'm sorry and then on branded cards we're at 364 we'd expect it to creep up
Speaker Change: to about the 4% level over the course of the year. But remember, that is a full year.
Speaker Change: NCL rate and we know that there's seasonality through the quarters.
Speaker Change: And so you'll see movement through the quarters based on that dynamic. And then just in terms of the provision build, you know, there are a couple of drivers there. One is obviously volume, and we do expect to see...
Speaker Change: volume growth in USPB, so that'll be an important factor in how the CECL calculations are done. And then the second driver is obviously, as you know, we run models, and the models have a base scenario, they have a downside and upside scenario, depending on the broader macro factors. Unemployment...
Speaker Change: GDP etc etc and and are waiting towards the likelihood of high or upside or downside scenario those factors become important considerations in the provisioning and so
Speaker Change: That's kind of how we think about that going into 25. I hope that helps.
Mike Mayo: Our next question will come from Mike Mayo with Wells Fargo. Your line is now open. Please go ahead.
Speaker Change: Hi, just a clarification. So you are guiding for three consecutive years of lower expenses including that 600 million dollar reposition this year. So they were down in 24, you're guiding them lower in 25, and you guide them lower in 26 again, and you're also guiding for three consecutive years of higher revenues.
Speaker Change: based on what you said. I didn't see that in the written materials, but I think I heard you say that, Mark. So three years of lower expenses, three years of higher revenues through at least 26. Is that correct?
Yes, that is correct.
Okay and again, sorry go ahead. No you go ahead.
Speaker Change: No, I think you described it correctly, like we're seeing continued momentum on the top line and we're focused on continuing to bring our expenses down, just as we did in 24, a tad bit in 25, and then more in 26.
Speaker Change: Alright, then I guess this is for Jane. Well, that beats Haggis on toast, if you achieve that, but I'm wondering why...
Speaker Change: why that efficiency might not improve even more I mean if you have five billion dollars of stranded costs and transformation costs in 2024 and some of that goes down I heard you're investing in tech and transformation and volume and the businesses and
You know, there's always a trade-off between...
Speaker Change: The bottom line results you showed today and the growth you show in the future, it seems like you're going to get this done, the lower expenses, while you're leaning into a little bit of extra growth.
Speaker Change: Talk about that trade-off and where you're leaning in for growth a little bit more.
Speaker Change: First of all, I'm a little disturbed by your comment about haggis on toast, it's haggis with mashed potatoes and whiskey, just to be clear for everyone. It's Robert Burns night coming up soon. On expenses...
Speaker Change: Mike and everyone. Expenses are a focus not just for Mark and I, but for the entire management team. You know, we're making sure that focus and discipline is really getting installed and instilled into the DNA of Citi. And you've seen that, as you've referenced. We've been meeting our expense guidance over the last couple of years. We've been driving positive operating efficiency.
We're all very focused on improving our operating expense base.
Speaker Change: consolidating technology, the simplification work, automation, getting different utilities put in place rather than fragmented around the firm, using AI tools now, our location strategy. So that core operating expense space is something that we're really looking at how do we drive to be more efficient, more modern, and getting it to the level it should be.
for the revenues that we generate.
Speaker Change: And as you say, as CEO, I will not sacrifice the right long-term investments in our growth and competitiveness for short-term expediency. This is a waypoint, it's not a destination, and we know what we need to do, we've got our arms around all of this, which is getting on with execution.
Speaker Change: Our next question will come from the line of Betsy Gracek with Morgan Stanley. Your line is now open. Please go ahead.
Hi, good morning.
Speaker Change: Jane, just to follow up on what you mentioned, as you do execute, we all expect, or at least I do, that the market will be giving you credit for that execution and, you know, meaning multiples should increase.
Speaker Change: So, I'm a little bit, I have a few questions here on the buyback because right now today as we all know you're trading below book. It has got to be, buying back stock has got to be the most accretive use of capital today.
and why wait on the buyback?
Thank you.
when you
can lean into it today.
Speaker Change: and keep your 2026 guide. I mean, the old guide was 11 to 12 percent ROTC, new guide 10 to 11. I'm kind of confused why you don't pull that lever more aggressively.
Buying Back to Stock, the Accretion to Tangible Book.
Speaker Change: It's gotta be the easiest thing to do to help that ROTC go up.
Speaker Change: when you compare and contrast against all the hard work you've been doing, which will obviously be very important to getting the ROTC up, but why not lean more into that buyback?
Speaker Change: And can you give us a sense of the timing of that $20 billion? Thank you.
Speaker Change: Yeah, yeah, Betsy, I love the passion. I've got to say, you know, I can hear the determination in your voice. I think it's the same determination we feel. Look, we're very committed to returning capital to shareholders, period, or full stop.
Speaker Change: We've got a $20 billion buyback program, as Mark said, that is reflective of the growing earnings power that we have and our confidence in the path ahead. We've been increasing the amount of capital return over the last few quarters.
Speaker Change: I'm also happy to see a more aggressive Basel III scenario firmly off the table.
Speaker Change: We have, nonetheless, a 13.1 CET ratio that we put in the plan. That can change over time as well. But there's not complete certainty around where the capital requirements are going to go. We hope there will be a holistic one.
Speaker Change: that is reflective of the risk profile of the bank that's been improving significantly over the last few years.
We've got some very important investments.
Speaker Change: and investment agenda that we're putting in to help us continue growing the bank, gaining competitiveness in a responsible way.
Speaker Change: In terms of timing, like our peers, we're not committing to a particular time frame from this, but you can see our commitment, you can hear our commitment.
Thank you for watching!
Speaker Change: Our next question will come from the line of Ibrahim Bunawala with Bank of America. Your line is now open. Please go ahead.
Good morning.
Speaker Change: I guess maybe, Jane, I want to follow up on a couple of segments.
Speaker Change: 2024 turning point for wealth and we've seen very steady progress on the ROTC in wealth. Just talk to us in terms of, and D.C.'s been in the seat for a year now, you've seen progress, what needs to happen? Just talk to us a little bit about the franchise positioning competitively both in the U.S. and abroad as you think about going head-to-head with some of your global
most likely growth opportunities over the next year or two.
Yes, so...
Speaker Change: Our vision, my vision is that we become a global leader in wealth management. There are not many firms that have the globality of Citi. We have all the assets, especially the client relationships, all around the world, which we just not tapped for investments in the past.
Speaker Change: It's a big opportunity. We have $5.3 trillion off us from existing clients. I think the fact that I find interesting is 55% of it, it's almost $3 trillion, are with affluent clients in our branch network in America, in the U.S.
Speaker Change: We're also very well positioned to capture new wealth. Just think about what Citi does in terms of our footprint, our capabilities, really support the wealth creation from the commercial bank, our investment banking side, markets, obviously services supporting it too. These are all great feeders for us to strengthen wealth relationships with our clients.
We report in handy.
Speaker Change: Andy greatly sharpened the focus on the investment business. This is where we see this big upside. He's been building a differentiated value proposition around wealth creation.
Speaker Change: He's been leveraging a lot of the leading capital market capabilities, the different relationships we have with PE firms, asset managers around the world to get a great platform in place.
Speaker Change: and, importantly, improving our client experience, again, particularly around investments, asset allocation, performance, etc.
Speaker Change: What I also have got to love is the surgical approach that he's taking to the expense base and driving productivity. Something that we're doing across the firm.
Speaker Change: I'm also excited by the talent he's bringing in, the market leaders like Kate Moore and Keith Glenfield in the investment space. And we've made a lot of investments in training and building this investment culture that we didn't have before.
So, to your point, the proof points are working.
Speaker Change: Q4. Revenue up 20%. Operating margin at 21% on its way to 25 to 30. 10% ROTC on its way to 15 to 20%. These last few quarters you've just seen us on that March.
Speaker Change: and the number I'm most excited by, net new investment asset inflow of 42 billion up 40% year-over-year. The strategy is working. We're going to be a leader in wealth, the growth opportunities, Asia, U.S.
Speaker Change: Middle East, all the places where we are with our existing clients and the new wealth generators of the future.
Mike Mayo: and if I can draw a parallel to the banking segment with the ROTC is about five to six percent last few quarters on there you brought in this Raghavan from JP Morgan just give us a sense of could we see a similar trajectory in that business over the next 12 months and where the opportunities are to improve that ROE
OK.
Speaker Change: Yeah, I think absolutely, with a strong performance, the strategy we have in place is delivering nicely.
Speaker Change: Look at the revenues, the investment banking fees, positive operating leverage all through the year and gaining share.
Speaker Change: All three products will be getting a share in all of the geographies we're in. I'm really excited and happy to see the healthcare and the technology, two areas that we've been investing heavily behind. And you're also seeing us playing a leading role in some of the key transactions, the biggest transactions last year.
Speaker Change: Mars, Kelanova, single advisor, big role in Boeing, and then just this week the J&J acquisition of Intracellular. So the deals that matter, this is where you're seeing Citi playing a leading role in.
So when this joined
Speaker Change: So we've got a lot of upside there, instilling some more discipline in capital allocation, client coverage, some of the cross-firm linkages, we're getting a lot more from our people, we've been bringing in some great new talent, we've also been cutting some of the unproductive spend. So I think what you can see is we're just on a path of systematically growing our wallet.
will be improving our operating margin, generating higher returns.
Speaker Change: That should be your expectation over the next couple of years of what you'll see from us. And as we head into a great environment in 2025 that should be pretty conducive for a lot of client activity, I'm very confident we're well positioned, we've got the groundwork done to take advantage of it.
Speaker Change: Abraham, I thought I heard you say ROTC of 5%. It's actually 7% for the full year for banking and on its way to the target that we've set of mid-teens for our banking business.
Speaker Change: Our next question comes from the line of Erica Najarian with UBS. Your line is now open. Please go ahead.
Thank you.
Erica Najarian: I hate to ask the umpteenth question of the buyback, but clearly the way the stock is reacting today, you know, the buyback is very important to your shareholders. I guess my first question, if I could, you know, have the two questions is
Erica Najarian: It's very clear that you want to return capital to shareholders. It's very clear that you have excess capital. It's very clear that your PPNR trajectory is positive.
Erica Najarian: And so, what are the specific mile markers that Citi needs to see in order to increase that pacing from that $1.5 billion a quarter to something that is more suggestive of a pace that would be in line with that $20 billion authorization?
Speaker Change: And I know that this has been asked of you already, but is it...
Speaker Change: the consent order? Is it the stress test? You know, you know, we have some, you know, news over the holidays that were positive for the sector. Like, what are those specific mile markers? I mean, you're doing it on the PPNR side, right? Like, what do you need to see to have gain even more confidence again, like in leaning to Betsy's word to go all in on the buyback?
Speaker Change: Yeah, so thank you for the question. I'd let me let me make clear a couple things So so one and I've said this already so I apologize for
Speaker Change: Repeating myself, but one, our target for CT1 is 13-1, right? And so what you're going to see over the course of the year is us managing down to that target. That's kind of one point. The second point, I want to be clear that it's not the consent order.
Speaker Change: That's not something that is impacting the capital actions and decisions that we take. We obviously forecast out the performance. As I've said, Jane has said already, we see very strong continued earnings momentum. I'm managing towards a 13-1 CET-1 ratio. And you'll see the buyback trajectory reflect.
Speaker Change: getting down to that CET1. The one thing I will mention, and you mentioned already, is that we obviously have another CCAR process stress test.
Speaker Change: that we will go through, and none of us can predict.
Speaker Change: kind of what's on the other side of that from an SCB point of view but that'll be an important factor as we get through the first half of the year into the second half of the year in terms of kind of the level of buybacks that we will be taking on a quarter-by-quarter basis. So I hope that helps. There are no artificial constraints so to speak that are in place. This is us planning and forecasting the performance of the franchise.
Speaker Change: ensuring that we can fuel high returning growth opportunities so that we're building a sustainable franchise.
Speaker Change: looking at the capital requirements that we have and the management buffer that we put in place.
Speaker Change: and therefore taking that excess capacity and putting it towards buybacks but with an eye towards the regulatory environment that we're in. What I mean by that are the capital requirements that come out of the annual stress testing process that's run. So that's the basics of it as we sit here today.
And just my second question as we think about 2026.
Speaker Change: And again, I don't want to put words in your mouth because, you know, clearly it's very critical, you know, in terms of...
Speaker Change: your targets and hitting them, so you targeted less than $53 billion. You know, is it fair to assume, like Jim was asking, that $51 to $53 is not the target, but it's less than $53, but to that end, I mean, just taking a step back, I think, Jane, you said something very important in that you want to get to the returns in a sustainable way, and clearly your shareholders are scarred.
Speaker Change: by previous management when the returns went up to double digits and went back tumbling down and wasn't sustainable. Should we just really think of this as, look, it takes a while to turn around a money center bank in 2026.
you know, may have been the target in 2022, but.
Speaker Change: We're going to get there in 27, 28 anyway, and we're just doing this in a sustainable way, and we're not robbing the bank of investments.
Speaker Change: If I'm just trying to think about, you know, everybody's super focused on what you had said previously and now you have, you know, different targets, but is it just really like, look, it just takes longer. We'll get there, but it just takes longer. And maybe just...
Speaker Change: Just an addendum to that, how should we expect Banamex to impact that 10-11% ROTC in terms of the immediate impact after IPO and then after you deploy the excess capital that you get back?
Erica Najarian: Erica, we chose the words very carefully to say that 26 is a waypoint, it's not the destination.
Erica Najarian: When I'm looking at it, I'm looking out to 27, 28, what is the bank that we want to be in terms of our strategy, our performance, our culture, all those different dimensions. And we just relentlessly keep going down that path, but we're going to take the right and responsible decisions as we go down it.
Erica Najarian: Our potential is for more than our medium term target ROTCE, the potential of the bank and the journey that we're on is to improve our returns beyond there, for sure.
And then you asked a question about Banamex.
So I know on that on that front
Jane Fraser: Look, we had a singular focus on the separation of two banks, that was an enormous body of work because we had to put up Mexico's eighth largest bank, De Novo, in a very short period of time. It got done December the 1st.
Jane Fraser: That was over a hundred regulatory approvals to get that done. Now we have turned our full attention to the IPO. We're getting ready to be able to IPO as soon as we can.
Jane Fraser: but given market conditions and given regulatory approvals it's possible this could go into 26 but we're doing everything in our control to be ready as soon as possible.
Speaker Change: We are not the right owner of the bank. We are committed to the simplification of Citi. We will follow a responsible process here.
Jane Fraser: And just in terms of the impact and the timing that Jane referenced, just keep in mind that the financial impact of exiting Banamex comes in two forms. One is the gain or loss on sale, and two is the risk-weighted asset release.
Jane Fraser: And so hopefully that helps, but it's not until we've deconsolidated that we see that P&L impact and the CTA and other things like that kind of flow through the P&L for Batimax.
Thank you.
unknown: Our next question will come from Gerard Cassidy with RBC Capital Markets.
Hi Jane. Hi Mark. Hi. Hey.
Speaker Change: Jane, I'll pass on the haggis but I'll take you up on the whiskey. I didn't say I was buying just to be clear. Okay, I got it. Our expense report on this end. Anyway, just following up, Mark, on your comments about the IPO with Benemix.
Speaker Change: Can you guys remind us, refresh our memories on when the IPO process starts, once it goes public, what percentage ownership do you guys expect to have? And second, have you given us any color on whether you expect to report a gain on this transaction or a loss, as you just referenced?
Yeah, we haven't, we haven't, um...
Speaker Change: Given you any sense for the exact timing of that as you know This is a process and so Jane just spoke to the timing of that process the first step having been completed You know on December 1st with the separation We are now obviously gearing up and readying ourselves for the IPO There'll obviously be important filings associated with that given our intent to do a list there'll be There'll be regulatory approvals
Speaker Change: that are required kind of as we make headway with potential, you know, investors as part of the IPO process. And so there's a series of IPO steps that we will need to take over, you know, over the course of the year in order to continue to ready ourselves. And there are things that we don't control, like, as Jane mentioned, the regulatory approval process.
Speaker Change: and timing for that as well as the market conditions and so all of those factors are important and then how the IPO occurs in terms of percentage.
Speaker Change: and then obviously reaching a point of deconsolidation at which point that currency translation adjustment starts to flow through the P&L, there's no material impact on capital, but it does flow through the P&L and ultimately we exit a hundred percent over the course of time. So I'm sorry I'm not giving you precise...
Speaker Change: dates and percentages, and part of that is because we are obviously, you know, on the on the front end of not only readying ourselves, but considering alternative IPO structures and potential investors slash shareholders as part of that process.
Speaker Change: Well, I appreciate the insight, and then as a follow-up question,
Speaker Change: and I really don't mean this, you know, what have you done for me lately type question because you guys have made so much progress in what you're doing.
Speaker Change: in your strategic changes here, but can you talk about the U.S. personal banking, you know, many of your questions today is about the ROTCE consolidated and how you can improve that. And this business, you know, has a very low ROTCE, as you guys know, below your cost of capital. And structurally, when you look at it, if you look at the loans at the end of period, you have just over 220 billion, your deposits about 90 billion, which is quite a bit different than your peers who have much higher ROEs.
Speaker Change: So, how do you approach this business, and again I know you've been very busy divesting a lot of the businesses that are not important, but it seems to me that this is a giant hurdle that you guys have to approach at some point in the near future.
Let me just chat a bit through this.
Speaker Change: We've had another good quarter of revenue growth. We've had the ninth consecutive quarter of positive operating leverage. So I think you should be getting some comfort around that. What's going to drive that growth?
Speaker Change: co-brands. We just extended with American to be their sole issuer. It's going to give exciting benefits to the American Airlines and the Citi cardholders, and it will be beneficial for both our growth and our returns. In the proprietary front, we're investing. There's a lot of investment in innovation to drive growth. So refresh the starter Premier card, we've been enhancing the reward offerings and
Speaker Change: You're seeing us often now number one in recognitions and awards around that area.
Speaker Change: Retail Services being forensically focused on improving the partnership economics and driving top-line growth.
Speaker Change: and then Retail Banking. There we're driving primary checking growth, we've put in simplified banking so we get a much more streamlined customer proposition that's driving more of a relationship-based banking approach as opposed to a transactional one.
importantly as well.
Speaker Change: investment opportunity that we have from the retail banking customer base.
Speaker Change: We transferred $17 billion of deposits from USPB to Wealth, so you've got to take those dynamics into account.
Speaker Change: So, I hope you're taking from me, I feel confident in our ability to get to the medium term targets we've set for the business of mid to high teens. I feel comfortable about the growth trajectory that we've got based off the innovations we're putting through and the changes.
Speaker Change: Good expense discipline and a better credit environment. So when you look at the mix of our business, I think you'll see us performing nicely here.
Speaker Change: Our next question comes from the line of Matt O'Connor with Deutsche Bank. Your line is now open. Please go ahead.
Speaker Change: Hi, I just want to follow up on page 9 where you break out the technology and transformation that doesn't stand and sorry if I missed it but did you talk about the pace
Speaker Change: of those two levels in your 25 and 26 expense guidance. I know directionally you've said it's going up, but did you get a 92?
Speaker Change: I did not. Obviously, for both technology and transformation, those are areas that we
Speaker Change: are going to continue to invest in for all the reasons that we've mentioned.
Speaker Change: They obviously contribute to the number in 25 being slightly down.
Speaker Change: from the 53.8, but they also represent, as I mentioned, what we believe is required to kind of get the work done that we need to get done. And so those numbers will increase. There are lots of puts and takes, as you know, through an annual expense.
Speaker Change: forecast right including you know as you would expect we've got volume we got revenue growth here that's going to come with volume growth volume incentive comp
Speaker Change: There's merit increases that go with that and then we also have a series of
Speaker Change: productivity actions that are playing through to offset those headwinds whether it be the additional carryover from the org simplification and full year impact of that
Speaker Change: or some of the legacy stranded coming down and so there are puts and takes but transformation and technology specifically
Speaker Change: We are continuing to invest in, in order to achieve what we need to get done here and also ensure the businesses have what they need to drive sustainable growth going forward.
Speaker Change: and I guess like how do you know that the recent increase that you're modeling internally in these areas, how do you know you're spending enough and in the right way to you know address your goals in the transformation and also satisfy the regulatory requirements?
Well, if I jump in, I feel very...
Speaker Change: confident indeed that we know what we need to do, we know what we need to be spending on.
through the annual planning process that concluded last month.
Speaker Change: It was clear that we did need to invest some more. We increased the scope of some of the work on the data front. We brought some other work forward. We looked at what we needed to do on the technology front and some of the critical investments. So this is pretty forensic.
Speaker Change: and when we're looking at transformation, we're looking at technology, we know what our target states need to be, and we know what we need to do to get there, and the outcomes we need to be delivering. So, we've got our arms around this, and I think you're hearing that confidence from us.
Speaker Change: We know what we need to do, we know the investments we need to make, we know what the outcomes and the benefits for shareholders and the regulatory side need to be.
Speaker Change: Our next question comes from the line of Saúl Martinez with HSBC. Your line is now open. Please go ahead.
Hi, thanks for taking my question.
Speaker Change: Mark, the NII X Markets Outlook, if I just take the fourth quarter and annualize that, I get to something in the neighborhood of, I think around 47.4 or 47.5, which is...
Speaker Change: above the full-year 24 level. I'm not sure exactly what modestly means, if that's 1%, 3%, 4%, but correct me if I'm wrong, but it seems like maybe there's a little bit of conservatism built in. But if you can just comment on...
Speaker Change: How should we think about the quarterly trajectory of NIIX markets? Obviously, there's a day count issue in 1Q, but maybe how do you think through like how we should expect that NII to evolve over the course of the year?
Yeah, I mean...
Speaker Change: Why don't I just kind of cut to the chase on it a little bit, Paul, in the sense that, you know, up modestly, call it a couple percentage points, two to three percentage points or so, right, in terms of how I think about it, and I think I've taken, I've gone through kind of the tailwinds and headwinds, so I won't kind of take you through that again, but I think the important takeaway should be...
Speaker Change: that we're going to see continued momentum, you know, across the franchise, you know, driven by loan growth in the branded card side of the business and continued deposit momentum, particularly operating deposits in services.
Speaker Change: and we're going to do everything that we always do around the management of pricing and we'll get a benefit from how we've been managing our investment portfolio.
Speaker Change: As those things mature and those the combination of those efforts will offset
Speaker Change: Some of the head more than offset some of the headwinds that you'd expect in a declining rate environment And modestly it's called a two to three percent
Okay, fair enough. And then on the expense...
Speaker Change: outlook at getting to below 53 in 2026. I know that's consistent with what you've said in the past, but it does, you know, imply a pretty sharp reduction.
Speaker Change: in 26, especially in light of, you know, continued revenue growth, it's pretty material operating leverage. Just, I mean, how much,
Speaker Change: benefit you get from a more normalized severance, in other words how much the severance
Speaker Change: How much are we thinking about severance coming down? What sort of the the impact or the how to think about the legacy stranded cost coming down just maybe a little bit more meat on the bone in terms of How much these items will benefit 26 versus 25?
Speaker Change: Yeah, look, a couple things. So if you look, you know, as I look at our, you know, severance costs, which, as I mentioned, has been running high, it was $700.
Speaker Change: We're forecasting 600 in 2025. I think kind of normal through the cycle is probably...
Speaker Change: You'll call it 300 or so and so you know that that gives you some sense for that I think the other thing is if you look at the other page and again There were a number of drivers or levers that we intend to pull To bring that down, but in the all other page where you look to the right we show Windowns and and and what's remaining in terms of legacy franchise, and there's you know if you add those numbers together a billion nine Or so of expenses and think about a subset of that being stranded And we're going to continue to focus on how do we bring down stranded cost?
Speaker Change: you know over the next couple of years. So those are two important factors or contributors to the decline from the slightly lower than 53.8.
to the 53. Their additional productivity saves from...
Jane Fraser: prior investments that we've made, but those are important factors. And then as we look at the transformation spend, that'll continue to, or start to pay dividends or help to bring down cost as well. So, you've got really those four variables that contribute to us bringing that number down. And as Jane has mentioned, you know, we're going to, even post-26, continue to bring or drive out more inefficiencies around the organization
Jane Fraser: for the business growth and all with a continued focus on getting to less than 60% as we exit 2026, less than 60% operating efficiency.
Speaker Change: Our final question will come from the line of Mike Mayo with Wells Fargo. Your line is now open. Please go ahead.
Speaker Change: Hi, this is your first full year of having the five line of business structure. So, Mark, do you still have the same line of business targets that you had last year? And Jane, with all the...
Speaker Change: It must have been, you know, a degree of hell to organize this way, get rid of your two inter-company holding companies, eliminate five layers of management, expand the span of control. You guys went through a lot last year. I'm just wondering.
Speaker Change: You know, is the worst over in terms of that kind of reorganization internally and the culture and the sentiment And how you see that continuing, but first the concrete question about the targets, please. Thanks
So, I guess I'll start first.
Speaker Change: In terms of the targets, look, we set the targets across each of the lines of business.
Speaker Change: for the medium term, we've obviously brought down the 2026 to 10 to 11 percent, and so you'd imagine there's some movement at least for the 2026 in terms of those targets. You know, banking will likely be a little bit lower than the mid-15 percent if I think about 2026.
Speaker Change: as being that medium-term target date. But over time, I expect that the targets that I've set are the targets that we will achieve and even more because as Jane mentioned, 10 to 11 percent, while that's our 2026 target, it is not our longer-term target as we think about ROTCE and the strength of these businesses and the aggregate franchise. So hopefully that answers your question.
Speaker Change: In terms of org simplification, culture, the best is still ahead, that is for sure. The org went through a lot.
Speaker Change: I'm really proud of how people responded and I think we're really proud of how each of the lines of business are driving the business performance forward The bank is simpler There is tremendous transparency for our investors as well as for me There's much greater proximity to the businesses now And you can see that the benefits that we're starting to realize From the strategy as we get closer and closer to the ROTC targets and beyond
Speaker Change: for each of the businesses. So, I am pleased to have 24 behind us. I'm proud of what we achieved in 24. All the focus is on the future. Onwards!
Thank you.
Speaker Change: Thank you, everyone. Please call us or email us if you have any follow-up questions. Have a great afternoon. Thank you.
Speaker Change: This concludes the City's 4th Quarter 2024 Earnings Call. You may now disconnect.