With divestiture plan set, Citi’s next step: Deliver results

Citigroup has spent much of the past year investing in growth businesses while jettisoning units seen as drags on shareholder return.

This week’s surprise news that Citi will cut loose retail-banking operations in Mexico marks the last step in CEO Jane Fraser’s strategic overhaul. With a streamlining process meant to make Citi an easier read for investors nearly done, it’s all about delivering results.

Fraser is “making logical, rational moves,” Piper Sandler analyst Jeffery Harte said Friday following Citi’s fourth-quarter earnings call. “Now it’s a matter of executing on it.”

“I’m confident that we’ve made the right big structural decisions,” Citigroup CEO Jane Fraser told analysts on a quarterly earnings call. “We’re looking forward to [the company’s upcoming] investor day [for] laying out the vision, the strategies and the plan for going forward.”

Fraser has been nothing short of busy during her first year on the job. The $2.3 trillion-asset company has ramped up its focus on wealth management and hired a net 800 advisers and relationship managers to drive growth; put a dozen overseas retail franchises up for sale; and begun winding down the consumer-banking business in Korea.

Late Thursday, Citi announced a buyer for the retail businesses in Indonesia, Malaysia, Thailand and Vietnam, adding to the sales already underway in Australia and the Philippines.

At the same time, the company has been overhauling its risk management and internal systems controls following a pair of consent orders it received from regulators in the fall of 2020.

Citi, which received a $400 millioncivil penalty in connection to the orders, submitted a remediation plan to regulators last fall. With feedback from regulators, it is “deep in execution mode,” Fraser said.

Meanwhile, it has realigned the organization’s business units. Announced to investors Friday, the “global consumer banking” unit has been renamed “personal banking and wealth management” and will house Citi’s private bank. The so-called “institutional clients group,” which had included private banking, continues to include treasury and trade solutions, investment and corporate banking, equity and fixed-income markets, and securities services. A newly formed third unit, “legacy franchises,” will house all of the business that will be sold.

The company will begin reporting its financials in these segments no later than the second quarter to help investors “measure [Citi’s] progress and hold [Citi] accountable,” Fraser said.

More details about how the divisions will work together and ultimately create higher returns for shareholders will be shared during the company’s Investor Day on March 2, Fraser added.

“I’m confident that we’ve made the right big structural decisions,” Fraser said. “We’re looking forward to investor day [for] laying out the vision, the strategies and the plan for going forward.”

Much of the work underway is a result of pressure from investors to see average returns closer to that of its peers. For the fourth quarter, Citi reported a return on equity of 6.4%. JPMorgan Chase, which also released fourth-quarter earnings on Friday, reported an ROE of 16%.

Analysts such as Michael McTamney of DBRS Morningstar seemed generally agreeable to the changes underway at Citi.

“It will take time, but we see them as heading in the right direction,” McTamney told American Banker. “Simpler, more focused and enhanced disclosures will certainly be applauded by investors.”

One question that some analysts were pondering: What will be the fate of Citi’s U.S. retail deposit franchise? Though she didn’t provide specific plans, Fraser did say the bank has been “driving digital deposit growth and continuing to make sure that business generates stable, low-cost funds.”

“We’ll expect to continue growing that going forward,” Fraser added.

For the quarter, Citi reported net income of $3.2 billion, down 26% from the year-ago period, largely as a result of expenses associated with the wind-down of the Korea retail franchise. Operating expenses totaled $13.5 billion, an increase of 18% year over year.

The company on Friday did not provide 2022 guidance for financial metrics or the capital plan. But Chief Financial Officer Mark Mason said buybacks, which were temporarily suspended due to the adoption of new capital rules, will resume in the first quarter.

It’s still too early to say if Fraser will be able to pull off a turnaround, but early signs are promising, Harte said.

“A couple of years from now we’ll be able to say whether she really killed it or not,” Harte said. “But as of today what she’s saying and what she’s doing are consistent, so it’s a good start.”

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