Q2 2024 Earnings Summary
- Citi expects higher net interest income in the back half of the year due to higher yields on reinvestment and volume growth in card loans, which will serve as tailwinds for NII growth.
- The bank is seeing signs of stabilization in delinquency performance and expects credit costs in U.S. Personal Banking to normalize, leading to improved returns as loss rates start to come down.
- Citi increased its common dividend by 6% and plans to repurchase $1 billion in common shares in the third quarter, reflecting a strong capital position and commitment to shareholder returns.
- Net Interest Income (NII) declined by almost 4% year-over-year, exceeding the guidance of being "modestly down" for the year. Multiple headwinds—including lower NII in Argentina, higher deposit betas, potential regulatory impacts like CFPB late fees, and lost NII from business exits—may continue to pressure NII in the future.
- Citigroup did not repurchase any shares in Q2 due to discussions with regulators, and future buybacks remain uncertain. The company is not providing guidance on capital returns going forward, citing uncertainty about forthcoming regulatory changes, which may constrain capital deployment and shareholder returns.
- Despite significant investments in transformation, Citigroup has fallen short of regulatory expectations, leading to recent regulatory actions and civil money penalties. Ongoing compliance issues suggest potential for further regulatory penalties and additional expenses required to address these concerns, which could pressure earnings and delay strategic objectives.
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Regulatory Consent Order Impact
Q: How will the amended OCC consent order affect Citi's operations and capital returns?
A: The CEO explained that the amended consent order focuses on data-related issues in regulatory reporting where Citi was falling behind. They are investing to address these delays without changing their expense guidance. The order does not impact their ability to return capital to shareholders, and the referenced dividends are just intercompany payments from CBNA to the parent, not affecting external dividends or buybacks. Citi remains confident in meeting their medium-term 11% to 12% RoTCE targets. , , -
Expense Outlook
Q: What is the expected path of expenses considering transformation investments?
A: Citi expects expenses to be $53.5 billion to $53.8 billion for the year, including repositioning charges but excluding FDIC special assessments and civil money penalties. The expense guidance includes investments required for the transformation and regulatory compliance. They are managing expenses actively, aiming for a downward trend toward 2026, and remain committed to their medium-term RoTCE targets. , , -
Capital Return and Buybacks
Q: What is the outlook for capital return and share buybacks?
A: Citi plans to buy back $1 billion of shares in the third quarter but will not provide ongoing guidance on buybacks due to regulatory uncertainties. They will make quarterly determinations on the level of buybacks. The amended consent order does not restrict their ability to return capital to shareholders. , , -
Net Interest Income Outlook
Q: How is Citi's NII expected to trend amid rate changes?
A: Citi expects NII to be modestly down for the year, with the back half slightly higher than the first half. Tailwinds include higher yields on reinvestments and loan growth, while headwinds include lower NII in Argentina due to rate cuts, higher betas outside the U.S., and impact from CFPB late fees. , , -
Credit Losses in U.S. Personal Banking
Q: What is the outlook for credit losses in U.S. Personal Banking?
A: Citi anticipates that credit losses are cresting, particularly in the lower FICO bands. As normalization progresses, they expect loss rates to start coming down, improving returns in the medium term. They continue to focus on disciplined underwriting and emphasizing higher FICO score customers. , , -
Transformation Progress and Data Issues
Q: What are the challenges with data in the transformation efforts?
A: Citi is addressing significant data infrastructure issues, particularly in regulatory reporting. They've made progress in simplifying data flows, consolidating platforms, and enhancing data governance but have faced delays in some areas. They are investing additional resources to get back on track but do not expect this to extend the overall timeline for completing the transformation. , -
NII Impact from Non-U.S. Rates
Q: How will declining non-U.S. rates affect NII?
A: A decrease in non-U.S. rates could pressure NII due to higher betas outside the U.S., but higher yields on asset reinvestments and loan growth should offset this over the medium term, allowing continued NII growth. The impact of a 100 basis point parallel shift downward is estimated at negative $1.6 billion, with $1.3 billion from non-U.S. dollar exposure. -
U.S. Personal Banking Profitability
Q: How will Citi improve profitability in U.S. Personal Banking?
A: Citi is focused on growing share in core markets and enhancing operating efficiency in the retail bank, emphasizing returns over revenues. As credit losses normalize and mitigation efforts take hold, they expect returns to improve, supporting medium-term targets of high-teens RoTCE for the segment. -
Discipline in Retail Services Partnerships
Q: How is Citi approaching competition in Retail Services?
A: Citi emphasizes returns and disciplined underwriting over revenue growth in Retail Services partnerships. They focus on ensuring that new agreements, like the one with Dillard's, meet return thresholds and are willing to pass on deals that do not meet their criteria. -
Expense Flexibility Regarding Transformation
Q: Will additional transformation costs impact expense guidance?
A: Citi is committed to investing what's necessary for the transformation but intends to absorb any additional costs within the existing expense guidance by finding efficiencies elsewhere. They actively manage the entire expense base to fund both transformation and business growth. ,