NEW YORK, February 23 - At a shareholder meeting, Citigroup executives will outline detailed intentions to increase return and address concerns over expenses, according to analysts and investors.
People familiar with the plan predict that the bank will set new goals for return on tangible common equity, a key measure of profitability. Among those that will achieve these goals, a focus will be on payments, commercial banking, and wealth management.
According to Paco Ybarra, the bank's chief executive believes that the cost of employing 4,000 people to comply with regulatory orders will result in cost savings and improved processes that will aid future growth.
The investor day on March 2 has come just over a year since Jane Fraser, a 54-year-old Scottish native, was promoted chief executive at the fourth largest U.S. bank. Fraser was tasked with developing a business that lag in competition with JPMorgan Chase & Co and Bank of America during her predecessor Michael Corbat's eight years at the job.
Fraser acted swiftly in reducing the firm, confirming plans last April to exclude non-core businesses, including consumer franchises in 13 countries across Asia, Europe, the Middle East, and Africa. She also announced plans to sell or spin off Citi's Mexican retail business outside the United States.
Investors are still unconvinced.
Patrick Kaser, a long-time Citigroup investor, has said that individuals are "extremely skeptical." Brandywine Global Investment Management has established a portfolio strategy.
Citi's stock price is currently trading below the value of its assets, whereas most large banks pay at discounted rate to their book value. That puts Fraser under pressure to develop a strategy that will boost investor confidence.
According to analysts, if she fails, the bank may be forced to call to be broken up.
"This is the most significant day in Jane Fraser's professional life," said Wells Fargo analyst Mike Mayo. "The purpose of Citigroup is to demonstrate why Citigroup has a reason to exist. The stock market claims that Citigroup is more likely to die than ever."
Investors want Fraser to develop a viable case in which the bank can reduce its expenses, increase revenue growth, and improve returns.
"If they could form a credible plan, the stock might increase by 10% or greater," says Kaser.
Executives must demonstrate that Citigroup can make a 12% to 13% return on equity, according to analyst David Konrad of Keefe, Bruyette & Woods.
The rivals would keep an eye on this technology, but it would be seen as possible, according to the Argentine.
Finance and Trade Solutions, a global payment business, has a fundamental element to Fraser's strategy. It requires relatively little capital to produce returns, and it can help cross-sell other services, according to executives.
Ybarra said the company "has significant potential going forward."
Citigroup's payments business is already leading competitors in sourcing solutions for multinational corporations. It wants to expand its business to serve commercial banking clients, including medium-sized enterprises with annual income of between $50 million and $2 billion, who operate internationally.
People familiar with the plan say that it also sees opportunities to expand payments services to governments, financial institutions, and fintech companies.
Executives will explain how expanding the payments, commercial, and wealth industries will assist the rest of the bank.
"Investing in payment, commercial banking, and wealth will strengthen our banking position," said Tyler Dickson, the global co-head of the banking, capital markets, and advisory businesses.
Executives are determined to change in Citigroup's investment banking and trading sectors.
"We will invest in parts in which we can gain revenue share among our competitors in the United States," Dickson adds.
A BETTER PLACE
Citigroup was fined $400 million in October 2020 for failing to correct "longstanding deficiencies" in its risk and control systems, and ordered the lender to improve its processes and technology.
The bank expected its annual expenses to jump 9% to $48 billion in 2021, partly due to the costs associated with complying with orders.
Executives of Citigroup will argue that the investment will pay off in the long run.
"We will be in a better position when we succeed in delivering what regulators are asking," said Ybarra, who works in investment banking, trading, corporate banking, and services. The company receives around two-thirds of Citigroup's core income from the revamped group.
"It is forcing us to resolve some further issues in our infrastructure and data that would have required more time."
Citi executives will discuss how they intend to get a balance between return of capital and investing in growth.
"It's good that we only keep capital that we think will yield decent returns," said Ybarra. "That tendency is particularly strong for us because of where our stock price is."
Fraser's strategy will not deliver immediate results. Alternatively, sales of Asia and Mexico consumer businesses might take two years, and its long-suffering investors are unlikely to demonstrate patience.
Konrad said the investors have built up this investor day. "There must be a very high level of urgency."