CEO Fraser calls 2024 a 'turning point' year for Citi

Lam Yik/Photographer: Lam Yik/Bloomberg

Jane Fraser has spent the past three years laying out a vision for a simplified Citigroup and beginning a series of changes meant to improve the company's profitability and returns.

Now, for investors, 2024 is "show me" time. 

On Friday, Fraser — who became CEO of the $2.4 trillion-asset company in March 2021 — reiterated her assurances that Citi is shedding its old skin and nearing a complete transformation. The company, whose operations have been far-flung for years, is engaged in a massive, multiyear restructuring that involves selling or winding down lagging businesses and eliminating 20,000 jobs, or about 10% of its total workforce, by the end of 2026.

Speaking to analysts during Citi's fourth-quarter results call, Fraser said 2024 will be "a turning point" because the company "will be able to completely focus on the performance" of its five core businesses — markets, business banking, wealth management, U.S. personal banking, as well as treasury, trade and securities services — and its ongoing risk management improvements.

"We know that 2024 is critical as we prepare to enter the next phase of our journey, and we are completely focused on delivering our medium-term target and our transformation," Fraser said on the call. 

"I recognize the importance of this year, and I am highly confident that we will see the benefits of the actions we've taken through the momentum of our businesses," she said.

But myriad challenges remain, especially the steep job cuts at hand and the delicate balance of reducing expenses while growing revenue, said analyst Stephen Biggar of Argus Research. 

"Look, this is a company now that is really ripping the Band-Aid off, so to speak," Biggar said in an interview. "A 10% head-count reduction is not the norm, [nor is] the sale of this many businesses … and they're calling for rising revenues, which is a challenge when you're reducing head count."

He agreed with Fraser's view that 2024 must be the turning point. If she enters her fourth year at the helm without tangible improvements, "then I would say something's going haywire," he said.

"I hope we don't come to 2025, and she says that that's the transformative year," he added.

The company, whose profitability has long lagged its big-bank peers, is trying to rebuild itself after years of underperformance.

Citi executives said that revenue for full-year 2024 will rise about 4%, excluding certain divestitures, while expenses should decline between 0.9% to 1.5%, excluding divestitures and also special assessment fees charged by the Federal Depository Insurance Corp.

It also is aiming for an efficiency ratio of less than 60%, a common equity tier 1 capital ratio of 11.5% to 12%, and a return on tangible common equity ratio of 11% to 12%.

There's a long way to go on some of those metrics. Full-year 2023 ROTCE was 4.9%.

Citi's fourth-quarter call had been highly anticipated for several months as analysts and industry observers sought to glean more information about the company's current organizational overhaul, which was announced in September. The overhaul is designed to strip out several layers of management, as well as affiliated support teams, to create a leaner, flatter company. 

Friday's call marked the first time that Citi has put a solid number on its head-count reduction plans. During the first quarter of this year, it is planning to chop out about 5,000 roles, which will result in $1 billion of run-rate savings, executives announced. That decision comes on top of roughly 7,000 jobs that were axed in the fourth quarter and 6,000 during the first nine months of the year. 

For all of 2024, Citi expects to spend between $700 million and $1 billion on severance and other costs related to the reorganization, it said. Last year, it spent $600 million between January and September on severance-related costs and a combined $900 million on severance and restructuring in the fourth quarter, the latter of which contributed to Citi's fourth-quarter net loss.

For the quarter, Citi reported a net loss of $1.8 billion and blamed it on four items: restructuring charges; an FDIC assessment of $1.7 billion; a reserve build of $1.3 billion related to businesses in Russia and Argentina; and $880 million tied to the devaluation of the Argentine currency.

While end-of-period loans were up 5%, end-of-period deposits were down 4%.

"2023 was a foundational year, in which we made substantial progress simplifying Citi and executing the strategy" that was presented at an investor day in 2022, Fraser said on the call. 

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Still, "the fourth quarter was clearly very disappointing," she said.

So far, Citi has exited nine of the 14 international consumer franchises that it is selling or winding down, Fraser said. It has also wound down about 70% of retail loans and deposits in Russia, Korea and China, is pursuing the sale of its Poland business and is making progress on a plan to pursue an initial public offering for its consumer franchise in Mexico, known as Banamex, she said.

In the past month, it has exited "marginal businesses" such as its muni business and distressed debt trading "to focus on our core strength and allocate our capital with rigor," Fraser said.

Biggar, who has covered Citi for two decades, said the faster it can rein in its operations, the better and more consistent its earnings would become.

"It's getting it all right," he said. "All these things individually in a vacuum sound great, but you have to continue to execute."

In a research report before Citi's results were announced, analysts at Piper Sandler said Citi stock has become this year's "must own." And while the analysts are "cheering" for Fraser and Chief Financial Officer Mark Mason, "the reality to us is that this turnaround will take a long time to effect," they said.

Investors' post-call enthusiasm for Citi was tempered. The stock ended the day up less than 1%.