Citigroup says profitability to fall amid spending on strategy shift

Citigroup said profitability will fall as the bank pursues a strategy shift that it said will raise expenses in the near term.

Return on tangible common equity over the next three to five years will be about 11% to 12%, the company said Wednesday in a presentation ahead of its investor day. The gauge stood at 13.4% in 2021, compared with the 23% posted by rival JPMorgan Chase.

Citigroup has repeatedly missed the targets it set for itself over the years. At its last investor day, in 2017, the firm said it hoped to achieve a 14% ROTCE. That’s hurt the bank’s credibility with investors, who have in turn punished Citigroup’s shares.

Mark Kauzlarich/Bloomberg

The bank’s stock has been the worst performer in the 67-company S&P 500 Financials Index since the start of 2020, dropping 27% in that time. It’s also the only major bank in the U.S. that trades below its book value, meaning investors believe it destroys value.

Shares of the company dropped 0.6% to $58.25 at 8:25 a.m. in early New York trading.

With just one year under her belt as chief executive, Jane Fraser has wasted no time overhauling many of the businesses Citigroup has been known for over much of this century.

She has announced plans to exit retail banking operations across 14 markets around the world. That includes the franchise in Mexico, which was home to the bank’s largest branch network in the world. 

Fraser said in a written presentation Wednesday that the firm’s banking division would pursue a “high-returning, capital light investment banking business.” It will seek to boost growth by targeting “new economy companies,” and expansion in the commercial bank, she wrote.

Her presentation emphasized the shift occurring across Citigroup to focus on higher-returning businesses such as wealth management, services, and its commercial bank, which serves midsize companies.

The New York-based bank also said:

— Expect low-single-digit growth in total revenue in fiscal 2022.

— Expect a first-quarter total revenue decline in mid single digits, excluding divestitures.

— Its strategy will shift business mix, grow returns.

— It’s taking steps to cut the negative impact of legacy franchises.

— Expect the cost of credit to normalize in the near term.

— Expect 2022 expense growth of about 5% to 6% excluding divestiture impacts.

— Expect first-quarter expense growth of about 10% to 12% excluding divestiture impacts.

— Expect revenue growth of 4% to 5% CAGR in medium-term on phase 2 plan.