Two days after regulators levied more fines against Citigroup for poor data quality management, the megabank said that it's not changing its expense guidance for 2024, and it will aim to absorb any additional remediation-related costs into the firm's existing spending plan.
Citi also said it will adhere to its previously released capital distribution plan, which includes an increase to its common dividend, and it plans to repurchase $1 billion of common stock in the third quarter. In the first quarter of this year, Citi bought back $500 million of common stock.
The updates came during Citi's second-quarter earnings call, less than 48 hours after the Federal Reserve and the Office of the Comptroller of the Currency assessed a total of $136 million in civil money penalties against the bank for violating a pair of 2020 consent orders related to its risk management and internal controls systems.
Citi, which is engaged in a multiyear risk-management overhaul to correct and enhance those systems, even as CEO Jane Fraser tries to simplify the company and drive higher returns, has 30 days to submit a "resource review plan" to the OCC. The plan is supposed to show that the bank has enough resources allocated to the overhaul to achieve compliance in a timely and sustainable manner.
Citi's plan, which executives say is already being drafted, will also help determine if additional resources, including more spending, are necessary to finish what the $2.4 trillion-asset company has called a "transformation" of its risk-management programs.
Citi "has been able to find productivity opportunities" this year to keep it within its stated expense guidance, and the bank will stay focused on finding more such cost savings in the event that more compliance spending is needed, Chief Financial Officer Mark Mason told analysts Friday.
Citi has been forecasting total operating expenses of between $53.5 billion and $53.8 billion for the full year. On Friday, Mason said the final tally will likely wind up on the higher end of that range.
"We are actively managing that with an eye towards what's required" for the risk management overhaul in order "to keep it on track, to accelerate in areas where we're behind," Mason said.
Analysts pressed Mason and CEO Jane Fraser about the bank's lack of sufficient progress, at least in the eyes of its regulators. Mike Mayo of Wells Fargo Securities asked why the 2020 consent orders haven't been resolved.
"Is it not enough people? Is it not enough money? Do you need to look at it in a different way?" Mayo said.
Fraser responded that the project "is a massive body of work" with multiple layers, and pointed out that the regulators did acknowledge this week that Citi has made some progress.
Vivek Juneja of JPMorgan Securities wondered how much more time Citi needs to fix everything.
"How much longer for you to sort of get this past you?" Juneja said. "Are you talking a couple of years?"
The bank is trying to "get this done as quickly but as robustly as possible," Fraser responded.
"We're doing this by making strategic fixes and investments, rather than what I would call the old Citi way, which is a series of Band-Aids that remediate but don't actually fix the underlying issue," she said. "I'm not expecting this to change the time frames."
Amid Citi's latest regulatory troubles, the company reported a solid quarter. Total revenues were $20.1 billion, up 4% year over year, in part because each of the bank's five business lines, including its long-languishing wealth segment, grew profits during the second quarter.
Excluding the impact of divestitures, firmwide revenues rose 3%. As part of Fraser's plan to turn around Citi, the bank has been selling and winding down certain non-U.S. consumer franchises.
The increase in revenues and a decrease in expenses helped drive up Citi's net income, which totaled $3.2 billion, a 10% increase from the same quarter last year.
Growth in Citi's banking segment, which includes both business banking and investment banking, was particularly strong compared with the year-ago period, rising 30%.
Operating expenses declined 2% year over year to $13.4 billion, primarily as a result of an organizational simplification and other cost-reduction measures, Citi said.
The decrease in expenses was partially offset by the regulatory fines and other ongoing investments in the risk management overhaul, according to the bank.
