Citigroup CEO Jane Fraser has spent the past 18 months executing a strategy to lift shareholder returns by chopping out underperforming businesses and investing in high-growth areas.
Though there is much left to do to simplify the New York megabank and achieve those higher returns, some of the early investments are starting, ever so slightly, to pay short-term dividends.
One particularly shiny spot: treasury and trade solutions, a darling within Citi’s institutional clients group business. Second-quarter revenues for the division, which helps global companies manage their treasuries, payments and commerce needs, jumped 33% year over year to $3 billion, partly due to higher interest rates, but even more so because of an uptick in client activity in the form of higher loans, higher deposits and an increase in cross-border transactions.
Treasury and trade solutions “fired on all cylinders as clients took advantage of our global network,” Fraser told analysts Friday during the $2.4 trillion-asset firm’s quarterly earnings call.
The surge resulted in “the best quarter this business has had in a decade,” she added.
While there are few expectations that the momentum of the second quarter will keep building — growth in trade and treasury solutions will probably revert to the high-single-digit guidance that Citi gave earlier this year, Fraser said — there continue to be signs that the “strategic refresh” that the company has been working on for more than a year is moving in the right direction.
Citi sold off its Australian consumer franchise last month, and it is currently in the process of closing eight other overseas consumer businesses, including its Banamex franchise in
Like other mortgage lenders, the San Francisco megabank has been cutting staff since refinancing volumes started to fall. Additional layoffs are expected over the next couple of quarters, according to the bank’s chief financial officer.
The money freed up from closed businesses will get reinvested into the growth businesses.
Fraser said Citi is “well into” the sales process in Mexico, working on regulatory and legal issues.
The bank also continues to hire commercial and investment bankers, and it continues to invest in technology upgrades for trade and treasury services, wealth management, cards and other businesses. Despite a second-quarter slowdown in wealth management, particularly in Asia following COVID-19 lockdowns in China, Citi will also keep adding client advisors.
It is also sticking to its plan of building out its private bank footprint to reach 20 countries and increasing the number of referrals to wealth management from its U.S. branch network.
“We continue to execute our wealth strategy from a number of fronts,” Fraser said.
For the quarter, Citi reported net income of $4.5 billion, down 27% compared with the same quarter in 2021. The drag was mostly blamed on the addition of reserves for potential sour loans, about $424 million this quarter “given the increasing possibility of a recession,” Fraser said.
Revenues, however, were up 11% year over year while earnings per share surprised at $2.19, 51 cents higher than the average estimate of analysts polled by FactSet Research Systems.
Expenses totaled $12.4 billion, up 8% for the quarter. The increase was attributed to ongoing spending on the firm’s multiyear risk management overhaul, which has been going on for about two years now, as well as business-led investments and volume-related expenses, CIti said.
Citi’s return on tangible common equity, a key profitability metric, came in at 11.2% for the quarter, up from 10.5% the previous quarter. By comparison, big-bank peers JPMorgan Chase and Wells Fargo reported ROTCE of 17% and 8.6%, respectively.
Also on Friday, Citi said it is halting share repurchases for now in order to build the amount of capital that regulators say it must have on hand.
Fraser said Citi would get back to doing buybacks “as soon as it is prudent to do so.”
