Q3 2024 Earnings Summary
- Active share repurchase demonstrates management's confidence in the company's undervaluation. CEO Jane Fraser emphasized that they are "very focused around the opportunities to buy back stock and mindful of the importance of it," acknowledging the disconnect between performance and stock price.
- No regulatory asset cap imposed; making progress on regulatory matters. Jane Fraser clearly stated, "We do not have an asset cap and there are no additional measures other than what was announced in July in place and not expecting any," highlighting that the company continues to make material progress on regulatory orders, including closing the BSA AML order this quarter.
- Management is confident in meeting revenue and expense targets, demonstrating operational discipline. CFO Mark Mason expressed confidence in hitting revenue guidance and expense targets, stating that they have been consistent in delivering on guidance and are pointing to "proof points" that they can deliver on medium-term targets. If revenues fall short, they expect expenses to adjust accordingly to deliver on operating efficiency targets.
- Regulatory Concerns Persist: Multiple analysts questioned whether Citi is under an asset cap or facing other regulatory restrictions, indicating ongoing market concerns about regulatory compliance and oversight. Jane Fraser stated, "We do not have an asset cap and there are no additional measures other than what was announced in July in place and not expecting any." However, the repeated inquiries suggest uncertainty remains among investors.
- Higher Expenses and Transformation Costs: Citi expects to be at the higher end of its expense guidance range for 2024, with ongoing restructuring and severance charges extending into 2025 and 2026. Mark Mason noted, "I would expect that we will have some next quarter but I don't see us being outside of by any stretch, the range that I gave." The continued expenses may pressure profitability and delay cost-saving initiatives.
- Uncertainty in Achieving Revenue Targets: Analysts expressed skepticism about Citi meeting its revenue growth targets. James Mitchell pointed out that consensus expects Citi not to hit its revenue goals and has expenses at the high end of guidance. Mark Mason responded, "If revenues come in short of the target that we've set for ourselves, you would naturally expect for the volume and transaction-related expenses and compensation expenses to come down in a commensurate way with that revenue decline, and you would also expect that we would look to see if there are other productivity opportunities that we can tease out in order to still deliver on that operating efficiency target that we've set for ourselves." This suggests potential challenges in revenue generation and dependency on cost reductions to meet return targets.
-
Regulatory Concerns and Asset Cap
Q: Can you assure us that Citi won't face an asset cap?
A: Jane Fraser emphatically stated that Citi does not have an asset cap and does not expect one. She said, "We do not have an asset cap and there are no additional measures other than what was announced in July in place and not expecting any." She emphasized the meaningful progress on the transformation, including closing the FRB AML, BSA consent order—the third order closed since 2021. -
Banamex IPO Progress
Q: What's the update on Banamex separation and IPO plans?
A: Jane Fraser reported that they plan to complete the separation of Banamex in Q4 2024 and be ready to IPO at the end of 2025, subject to market conditions. She stated, "We plan to be ready to IPO at the end of 2025 based on the factors that we can control, but the timing is going to be driven by market conditions to ensure we maximize the shareholder value." Mark Mason added that Banamex contributed about $1.5 billion in revenues in 2023 and has approximately $4 billion in tangible common equity. -
Meeting Expense and Revenue Targets
Q: Can Citi meet its '26 expense guide even if revenues disappoint?
A: Mark Mason expressed confidence in achieving the 2026 expense target of $51 billion to $53 billion, emphasizing cost reductions from restructuring, eliminating stranded costs, and efficiency gains from transformation investments. He stated, "Yes, if revenues come in short of the target... you would... expect that we would look to see if there are other productivity opportunities that we can tease out." Jane Fraser added that they are focused on both improving performance and executing the transformation simultaneously. -
Net Interest Income Sensitivity
Q: How is Citi's NII affected by changing interest rates?
A: Mark Mason explained that Citi is asset-sensitive, especially outside the U.S., with about $1.3 billion of a potential $1.6 billion decline in NII from a 100 basis point downward shift attributable to non-U.S. currencies. The U.S. dollar impact is about $300 million, which has been managed down. He said, "Our interest rate sensitivity skews more towards non-U.S.... the U.S. dollar drag is about $300 million." -
Capital Return and Share Buybacks
Q: Will Citi increase share buybacks given the stock price?
A: Jane Fraser acknowledged the importance of capital optimization and the attractiveness of buybacks at current valuations. She noted, "Given where we are trading... we're very focused around the opportunities to buy back stock and mindful of the importance of it." -
US Personal Banking RoTCE Improvement
Q: What will drive higher returns in U.S. Personal Banking?
A: Mark Mason highlighted that product innovation, such as the refreshed Citi Strata Premier card and Flex Pay at Costco, is boosting acquisitions and installment loan growth. He also expects normalization of credit costs as vintages mature, improving returns over time. -
Wealth Segment Progress
Q: Is Wealth expected to continue improving returns?
A: Jane Fraser affirmed that the Wealth segment is making steady progress towards a medium-term RoTCE target of 15% to 20% and an operating margin of 25% to 30%. She noted 24% growth in client investment assets and a 50% increase in adviser productivity in Citigold North America.