Q1 2025 Citigroup Inc Earnings Call
Speaker Change: Hello, and welcome to city's first quarter 2025 earnings call. Today's call will be hosted by Jen Landis, head of city investor relations.
Speaker Change: We ask that you please hold all questions until the completion of the formal remarks, at which time you'll be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Miss Landis, you may begin. Thank you.
Ms. Landis: Thank you operator, good morning, and thank you all for joining our first quarter 2025 earnings call. I'm joined today by your Chief Executive Officer, Jane Fraser, and our Chief Financial Officer, Mark Mason.
Ms. Landis: I'd like to remind you that today's presentation, which is available for download on our website, Citigroup.com may contain forward-looking statements which are based on management's current expectations and our subject to uncertainty and changes in circumstances.
Ms. Landis: Actual results made it for materially from these statements due to a variety of factors, including those described in our earnings materials, as well as in our FEC filing. And with that, I'll turn it over to Jane.
Jane Fraser: Thank you, Jen, and a very good morning to everyone. First, I'm going to discuss our first quarter results and then talk about the environment we're operating in and how we are positioning the bank for it. [inaudible]
Jane Fraser: This morning, we reported net income of $4.1 billion, an earnings per share of $1.96 with an ROTCE of 9.1%.
Jane Fraser: Overall, it was a strong quarter marked by continued momentum in each of our five businesses. We maintained a disciplined approach to our expenses, which declined by five percent year over year. [inaudible]
Jane Fraser: We delivered our third consecutive quarter of positive operating leverage for each of our five lines of business and the fourth consecutive quarter for the firm overall. Thank you very much.
Jane Fraser: We increase both our return on tangible common equity in each business and our return of capital to our shareholders. And this quarter is a further proof point of how the consistent execution of our strategy is improving our performance.
Services recorded its highest first quarter revenue in a decade.
Jane Fraser: TTS continues to demonstrate momentum in the key underlying drivers across US dollar clearing and cross-border activity security services gain share and grew its assets under custody and administration to $26 trillion dollars.
Markets had a good quarter with revenue up 12%. [inaudible]
Jane Fraser: The three most significant fixed income businesses, rates, spread products and effects each contributed to an overall 8% increase over last year.
Jane Fraser: And in a good macro quarter for equities, we were up 23% as we continued with our long term strategy to augment our high derivative share with a larger prime business.
Jane Fraser: Banking was up 12%, as we continue to gain share and invest in banking across most industry sectors.
Most notably, M&A revenue nearly doubled. [inaudible]
Jane Fraser: We're seeing the benefits of our talent investment. As you can see by the leading role we've played in some of the years biggest transaction, such as abiding Altair on the Siemens acquisition and on the recently announced intracellular transaction by Jane J.
Jane Fraser: We remain focused on capturing assets our client path offers as demonstrated by the roughly 11% organic growth in client investment assets.
Jane Fraser: Andy and his new team are making excellent progress, executing our strategy with the business delivering record revenue this quarter and improved efficiency and returns. USPB was up 2%, proven mainly by increased loan balances and spending in branded cards.
Jane Fraser: The high credit quality of our card portfolio reflects the focus we've put on prime consumers and our portfolio continue to perform in line with our expectations. Overall, USB B's return increased to nearly 13%.
Jane Fraser: During the quarter, we returned $2.8 billion in capital to our shareholders. This is the end of the quarter.
Jane Fraser: Including 1.75 billion of buybacks as part of our $20 billion plan, which is about 250 million more than we had originally guided.
Jane Fraser: Now, that's our highest quarter amount since 2022 and demonstrates our commitment to returning capital. We ended the quarter with a CET-1 ratio of 13.4% and our tangible book value per share
Jane Fraser: Turning to our strategic priorities, our transformation investment continued to modernize our infrastructure, simplify our processes and reduce manual touch points. During the quarter, we retired legacy applications and automated reconciliations to name but a few accomplishments. Thank you very much.
Jane Fraser: We're also integrating AI directly into our business operations to improve the client experience.
Jane Fraser: The latest example is Agent Assist, our first generative AI tool for customer service in US personal banking. It is designed to help our team resolve increased faster and is now being piloted in credit cards.
Jane Fraser: From quarter to quarter, we are building on our track record of progress, and I'm confident in our ability to continue delivering despite the uncertainty of the moment.
Jane Fraser: In terms of the macro environment, I am not going to try to predict the unpredictable.
Jane Fraser: While our corporate and consumer clients are resilient and in good financial health, the world is in a wait-and-see mode and is facing a more negative macro outlook than anyone had anticipated at the beginning of the year. And we know that prolonged uncertainty generally hurts confidence.
The changes underway globally will go beyond trade and tariffs.
Jane Fraser: In the US, for example, regulation and tax policy are all likely to look different in a year's time. And these changes will not only have economic impact, but geopolitical and cultural ones as well.
Speaker Change: We appreciate the administration taking a fresh look at regulations across all industries to unlock growth.
Speaker Change: We welcome the changes being discussed in our own industry, the place more focus on material financial risks and to make it easier for banks to contribute to economic growth and to improve client service.
Speaker Change: When all is said and done, and these long standing trade imbalances and other structural shifts are behind us, the US will still be the world's leading economy, and the dollar will remain the reserve currency.
Speaker Change: The deep knowledge and breadth of capabilities that we have from decades on the ground in so many local markets are real points of distinction when serving our clients.
Speaker Change: From reconfiguring their supply chains, to addressing their hedging and funding approaches, to advising on their strategic agendas.
Speaker Change: As I look forward to the rest of the year, we still remain disciplined about returning capital and managing our expenses, whilst protecting necessary investments in our businesses as well as our transformation.
Speaker Change: We will not allow the uncertainty to distract us from executing our strategy and improving our returns.
Speaker Change: No.
Mark Mason: Over to Mark and then we'll be happy to take your questions.
Mark Mason: Thanks, Jane and good morning, everyone.
Mark Mason: I'm going to start with the firm wide financial results focusing on year over year comparisons unless I indicate otherwise and then review the performance of our businesses in greater detail.
Mark Mason: On slide six we show financial results for the full for.
Mark Mason: This quarter, we reported net income of $4 1 billion EPS of $1 96.
Mark Mason: And in our own TCE of nine 1% on $21 $6 billion of revenues generating positive operating leverage for the firm and in each of our five businesses.
Mark Mason: Total revenues were up 3% driven by growth in each of our businesses largely offset by a decline in all other.
Mark Mason: Net interest income excluding market was up 2% driven by U S. P b, well and services largely offset by declines in all other and banking.
Mark Mason: Noninterest revenues, excluding markets were down 6% as better results in banking and well were more than offset by declines in all other U S. P D and services.
Mark Mason: Total markets revenues were up 12%.
Mark Mason: Expenses of $13 $4 billion were down 5%.
Mark Mason: Cost of credit was $2 $7 billion, primarily consisting of net credit losses in card as well as a firm wide net ACL build reflecting the uncertainty and deterioration in the macroeconomic outlook.
Mark Mason: Before I move on I would like to note that certain card transaction processing fees paid primarily to networks, where previously presented in operating expenses and are now presented as a contra revenue and noninterest revenue primarily impacting U S. P.
Mark Mason: This change does not impact net income and prior periods have been along.
Mark Mason: We provided additional detail in the appendix of the presentation on slide 22.
Mark Mason: On slide seven we show the expense trend over the past five quarters.
Mark Mason: As we've said in the past, we're very focused on bringing down our expense base at the same time the transformation remains our number one priority and we will continue to make the investments needed specifically as it relates to data and regulatory reporting.
Mark Mason: Having said that the drivers of our expense reduction going forward remain consistent with those that we've referenced in the past.
Mark Mason: Savings related to stranded cost reduction.
Mark Mason: <unk> from our prior investments.
Mark Mason: Our organizational simplification.
Mark Mason: All of which allow us to self fund our investments in transformation.
Mark Mason: As we look at this quarter expenses declined by 5%, which included a favorable FX impact.
Mark Mason: The decline was driven by a smaller FDIC special assessment.
Mark Mason: Absent of a restructuring charge and lower compensation.
Mark Mason: Partially offset by increases in technology, and communication professional fees related to transformation as well as advertising and market.
Mark Mason: And looking at the rest of the year, we remain on track to meet our full year expense part.
Mark Mason: On slide eight we show key consumer and corporate credit metrics as I mentioned, the firm's cost of credit was $2 $7 billion, primarily consisting of net credit losses in cards as well as a firm wide net ACL bill.
Mark Mason: The ACL built reflects uncertainty and deterioration in the macroeconomic outlook, including a further skewed to the downside scenario and our seasonal framework.
Mark Mason: Our reserves now incorporate an eight quarter weighted average unemployment rate of five 1%, which includes a downside scenario average unemployment rate of six 7%.
Mark Mason: Largely offsetting this build was a release related to lower balances in our card portfolio at.
Mark Mason: At the end of the quarter, we had $22 $8 billion in total reserves with a reserve to funded loans ratio of two 7%.
Mark Mason: Now turning to consumer credit on the left hand side of the page approximately 85% of our card portfolio or to consumers with FICO scores of 660 or higher.
Mark Mason: NCL rates increase sequentially in both card portfolios consistent with historical seasonal pattern and we continue to see stabilization and delinquency rates across both portfolios.
Mark Mason: And our reserve to funded loan ratio and our card portfolio is eight 2%.
Mark Mason: Corporate non accrual loans remain low reflecting the investment grade nature of our portfolio.
Mark Mason: Based on the quality and mix of our portfolio. We believe we are well reserved but as always we continue to monitor the evolving macroeconomic outlook.
Mark Mason: Turning to slide nine where I will speak the sequential variance.
Mark Mason: So these two six trillion dollar balance sheet increased 9% driven by growth in trading related assets, which is typical given the seasonal increase in market activity.
Mark Mason: We also built out our cash position as we led investment securities roll off and Opportunistically issued long term debt.
Mark Mason: Loans increased 1% driven by services and markets largely offset by lower balances in cards.
Mark Mason: Our one three trillion dollar deposit base remains well diversified across region.
Mark Mason: Industries customers and account types and increased 2% primarily driven by services.
Mark Mason: Reported 117% average LCR and maintained $960 billion of available liquidity resources.
Mark Mason: We ended the quarter with a preliminary 13, 4% CET one capital ratio down.
Mark Mason: Approximately 20 basis points as net income was more than offset by capital distribution <unk> growth and higher DTA deduction.
Mark Mason: We continue to feel very good about the strength and quality of our balance sheet, and a robust capital and liquidity position us well to support our clients in a range of economic environments.
Mark Mason: Turning to the businesses on slide 10, we show the results for services in the first quarter.
Mark Mason: Services revenues were up 3% driven by growth in TTS.
Mark Mason: NII increased 5% driven by higher deposit spreads as well as an increase in deposits and loan balances.
Mark Mason: And I are declined 4% driven by the absence of certain episodic fees and security services as well as higher revenue share and the impact of FX across both GTS and security services.
Mark Mason: That said, we continue to see strength in underlying fee drivers across the business as you can see on the bottom right hand side of the page.
Mark Mason: Expenses declined 3% largely driven by lower deposit insurance costs severance and legal expenses.
Mark Mason: Average loans increased 6% driven by continued demand for export agency for them.
Mark Mason: As well as working capital loan.
Mark Mason: Average deposits increased 2% as we continue to see growth in operating deposits.
Mark Mason: Services generated positive operating leverage for the third consecutive quarter and delivered net income of $1 $6 billion and continued to deliver a high R. O TCE of 26, 2%.
Mark Mason: On slide 11, we show the results for markets in the first quarter.
Mark Mason: <unk> revenues were up 12% driven by growth across both fixed income and equity.
Mark Mason: Fixed income revenues increased 8% with rates and currencies up 9%, reflecting increased client activity and monetization.
Mark Mason: And spread products and other fixed income up 7% driven by higher client activity and loan growth.
Mark Mason: Equities revenues increased 23%, primarily driven by equity derivatives on increased market volatility and higher client activity and momentum in prime services with prime balances are up approximately 16%.
Mark Mason: Expenses increased 2% driven by higher volume and other revenue related expenses.
Mark Mason: Cost of credit was $201 million, primarily related to spread products driven by net credit losses, and a net ACL build.
Mark Mason: Average loans increased 7% driven by financing activity in spread products.
Mark Mason: Markets generated positive operating leverage for the fourth consecutive quarter and delivered net income of $1 $8 billion and in our OTC E. A 14, 3%.
Mark Mason: On slide 12, we show the results for banking in the first quarter banking revenues were up 12% driven by growth in investment banking as well as the impact of mark to market on loan hedges, partially offset by a decline in corporate lending.
Investment banking fees increased 14% with growth in M&A, partially offset by declines in DCM and ECM.
Mark Mason: M&A was up 84% as we gained share overall and across numerous sectors.
Mark Mason: <unk> was down 3% compared to a near record first quarter last year.
Mark Mason: And ECM was down 26% amid a pullback in the wallet for follow on and convertible.
Mark Mason: Corporate lending revenues, excluding mark to market on loan hedges declined 1% as increases in revenue share were more than offset by the combined impact of lower loan balances and higher recoveries in the prior year.
Mark Mason: Expenses declined 12% largely driven by lower compensation as we see the benefit of our prior actions to rightsize, the workforce and expense base.
Mark Mason: Cost of credit was $214 million, consisting of an ACL build of $180 million driven by changes in the macroeconomic outlook and net credit losses.
Mark Mason: Banking generated positive operating leverage for the fifth consecutive quarter and delivered net income of $543 million and Anoro TCE of 10, 7%.
Mark Mason: On slide 13, we show the results for wealth in the first quarter.
Mark Mason: <unk> revenues were up 24% with growth across city goal, the private bank and wealth at work.
Mark Mason: NII increased 30% driven by higher deposit spreads, partially offset by lower deposit balance.
Mark Mason: And and I are increased 16%, primarily driven by growth in investment fee revenues as we grew client investment assets by 16%.
Mark Mason: This includes net new investment assets of $16 $5 billion in the quarter and over $56 billion in the last 12 months, representing approximately 11% organic growth.
Mark Mason: Expenses were roughly flat as the benefits of our prior actions to rightsize, the workforce and expense base as well as lower technology expenses were offset by higher revenue related expenses and severance.
Mark Mason: End of period balances increased 7% driven by higher net new investment asset flows and market valuations.
Mark Mason: Average loans declined 2% as we continue to be strategic in deploying the balance sheet to support growth and client investment assets.
Mark Mason: Average deposits also declined 2% driven by a shift in deposits to higher yielding investments on series platform and other operating outflow largely offset by client transfers from USB D, reflecting our ability to support clients as their wealth and investment needs evolve.
Mark Mason: Wealth had a pretax margin of 17% and generated positive operating leverage for the fourth consecutive quarter and delivered net income of $284 million and an ROE TCE of nine 4%.
Mark Mason: On Slide 14, we show the results for U S personal banking in the first quarter.
Mark Mason: U S personal banking revenues were up 2% driven by growth in branded cards and retail banking largely offset by a decline in retail service.
Randy: Randy cards revenues increased 9% with interest, earning balance growth of 8% and we continue to see spend growth, which was up 3%.
Randy: Retail banking revenues increased 17% driven by the impact of higher deposit spreads.
Randy: And in retail services revenues declined, 11%, primarily driven by higher partner payment accruals.
Randy: Expenses were roughly flat due to continued productivity savings offset by higher advertising and marketing as well as legal expenses.
Randy: Cost of credit was $1 8 billion consisting.
Randy: Consisting of net credit losses, partially offset by a net ACL relief of $172 million. This.
Randy: This included a build related to changes in the portfolio composition and macroeconomic outlook, which was more than offset by a relief.
Randy: Due to lower card balances largely in retail services.
Randy: Notwithstanding this release our cards reserve to funded loan ratio increased to eight 2% from seven 9% last quarter.
Randy: Average deposits declined 11% driven by client transfers to well that I just mentioned.
Randy: U S. P D generated positive operating leverage for the 10th consecutive quarter and delivered net income of $745 million and NRO TCE of 12, 9%.
Randy: On Slide 15, we show results for all other on a managed basis, which includes corporate other and legacy franchises and excludes divestiture related items.
Randy: Revenues declined 39% with declines across both corporate other and legacy franchises corporate other was largely driven by lower NII as well as the impact of mark to market valuation changes on certain investments on NAR.
Randy: Legacy franchises was driven by the impact of Mexican peso depreciation exploration of TSA and our closed exit market.
Randy: And continued reduction from our wind down more.
Randy: Expenses declined 17% driven by a smaller FDIC special assessment.
Randy: Absent of a restructuring charge reduction from exit markets and wind down and the impact of Mexican peso depreciation.
Randy: And cost of credit was $359 million, largely driven by net credit losses of $256 million driven by consumer loans and Mexico.
Randy: On.
Randy: <unk> 16, I'll briefly touch on our full year 2025 outlook, which we've adjusted for the impact of the card transaction processing fee presentation change that I mentioned earlier, what is otherwise unchanged.
Randy: As you know in January we provided guidance for full year revenue and expenses as well as card NCL and that guidance was informed by a number of scenarios and assumptions.
Randy: Based on what we know today and assuming markets remain open and constructive we still expect to deliver full year revenues of approximately $83 one to $84 $1 billion with net interest income excluding market up approximately 2% to 3%.
Randy: And we expect full year expenses to be slightly lower than $53 $4 billion.
Randy: Clearly there remains a lot of uncertainty, but we are confident that our diversified business model and resilient strategy can withstand many environment and we remain well positioned to support our clients.
Randy: So while a lot is changing around us we remain steadfast and focused on continuing to execute on our transformation and strategy, while remaining disciplined with our expenses and capital with an eye towards improving returns over time.
Jane Fraser: And with that Jane and I would be happy to take your questions.
Jane Fraser: At this time, we will open the floor for questions if you'd like to ask a question. Please press star five on your telephone keypad you.
Jane Fraser: You may remove yourself at any time by pressing star five again.
Jane Fraser: Please note you will be allowed one question and one follow up question.
Jane Fraser: Again that is star five to ask a question.
Jane Fraser: And we'll pause for just a moment.
Jane Fraser: Okay. Our first question will come from the line of Glenn Schorr with Evercore. Your line is now open. Please go ahead.
Glenn Schorr: Hi, Thanks very much.
Jane Fraser: I'm sorry.
Speaker Change: I know, it's early but I'm curious if you could help us with a refresher on treasury and trade solutions and services in general.
Speaker Change: In terms of what opportunities you know there's risks, but also opportunities in helping clients manage through this re terracing and redrawing of economic lines.
Speaker Change: Think about nationalization and vertical integration as bad things, but a lot of shifting and maybe you can help clients deal with all of that shift.
Speaker Change: Anything any help there would be great.
Speaker Change: I'm glad I would be delighted to do so so.
Speaker Change: Our diversified business mix is very well positioned for a variety of scenarios do you think we've got a very broad suite of products and services and they are the ones that clients need if they're going to be repositioning for a new order in trade or broader impacts here.
Speaker Change: And think about what you've seen over the last few years, where he played a very central role that Ukraine, Russia will China. The COVID-19 related supply chain, we saw a lot of growth from deepening with clients.
Speaker Change: And acquiring new ones because they need us.
Speaker Change: Because we have exactly the expertise and the products and services that multinational institutions need and we have them in the places that they they need it now.
Speaker Change: Now the mix of that.
Speaker Change: It's different the revenues different products and services, we have could be different depending on which scenario prevails.
Speaker Change: And what I have to say at the moment the level of engagement that we have with our clients all around the world is just off the chart given the unique depth of off precedence.
Speaker Change: Besides we have in older markets.
Speaker Change: So if I, if I ticked down a bit more what with the persistence of high tariffs what would that mean well it would dampen economic activity here in the U S and abroad.
Speaker Change: Cross border trade flows will change.
Speaker Change: We will be in the middle of facilitating that.
Speaker Change: To be very busy that along with the hedging and associated financing activity that goes with it because it's not just about TTS. This is about the bundle of different capabilities, we bring to bear and take some comfort look at what happened with the Ukraine wall. We grew a lot in that time period.
Speaker Change: Equally most of our businesses is very local and think of what services days its payroll at supply management, it's liquidity, it's payables receivables.
Speaker Change: And were very deeply embedded into our client's day to day operations in every market they work as well as across market players and that's not going to change, it's not nearly as sensitive to tariffs.
Speaker Change: And I would say I think all of US recognize the environment is very fluid right. Now. So let me also just say for clarity sake the firm wide level.
Speaker Change: Our R. A T cell targets for 2026, I'll still 10% to 11%.
Speaker Change: Drivers behind them are the same but the revenue mix might be different we'll certainly know more as things get clearer as to how that plays out.
Speaker Change: I think I'd say the other thing you mentioned about nationalization at most of our clients have been clients for decades, I mean, a number that may have been clients for over a century and it would not be British.
Speaker Change: Under a statement to say that we are deeply embedded into that and I mean, it is extraordinary how deep we all right.
Speaker Change: We've been on the ground for over a century and we all viewed as quasi local and that most of these markets.
Speaker Change: City is not a bunch of suitcase banker that fly in.
Speaker Change: We're not transactional with very unique in our footprint and these factors do make us less vulnerable.
Speaker Change: Two different geopolitical dynamics that are going on.
Speaker Change: Thanks for all that Shane I'll cede the floor.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Jim Mitchell with Seaport Global Your line is now open. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Jane just following up on that conversation and you talked about leaning into.
Speaker Change: As being important to storm and leaning into it. So I guess in the near term are you seeing sort of demand already in terms of your balance sheet, whether its raising.
Speaker Change: Raising liquidity and deposit flow like sort of flight to safety deposit flows and sort of the trading aspect of it is from this volatility in April have you sort of already seeing greater demands from clients.
Speaker Change: Hmm.
What I'd say about the clients at the moment.
Speaker Change: Seeing deals still happening.
Speaker Change: We've done a number of them as we talked about even over this last weekend, we were pretty busy.
Speaker Change: But I would say that most clients are posing that times then no. One is taking back in the market right now we're.
Speaker Change: We're seeing them prepped for more headwinds. So we're seeing some both string of already strong balance sheets I ran our client based on smaller companies in the mid market that are going to get more pummeled.
Speaker Change: And this type of environment.
Speaker Change: All clients are getting getting ready.
Speaker Change: We're seeing some accelerating of importance to stockpile inventories, we are seeing a pausing on significant capex well, everyone waits to get clarity on the full agenda and then that full agenda remember this tax bill. This deregulation actions and these are some positives that will be coming it's a very big agenda.
Speaker Change: Clients appreciate it it's going to take time.
Speaker Change: In terms of the trading side, what we're saying is it is pretty orderly them.
Speaker Change: Outback.
Speaker Change: Sort of complicated dynamics happening, but it's not been catalyzed by liquidity.
Speaker Change: Crisis, so other things going on let's not fight the war the law school.
Speaker Change: Issue with tackling at the moment.
Speaker Change: Is something different and we are seeing clients, taking the opportunity to derisk, we all others off them. So that if we have more turbulence ahead everyone's in a stronger position for it and that is a good thing, but it is early days, Jim we've got to see how this unfolds.
Speaker Change: Sure no I appreciate that color.
Speaker Change: And then maybe for Mark I mean do you highlighted.
Speaker Change: At least on a period end basis deposit growth.
Speaker Change: <unk> loan growth looked pretty good on a period end basis quarter over quarter. So I guess, when we think about.
Speaker Change: The NII assumptions deposit and loan growth looks good but.
Speaker Change: Anything different.
Speaker Change: Given the strong start to the X market story and seemingly some good momentum in deposit and loan growth do you feel good better worse on sort of your NII outlook for this year.
Speaker Change: Yes, Thanks, Jim.
Speaker Change: Continue to feel good about the NII outlook, there's obviously uncertainty that Jane has referenced but that 2% to 3%.
Speaker Change: Ex markets, we've talked in the past about what the tailwind and headwinds are and.
Speaker Change: You referenced we saw some of that play through in the quarter in terms of.
Speaker Change: Deposit volumes, we saw good operating momentum in our services business and TTS in particular.
Speaker Change: The loan growth we saw in not just an.
Speaker Change: Average interest, earning balances on the branded card side, but also saw a trade loan growth as well and so those are going to be important tailwind as I think about the balance of the quarter.
Speaker Change: You'd probably be referenced as well reinvestment from mature maturing securities or our investment portfolio into higher yielding assets, including cash and you can see that on the balance sheet that some of that started to take place as well and helping deposit spreads.
Speaker Change: And then the team has been very very engaged.
Speaker Change: Engaged as it relates to deposit repricing and managing data through.
Speaker Change: Through the current environment. So the combination of those things along with the removal of the reduction of late fees are really the tailwind that contribute to that 2% to 3%.
Speaker Change: Growth and then there's some headwinds so lower rates on floating rate assets would be a tailwind.
Speaker Change: Potential of of FX translation, primarily in Mexico would be a tailwind, but net net I feel I feel good about the two to three.
Speaker Change: Percent growth in NII ex markets.
Speaker Change: Okay, great. Thanks.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Mike Bell with Wells Fargo. Your line is now open. Please go ahead.
Mike Bell: Hi, I just wanted to continue the discussion.
Speaker Change: Discussion about on.
Mike Bell: On the one hand, you report in the storm, we've been embedded decades.
Mike Bell: And youre not a bunch of suitcase bankers so that message.
Mike Bell: Landed.
Mike Bell: On the other hand, I mean, you are.
Mike Bell: And the bankruptcy facilitates global trade in the middle of a global trade War and so I think.
Mike Bell: The concern is not just the possibility that revenues will notice, but that credit will implode or as I've heard many many times that citigroup is going to stop its toe just on the countries and the mix of it all.
Speaker Change: What else can you stay in addition, what you said to ease.
Mike Bell: Other reassure investors that.
Mike Bell: Oversight.
Mike Bell: Strong or that you have your arms around the situation. The best that you can again recognizing that it's a fluid situation. Thank you.
Speaker Change: So you've seen us perform extremely well over the last few years in the face of pretty wrenching changes in the global economy, you've seen it with let's say the shifts in the supply chains.
Mike Bell: The Covid and then.
Mike Bell: The geopolitical tensions that gang on you saw it in pretty significant changes that were happening from the Russia, and Ukraine wall and Youll see us exactly as that we are where the clients come at hedging for foreign exchange interest rates and commodities you see it for her.
Mike Bell: They're looking at changing that financing around them and we tend to we are the ones that are helping them. We can figure out the flows so from that point of view.
We are the active agent in a lot of the snakes and and we are at a port in the storm as I said, Mike We've got very strong balance sheet capital and liquidity to deploy.
Mike Bell: The the big strategic changes and organization changes behind us and they put their enabling us to be on the front foot.
Mike Bell: This is a fund that is much more agile and able to respond and be much more focused on clients right now.
Mike Bell: So yes.
Mike Bell: I feel good about this the only thing I'd add I mean, John you're spot on right, we come in with a strong balance sheet strong capital strong liquidity.
Mike Bell: If you think about your point around credit Mike, We've said repeatedly and you can see it in the numbers, we skew towards the higher investment grade larger multinationals, who also come into this with strong balance sheets, we have been very disciplined about that risk framework, our risk appetite both on the corporate side as well as as it were.
Mike Bell: <unk> to our consumers and then we tend to see in times of stress as a flight to quality as it relates to deposits and so again, depending on how this evolves we are well positioned to manage whatever the needs of our clients, whether that'd be lending needs or the storing of liquidity and we're very well reserved to manage whatever.
Mike Bell: Risk may come with that despite us being skewed towards higher quality names in both in both of those demographics.
Speaker Change: Okay. The flip side of this is.
Speaker Change: You did say the drivers are the same they might be different in magnitude to take you from where you are now you had over 9% ROTC in the quarter you said you're on track to get to 10 or 11% next year can you put a little meat on the bones kind of AR.
Speaker Change: Verbal waterfall chart, if you would or maybe some numbers around org simplification and cost productivity savings how do we get from 9% in the first quarter to that <unk>.
Speaker Change: <unk> double digit return target for next year.
Again, as we've talked about before it is a combination of continued momentum on the top line and this is James point around how that mix may evolve, but the 3% plus that we're expecting this year and again in 2026 is an important contribution to that you often see in our busy.
Speaker Change: We're one business may be under pressure the other one tends to outperform and overcompensate, whether it be banking fees and how those evolved but volatility that may come with that that uplift the markets business. So that continued focus on top line performance will be important.
Speaker Change: You've heard me reaffirm the expense target.
Speaker Change: For 2025 in terms of getting down to the 53, four we still have a path to getting less than 53 in 2026 that will be important obviously if revenue softens. There we will see expenses come down in tandem with that combination of volume related transaction.
Speaker Change: Costs, but other levers that we will look to pull and the productivity savings we expect to come from prior investments is an important aspect as well and then we've continued to optimize the use of our balance sheet and the capital that we have you see that we.
We have brought our CET one down to 13, four we're continuing to return capital those become very important aspects.
Speaker Change: To getting to that target now look it's uncertain and how the world evolves is hard to forecast at this point right. So could you.
Speaker Change: Could a stressed macro environment create and impact on credit and a build of reserves absolutely right that could happened towards the end of 'twenty five.
Speaker Change: It does happen in 'twenty, five and losses end up showing up in 2006, they end up being self funded so to speak by the reserves that would've been established so we sit here today and as Jane mentioned, you know with seeing nothing that would suggest that we shouldn't be tar.
Speaker Change: Targeting the 10% to 11, so we remain committed to that 10 to 11 Theres a path with the combination of those levers that I've mentioned and importantly, this quarter is yet another proof point that our strategy is resilient that we've got the right team on the ground to execute against it and that is showing up in our numbers and it's showing up in our returns and I just.
Speaker Change: To remind everyone. We have a very different bank than the one we were a few years ago in terms of our business mix, our risk profile and all the investments we've made into into the business and I think you can see us managing the bank doing what we say we'll do.
And please take some.
Speaker Change: Confidence in that.
Thank you.
Speaker Change: Our next question will come from the line of Ebrahim <unk> with Bank of America. Your line is now open. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Yes.
Speaker Change: Mark just wanted to on slide nine and the capital waterfall.
Speaker Change: I guess thinking about what buybacks can do in the second half of this year. So if you don't mind one.
Speaker Change: Our W E sort of Jack the 32 basis points.
Speaker Change: Is that normal as we think about what the RWD consumption should look like just talk about that in the context of getting to $13. One <unk> by the end of the year and how we can back into the pace of buybacks here.
Speaker Change: Yes so.
Speaker Change: I'd say a couple of things so one last quarter, we announced a $20 billion share repurchase program.
Speaker Change: And we continue to feel good about that program as you would expect and we shall we increased our buybacks this year.
Speaker Change: This quarter I should say to the $1 750, seeing the strength of the performance that was playing out through the quarter.
Speaker Change: And so those are both I think indications of our continued commitment to returning capital to the shareholders were clear on where we're trading.
Speaker Change: And we're clear that that is a smart thing to do.
Speaker Change: Once we've funded.
Speaker Change: Demand from a client point of view across our businesses, that's accretive to returns and so the <unk> consumption is tied to that.
Speaker Change: That demand that we see we think we've seen good client demand across the platform. That's helped to drive the top line momentum that you see on each and every one of our businesses that has helped to drive the improved returns that you see in the quarter and each and every one of our businesses and as we see that demand.
Speaker Change: Again accretive in returns will be looking to meet that as our first as a first priority we are targeting the <unk>.
Speaker Change: 13, one by the end of the year, but as you know.
Speaker Change: We will get a new stress capital buffer.
Speaker Change: In June on the heels of the DFAST CCAR work, that's just been submitted and we will have to see what that tells us that is hard to forecast.
Speaker Change: As you well know and so based on what that tells us will inform.
Speaker Change: That that downward trajectory, but that is what we're focused on the combination of funding growth that's accretive to returns and returning capital to shareholders.
Speaker Change: In a way that's consistent with that repurchase program.
Speaker Change: Understood.
Speaker Change: And I guess, you mentioned I think in your prepared remarks, the reserves on the card book went up to eight two.
Speaker Change: Remind us what they think.
Speaker Change: The Genesis of a broad question, because I think that the fragility to you.
Speaker Change: I don't see guidance for next year that I think makes investors know this and I'm just trying to get to the pieces around buybacks and then in terms of credit like how what is it baking in around the unemployment rate.
Speaker Change: What would cause you to ratchet up provisioning in the near term.
Speaker Change: But what kind of an improved job market.
Speaker Change: Deterioration do we need to see for the credit outlook to deteriorate fast and materially.
Speaker Change: <unk>.
Speaker Change: Yes, let me let me.
Speaker Change: Let me take that in a couple of different pieces. So the first thing I'd say.
Speaker Change: Is that.
Speaker Change: As I look at our credit exposure and I look at the consumer.
Speaker Change: The consumer continues to be resilient.
Speaker Change: And discerning in their spend.
Speaker Change: And in fact, we did see spend hold up in the quarter.
Speaker Change: And we saw spend actually increase in our branded card portfolio up about 3% the consumer has.
Speaker Change: We've seen a shift towards essentials.
And so away from travel and entertainment.
Speaker Change: There are certainly.
Speaker Change: A general performance Thats consistent with what we've expected when we look at delinquencies when we look at the loss rates that play to <unk> through the quarter. There were no surprises there as we think about that.
Speaker Change: And April performing in line with that as well. Thank you. Yes in April as April has been consistent with that as we think about reserves. We ended the quarter at about $23 billion of reserves across the entire.
Speaker Change: Business, that's about a two 7%.
Speaker Change: <unk> to loan ratio.
Speaker Change: When I look at the consumer to be drivers of that as you know when we establish our when we do our analysis on a quarterly basis, we have three scenarios that we run a host of other stress scenarios, but those that inform the CCAR analysis.
Speaker Change: The scenario is the base case scenario, there's a downside scenario and there is an upside scenario and as we looked at the macroeconomic outlook and the key variables that go into those scenarios, we assumed a deterioration in that macro outlook.
Speaker Change: And we increased the probability or the weighting towards the downside scenario in light of what we were seeing in the macro environment.
Speaker Change: When you look through to some of the key areas or one of them.
Speaker Change: The variables you referenced unemployment the average unemployment.
Speaker Change: Right.
Speaker Change: It was a.
Speaker Change: Five 1% across those three scenarios.
The unemployment rate in the downside scenario. The average was six 7% across those those eight quarters and so we've assumed.
Speaker Change: Some pretty meaningful shifts in unemployment, particularly on that downside in our analysis that informed the increase in our.
Speaker Change: ACL reserves, that's referenced in the in the deck.
Speaker Change: That increase was in was offset a bit.
Speaker Change: The sequential reduction in volumes that is somewhat seasonal so hopefully that helps I feel we feel good about those reserves based on what we know and our current view of the macroeconomic environment and.
Speaker Change: We'll obviously do that on a quarterly basis as things continue to evolve.
Speaker Change: Thanks for walking through that.
Speaker Change: Our next question comes from the line of John Mcdonald with tourists Securities. Your line is now open. Please go ahead.
John Mcdonald: Thank you Hi, Mark wanted to ask you about capital optimization levers that you have to you have done made some good progress in <unk> mitigation is theres still some room to go there and then also could you maybe increase the pace of DTA utilization to reduce the TCE density in a way to help our TCE.
Speaker Change: <unk>.
Mark Mason: Yeah sure. So look we're always looking at opportunities to further optimize the use of capital.
Mark Mason: End markets, we've talked about last year, a lot about the revenue to <unk> as a tool that we've been using their that's continued to.
Mark Mason: Increase that that metric and ratio.
Mark Mason: We continue to look at are we are we optimizing balance sheet and getting the the.
Mark Mason: The broader revenue streams that we would expect from our client base when we do our corporate lending work in and some of that is showing up in how we've now introduced the revenue sharing as a tool to ensure we're capturing broader revenues from clients, where we were when we were using balance sheet. So we're we're constantly working through this and identifying opportunities.
Mark Mason: These to ensure we're getting the highest return on that.
Mark Mason: In fact, if you look at some of as you look through the material. We provided you'll see that in light of the improvement we've seen across all of our businesses last year as well as our forecast for growth this year.
Mark Mason: Fact is a shift in the.
Mark Mason: The TCE and so the TC allocated TCE has gone down for many of these businesses because they have shown good P. PNR growth good profitability and so as we stress tested internally the stress losses with the businesses.
Mark Mason: We have in fact come down now obviously, we're we have to adhere to the regulator's stress test and so that shifted from the businesses into corporate other but it is a positive sign as we think about how the stress capital buffer might evolve and as we exit different parts of the franchise.
Mark Mason: The underlying segments are already showing that improvement that would suggest lower levels of stress losses and so that's another important point that we diligently matter manage even if we can't control the impact on the top at the top of the house.
Mark Mason: Your point around DTA, we continue to.
Mark Mason: Focus on bringing the DTA down as you know that is largely driven by our ability to generate more U S income, which we're also very focused on we did see a pickup this quarter, which is really just a timing difference pickup it happens in the first quarter of every year. It is tied to.
Mark Mason: Deferred compensation and loan loss reserves as timing difference DTA and as we earn more income through the balance of the year and obviously create income tax liability. It will utilize that increase we saw or offset that increase we saw in the first quarter here, we are targeting bringing.
Mark Mason: That down in.
Mark Mason: In 'twenty five and in 'twenty six.
Mark Mason: In order to contribute to to optimizing capital.
Thanks, Mark I wanted to ask Jane about the Panamax IPO planning, just an update on where that stands and assuming that market conditions create some risk to the timing is it fair to say that there are pros and cons from the shareholder perspective to holding onto that business longer given that it's a profitable entity.
Mark Mason: First of all we continue to be on track with the preparation for the IPO John I was just down in Mexico last week.
Mark Mason: The team is fully focused on driving Panamax as business performance I was very pleased to see improvements in the underlying drivers of that performance. When I was down there and they are also focused on getting the work done to be able to go public.
Mark Mason: It's like the prepared audited financial statements for filling the various regulatory requirements because we told them we want to see the business performance improving I mean wanted to make sure that we are.
Mark Mason: Doing everything in our control to be in a position to IPO by the yearend.
Mark Mason: And to.
Mark Mason: The second part of your question, we will always look at what we believe to be in the best interest of all shareholders.
Mark Mason: We believe that the best interest of our shareholders is to be up to IPO. This business. We think that is the right thing it fits with city strategy for all the reasons, we've talked about in the past.
Mark Mason: We had the best out of the corporate franchise, we have that we are not the best owner.
Mark Mason: Domestic bank.
Mark Mason: So.
Mark Mason: The timing of when we IPO will be driven by market conditions. It will be driven by the timing of regulatory approvals. So that could move that from 25 into 'twenty six.
Mark Mason: We will always be guided by what we think will maximize value for our shareholders.
Speaker Change: Great. Thanks, Jay.
Speaker Change: Our next question comes from the line of Ken Houston with Autonomous Research. Your line is now open. Please go ahead.
Thanks, Good morning.
Speaker Change: Wanted to follow up on the points you made about the consumer.
Speaker Change: And there through April.
Speaker Change: And Mark you mentioned that there could be more uncertainty as we get later, but.
Speaker Change: You believe you are still intact with your charge off guidance for the year. Thank you.
Speaker Change: Just noticing retail services why such that you expected to be higher than the high end at $2 43, and can you just remind us again, how you're expecting the cadence of credit card losses to traject for both branded cards and retail services as you go forward.
Speaker Change: For sure again, we do.
Speaker Change: Obviously, you feel that we are well reserved here.
Speaker Change: We did expect to see a.
Speaker Change: Pick up in the first half of the year before trending down in the back half of the year.
Speaker Change: And so that's kind of the cadence that that.
Speaker Change: We would expect between now and the year.
Speaker Change: End of the year. The first half is usually seasonally higher than the than the back half of the year and you see that in retail services I would also point out.
Speaker Change: And you can see it in the Jack and think it's the second page of the appendix, but also in the supplement that you are starting to see the delinquency buckets. We show the 90 day, plus delinquency buckets, starting to trend down in retail services that is also an important.
Speaker Change: Indicator in terms of how we look at.
Speaker Change: The expected losses, if you will in the go forward and so that that seasonality as well as that trend is a is a good sign.
Speaker Change: We've also I think one other piece that's got that's all there and the team has done a good job with as they've been price have been tightening race skin acquisitions in existing programs in the last couple of years I think that also it puts us into another reason for it still having a good position as we head into whatever lies ahead.
Speaker Change: Very good and then one just follow up on NII and your outlook did you make any changes to it including card fees still in the NII Guide is that now removed is that still in there and I know, there's a lot of puts and takes given the change in the forward curve. If you can help us understand which curve youre using in some of the balancing act there that'd be great.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: So look the late fee impact is for us is.
Speaker Change: Important.
Speaker Change: And we included it in the range that we had given and we still feel good we've now removed. It obviously with the changes that have taken place, but we have not changed our range because there's obviously going to be puts and takes that that occur. It does have a.
Speaker Change: It does have an impact on the retail services.
Speaker Change: Print that we have in the quarter and more importantly, the year over year that you see there of of down 11% because as you know we share.
Speaker Change: We share.
Speaker Change: Profits with those partners.
Speaker Change: And so you know that.
Speaker Change: That's down 11 down 11% that we see in the quarter is informed by <unk>.
Speaker Change: Last year, we had an assumption that.
Speaker Change: The late fee rule was going to come into play and therefore, we had less profits to share with.
Speaker Change: Our partners versus this year first quarter, where we've assumed it would not come into play and therefore have more profits to share with our partners and so.
Speaker Change: And to point that out on retail services, which jumps out in U S. P. B that its unlikely that we see that downward percentage.
Speaker Change: In the remaining quarters, because it's really a byproduct of what we assumed last year.
Speaker Change: This year on on late fees in terms of the curve and in the NII guidance. We gave we assumed two to three cuts we're now assuming.
Speaker Change: Our fourth but given the timing and that it would be back loaded in the year. It doesn't have a significant impact.
Speaker Change: On the on the NII guidance that we've given the 2% to 3% ex markets.
Speaker Change: Okay, great. Thanks, Mark.
Speaker Change: Yep.
Speaker Change: The next question comes from Betsy <unk> with Morgan Stanley. Your line is now open. Please go ahead.
Betsy: Hi, good morning.
Speaker Change: Good morning Betsy.
Speaker Change: Hi, two questions just first on the buyback.
Speaker Change: I noticed you came in at $1 $75 billion is that right this quarter.
Speaker Change: And I know you indicated that you're looking to keep pace and I'm wondering does that mean at $1 75 or does that mean keep pace with the increased Q on care, which was.
Speaker Change: And so but I know you're laughing.
Speaker Change: Just trying to understand how you think about that given what we discussed last quarter, which is you have so much opportunity here for buyback and the accretion is so powerful.
Speaker Change: Yeah, sure so look where we're targeting a similar level.
Speaker Change: As you know where we've been working to bring the CET one down we brought it down 20 basis points this quarter.
Speaker Change: We're still focused on bringing it down to 13 13 one.
Speaker Change: There is uncertainty the uncertainty is multifaceted and to some extent you think about the uncertainty with the SCB.
Speaker Change: We'll hopefully get some clarity on on that.
Speaker Change: We often do in the summer and that will inform the pace at which we bring that down.
Speaker Change: And then as the broader market uncertainty and we want obviously be there to support.
Speaker Change: <unk> clients and the demand that may come on the heels of that and so.
Speaker Change: This quarter.
Speaker Change: I said similar level of share repurchases.
Speaker Change: $20 billion program that we will continue to work through.
Speaker Change: FCB clarity soon hopefully favorable clarity.
Speaker Change: And we are steadfast focused on China, and if you want to add anything to that.
Speaker Change: Giving our shares back to the backend buying them back and giving capital back to our shareholders. So it is a priority for us will continue to be.
Speaker Change: Okay excellent. Thank you so much and then changes separately on slide two you identify the main priorities for 25 and 26, many of which we've talked about here on this call I just wanted to understand from your perspective on the transformation.
Speaker Change: Hi.
Speaker Change: How far along do you feel you are in the modernizing your infrastructure.
Speaker Change: And yes, and what kind of.
Speaker Change: Timeframe do we have to go from here to check the box on that one if you ever can check the box and then separately on the commercial banking segment. If you could just give us some insights there too. Thank you.
Speaker Change: Okay. That's a lot in there so.
Speaker Change: As you remember the transformation is a very large body of work web overhauling our infrastructure, we're reducing in modernizing their applications, we're simplifying our processes and sort of addressing the different root causes of what held us back thoroughly and once and for all.
Speaker Change: And I feel good about the progress we've made and we're seeing more and more of that benefit into how we run the bank as you know we fell behind in data, particularly.
Speaker Change: Regarding back reporting we've taken action to get back into shape and with confidence and how that's now progressing.
Speaker Change: In many parts of the risk management compliance programs, where we're already operating at or close to the target states.
Speaker Change: So our focus is now on ensuring we're delivering the risk reductions in the outcomes in a sustainable way.
And I am excited about the work we've been doing in making sure that all technology.
Speaker Change: All control environment is what we call Martin and simple and we're simplifying and standardizing controls across common activities, we put a lot more preventative and detective controls in place, we're upgrading others that wasn't effective enough we're driving automation.
Speaker Change: Driving straight through processing of our end to end processes across the bank.
Speaker Change: And you've heard us talk pretty consistently over the last couple of years about the work to make the technology infrastructure on to consolidating onto single platforms retaliate retiring legacy applications.
Speaker Change: So I'd say, where we are as many of the efforts are now impacting how we run the bank better and more efficiently and in a much more controlled way, there's still work to do.
Speaker Change: Let me say I'm not sure any bank finishes its amortization because the pace of innovation is bad.
Speaker Change: We are still innovating and investing in supporting our businesses with new innovations in different areas talked briefly about AI a lot of work and services that USB and Andy and wealth. So there's a lot going on.
I think you can tell I'm pretty excited about it I'm pleased where we're headed and at the pace we're hedging.
Speaker Change: Thanks, so much.
Speaker Change: Our next question comes from the line of Erika Najarian with UBS.
Speaker Change: Got to do the commercial banking side.
Speaker Change: We can come back to it.
Speaker Change: It's sorry, Betsy I forgot to mention the commercial bank and my enthusiasm on our modernization effort.
Speaker Change: Look I think we are positioned to be the go to bank for commercial clients are these the ones with cross border needs.
Speaker Change: We button.
Speaker Change: Got you we've got these unique capabilities back east.
Speaker Change: Particularly the born digital clients.
Speaker Change: Who are they getting global very quickly.
Speaker Change: I can just sit on top of our existing capabilities and services and we help them go Global then we help them think about their IPO or M&A or financing opportunities in the banking on it builds on top of it.
Speaker Change: We've got quite a unique value proposition I've been very pleased to see the grades have been seeing in acquiring new companies, who will be the future.
Speaker Change: Major players as they grow in the global economies and this is happening in many of the big bright spots around the world in India.
Speaker Change: It's in Australia, it's happening in Japan, its happening through Europe, as well as in North America. So a lot of good future growth activities that good returns.
Speaker Change: We will now take our next question from Eric in a giant with UBS. Your line is now open. Please go ahead.
Eric: Hi, Good afternoon, just a follow up question here.
Speaker Change: On the buyback pacing your message has been pretty clear about the first half versus the second half that said with the stock at $65 versus tangible book at 90, I guess are you just so scarred from the volatility of the SCB result that that just must be hurdle before you can ask.
Eric: Celebrate the buyback.
Mark Mason: And Mark perhaps you know if you could sort of dispel some of the notion that sometimes happened in some of these.
Chats advised writers about your inability to dividend from the bank sub to the holding company in order to increase your buybacks over the near term if you could address that too that would be great.
Mark Mason: Yeah sure so.
Mark Mason: Look we have accelerated the pace of buybacks and you know I think this quarter is a good example, where I had guided 4 billion 500, and we kicked it up to a 1 billion 750, and I think you should.
Mark Mason: Expect that as we see opportunities to continue to do that then we're going to do it and you should expect that.
Mark Mason: Given where we are trading relative to book value that we're constantly.
Mark Mason: Focused on those opportunities to take it up more than we had planned or more than expected.
Mark Mason: Look I think I think we are.
Mark Mason: We have seen a lot of volatility in FCB.
Mark Mason: And we're not the only one of the other players in the industries have as well.
Mark Mason: I think we're encouraged by the dialogue that we're hearing but there is still some risk to the SCB coming in <unk>.
Mark Mason: Different this year versus last year, and I think I don't think we should lose sight, we're not losing sight of that so we'll get more clarity.
Mark Mason: When the SCB comes I think that'll be important we obviously are generating good earnings quarter after quarter, which obviously creates the capacity for us to to do more here and I think we've evidenced a willingness to do that.
Mark Mason: I think the in terms of your other question with regard your question, implying whether there are any restrictions.
Mark Mason: We don't have any restrictions on our buybacks like we would not we would not have announced a $20 billion buyback program. If we didn't think we could execute the program in a reasonable amount of time.
Mark Mason: And so obviously, we disclose what we dividend out from the bank and you can look at that and over the last three years, you know, we've a dividend a range somewhere in the range of zero to $5 billion in any given quarter.
Mark Mason: But again there are no restrictions imposed by the FRB, which governs the parent on the ability to pay dividends and buy back stock.
Mark Mason: In addition to that we have multiple sources of funding.
Mark Mason: Including loans to subsidiaries, which could be remitted as well as debt issuance programs as well as the earnings that are generated.
Mark Mason: We are well positioned.
Mark Mason: To do to execute on the program that we've described and to continue our desired pace of buybacks.
Speaker Change: Got it and just my second question.
Mark Mason: Mark.
Mark Mason: You mentioned the four cuts are now embedded.
Speaker Change: And in your NII outlook I'm guessing that's for the U S.
Mark Mason: How should we think about how you're thinking of global rates you know obviously, it's a basket.
Mark Mason: Of countries and currencies that we have to think about and you know if your your top exposures are exposed to lower rates, how should we think about deposit spreads and in services from here.
Mark Mason:
Mark Mason: I think I'd say I guess, the easiest way to answer the question as to point to the IRB analysis that we <unk>.
Mark Mason: So on a quarterly basis and there are a lot of that is obviously a risk measure.
Mark Mason: There are a lot of limitations associated with with.
Mark Mason: Taking it too deeply we're taking it to.
Mark Mason: Too literally.
Mark Mason: But as you know it is a.
Mark Mason: Our view on how lower rates could impact city over a 12 month period. It assumes a static balance sheet no growth no change in composition of mix.
Mark Mason: Or no or or changes in our hedging actions.
Mark Mason: And it is an instantaneous.
Mark Mason: Shocked to the entire curve.
Mark Mason: With that said, we do break out the impact for U S dollar versus non U S dollar.
Mark Mason: Remember as you just referenced.
Mark Mason: There are over 60 currencies.
Mark Mason: But that asset sensitivity would suggest that with a in the fourth quarter with a 100 basis point move.
Across the currencies that the non U S dollar impact would be a billion dollars over a 12 month period.
Mark Mason: And so that.
Mark Mason: Take that with a grain of salt, but that gives you some sense as to the sensitivity to rates that would assume all of those currencies and rates in those countries moved at the same time.
Mark Mason: Across the curve.
Mark Mason: And we did nothing to actively manage our dynamically manage the balance sheet.
Mark Mason: Got it thanks.
Mark Mason: Yes.
Speaker Change: Our next question comes from the line of Vivek <unk> with JP Morgan. Your line is now open. Please go ahead.
Mark Mason: Thanks.
Vivek: Thanks for taking my questions a couple of them as follow ups to questions that have been asked.
Speaker Change: First one for you Mark.
Mark Mason: Yes.
Mark Mason: Dave.
Mark Mason: The pad doing buyback so the dividend thing from the bank to the holding company that we just.
Mark Mason: Yes.
Mark Mason: How much are you willing to let your double leverage go up.
Mark Mason: Is there any sort of internal limits that you follow what would be the implications of that for funding cost standpoint.
Speaker Change: Yeah look we have we have internal limits. We are we have a management action triggers internally.
Speaker Change: We're not anywhere close to those limits or triggers.
Speaker Change: It's not something that I'm worried about as it relates to the.
Speaker Change: The buyback program that I have and or the buybacks that we forecasted over the balance of the year.
James: Sure James.
Speaker Change: Okay sharing about all the turmoil and reading some new stories about mandates being shifted from the U S broker dealers to local players Jan I guess are you concerned about that is that a shift that starting outside the U S.
James: And for big players like yourselves and others.
James: Who are or a widespread globally does this start to.
James: Create stronger competitors or move some business away over time.
James: No.
James: It doesn't we haven't seen any shifts that business away.
James: Away from us.
James: <unk>.
James: <unk>.
James: And just remember the nature of our business.
Speaker Change: These are many of these markets around the world we've been in over a century, we were the first banking and sometimes we're the only international Bank Kim.
James: We truly have a unique footprint.
James: We are everywhere and we're able to connect everything everywhere and there are other banks that have this and they don't have the scale. They don't have the depth of local capabilities. They don't have the risk management skills don't have all of these different elements that the clients need now.
James: And they need it in this type of environment, where things are shifting around its very easy to move you'll supply chains around on our platform to shift the mix of different businesses youre doing different geographies you're right.
James: And as I said a lot of the work. We do is is very local and we're at the cutting edge leading edge.
James: In services, but it didnt TTS custody in particular.
James: Corporate banking.
James: <unk> got very strong deep relationships, you've got balance sheet strength.
James: You tend to see flight to quality and ease environments.
James: And when you're in the emerging markets.
James: And there is only one god for quality in that city.
James: Yeah.
Speaker Change: Okay. Thanks James.
Speaker Change: Our next question comes from the line of Gerard Cassidy with RBC. Your line is now open. Please go ahead.
Speaker Change: Hi, Jenny Hi, Mark.
Speaker Change: Your own.
Speaker Change: Mark.
Speaker Change: <unk> done in your opening comments about the seasonal increase in trading related assets.
Speaker Change: And then the grocers.
Speaker Change: Very strong.
Speaker Change: And these types of strategies you guys employed because when you go back and other seasonal periods you know first quarter of prior years, we've not seen this kind of growth.
Speaker Change: What led to this kind of success of growing your trading assets, so well this quarter.
Speaker Change: Yes again, it's the it's the.
The growth you've seen across the platform in both fixed income as well as equities and so that equities growth, obviously, a 23% strong performance in derivatives and prime and prime balanced growth tied to that.
Speaker Change: Particularly with hedge funds and asset managers as they looked at.
Speaker Change: Regional reallocation.
Speaker Change: Strong contribution there and then rates and currencies, good increased client activity and portfolio trading.
Speaker Change: And then we saw a lot of good spread product momentum driven by <unk>.
And higher client activity and loan growth and so.
Speaker Change: The the nature of the activity of the structure of the products and what have you were all contributing factors there really strong performance across the across the business and it obviously shows up in both.
Speaker Change: Both the assets and the trading assets and the trading liabilities in the funding mechanisms associated with it.
Speaker Change: Very good and then as a quick follow up.
Speaker Change: This gives us good details about the allocation of equity I think it was slide 23, I was curious I noticed that you lowered some of.
Speaker Change: The total equity doesn't change of course, but you did lower the allocation of the equity for different lines like wealth and banking what was the thinking behind lowering it in the first quarter relative to 2024.
Speaker Change: Yes, so as you probably know draw we kind of look at this on an annual basis.
Speaker Change: A process that we run and we run it at the end of the year with an eye towards how we want to make adjustments in the year. That's following.
Speaker Change: As we looked at the performance of the business.
Speaker Change: Overall, our five businesses have improved their P. PNR.
Speaker Change: And their profitability.
Speaker Change: And therefore, improving their resiliency and stress scenarios.
Speaker Change: And reducing their stress losses, and so as we as we thought about that underlying strength that we saw as well as our forecast for what demand would be through 2025. Those were important factors in that allocation or that attribution to the businesses for TCE. So in a way there.
Speaker Change: Getting the benefit of that improve resiliency, even before it shows up in our stress capital buffer.
Speaker Change: Alright, and so each of the businesses, we talked about markets is a great example.
Speaker Change: Been talking about optimizing use of capital revenue to our W. E and the improvement all last year, we talked about that and you see that showed up in their performance, but also showed up therefore in the amount of TCE allocation that.
Speaker Change: That they have this year, so hopefully that that helps obviously regulatory capital hasnt changed at the at the in the aggregate.
Speaker Change: That's comprised of the <unk> G SIB and stress capital buffers, but overtime, we would expect as you as we've talked about our strategy, we'd expect the exits to to obviously continue to come off the balance sheet and we'd expect our strategy and the resiliency of our P. P NR and the steadiness of those earnings to <unk>.
Speaker Change: Ultimately show up in our stress capital buffer.
Speaker Change: Great I appreciate the color as always thank you yep.
Speaker Change: Our next question comes from the line of Matt O'connor with Deutsche Bank. Your line is now open. Please go ahead.
Matt O'connor: Hi, just a follow up on your expenses came in a bit lower than expected one Q, even ex the accounting.
Matt O'connor: Change, what's your thought process for the rest of the year, because what I'm getting at is often <unk> was the high watermark. So.
Matt O'connor: Can trickle down a little bit from here that would imply costs coming in a bit below what you're what you're expecting and just talk about the trajectory from here. Thanks.
Matt O'connor: Sure.
Matt O'connor: <unk> again I gave.
Matt O'connor: I kind of stuck to the guidance that we had given in January so expenses 53, four for the full year.
Matt O'connor: We did come in at 13, four in the quarter I kind of went through the puts and takes around that.
Matt O'connor: I would expect probably a bit of a tick up in Q2, when I think about the things in front of us and some of the continued investment that we plan to make in.
Matt O'connor: In transformation and some of the other things underneath that like data and Reg reporting and then I'd expect it to trend down so that we get to the target of the 53 four that I referenced for the full year and so likely see a tick up and then a trend down in landing the full year at the guidance here.
Matt O'connor: Obviously revenue moves sorry go ahead.
Matt O'connor: No no.
Matt O'connor: I'd say, obviously if revenue moves in either direction, we'll adjust accordingly, if we have upside to revenue you would expect to see some of that variable and transaction cost.
Matt O'connor: Moving that direction as well and if we see pressure on revenues will be focused on ensuring that we are.
Matt O'connor: Bringing our expenses down our expenses down as well.
Matt O'connor: Okay, and then just any way to frame how much cost will go out for lunch at a 10-Q2 based on what Youre thinking now.
Matt O'connor: No I'm, not giving second quarter.
Matt O'connor: And it's kind of beyond what ive are factored into the full year at this stage.
Matt O'connor: Okay fair enough.
Matt O'connor: Right. Thank you.
Matt O'connor: Thank you.
Speaker Change: Our next question comes from the line of Sal Martinez with HSBC. Your line is now open. Please go ahead.
Speaker Change: Hi, Thanks for taking my questions.
Speaker Change: Just following up on the expenses.
Speaker Change: Your 2020.
Speaker Change: Target of a 10% to 11% ROTC.
Speaker Change: You're targeting expenses being below 53 billion should we assume.
Speaker Change: With the accounting change that should recalibrate to being below call. It 53, five or 52, five sorry is that.
Speaker Change: A fair.
Speaker Change: Assumption or conclusion from that.
Speaker Change: Sure 52 six.
Speaker Change:
Speaker Change: Yeah, Yeah, you bet.
Speaker Change: But yes, I mean, I I mean, it's it's.
Speaker Change: It's a change in line item in terms of that association fee and sure I targeted 2026 cents less than 53.
Speaker Change: And with that 400 million you're sure you can deduct that from the 53.
Speaker Change: Got it and just wanted to clarify that and then.
Speaker Change: Currently on wealth management net new assets are.
Speaker Change: Pretty impressive.
Speaker Change: <unk> 16, 5 billion I think.
Speaker Change: Yes.
Speaker Change: Like 11%.
Speaker Change: Beginning period of client assets over the last couple of quarters and it seems like.
Speaker Change: Andy as you.
Speaker Change: Really delivering there.
Speaker Change: Anything strange.
Strength across the different products, but anything you want to highlight there as to what's driving that and any comments just on the durability of that kind of momentum.
Speaker Change: Hum.
The strategy that Andy is laid out and talked about is working.
Speaker Change: We've got the franchise very focused around that new investment asset I'm, bringing those in from the five trillion dollars of assets that all of us with existing clients as well as new wells that is being created and new clients that we're bringing to the franchise.
Speaker Change: So I am I'm very pleased as well with the caliber of the team that he has brought to bear here.
Speaker Change: We've got real horse power and fire power and our investment capabilities.
Speaker Change: He is also investing.
Speaker Change: To improve client experience.
Speaker Change: Our new relationship with Palin Tia here as well and it's a team that's on the front foot and in this environment.
Speaker Change: Around the world clients are really looking to offer advice because there are not many global wealth managers.
They're looking to us for our playbook perspective, the capabilities they've got an on the ground.
Speaker Change: All around the globe.
Speaker Change: And helping put them into a good position amidst the uncertainty. So we we are a destination of choice right now and we're taking full advantage of it I don't see that changing this is the strength of the city the strategy is working.
Speaker Change: Okay, great. That's good to hear thank you.
Speaker Change: [laughter].
Speaker Change: There are no further questions I'll now turn the call over to Jenn Lantus for closing remarks.
Jenn Lantus: Thank you all for joining US we appreciate all the questions have a great afternoon.
This concludes the city's first quarter 2025 earnings call you may now disconnect.
Jenn Lantus: [noise] [music].
Jenn Lantus: Sure.
Jenn Lantus: Yeah.
Jenn Lantus: [music].