Jenn Landis:

Thank you, operator. Good morning, and thank you all for joining our second quarter 2024 earnings call. I am joined today by our Chief Executive Officer, Jane Fraser; and our Chief Financial Officer, Mark Mason. I'd like to remind you that today's presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And with that, I'll turn it over to Jane.

Mark Mason:

Thanks, Jane, and good morning, everyone. I'm going to start with the firm-wide financial results, focusing on year-over-year comparisons for the second quarter, unless I indicate otherwise, and then spend a little more time on the business. On Slide 6, we show financial results for the full firm. For the quarter, we reported net income of approximately $3.2 billion, EPS of $1.52 and RoTCE of 7.2% on $20.1 billion of revenue. Total revenues were up 4%, driven by growth across all businesses as well as an approximate $400 million gain related to the Visa B exchange offer. A significant portion of this gain is reflected in equity markets with the remainder reflected in all other. Expenses were $13.4 billion, down 2% and 6% on a sequential basis. The combination of revenue growth and expense decline drove positive operating leverage for the firm and the majority of our businesses. Cost of credit was $2.5 billion, primarily driven by higher card net credit losses, which were partially offset by ACL releases and all businesses except USPB, where we built for loan growth. At the end of the quarter, we had nearly $22 billion of total reserves with a reserve-to-funded loan ratio of approximately 2.7%. On Slide 7, we show the expense trend over the past five quarters. This quarter, we reported expenses of $13.4 billion, down 2% and 6% sequentially, which includes the $136 million civil money penalties imposed by the Fed and OCC earlier this week. The decrease in expenses was primarily driven by savings associated with our organizational simplification, stranded cost reductions, and lower repositioning costs, partially offset by continued investment in transformation and the Fed and the OCC penalty. As we said over the past few months, we will continue to invest in the transformation and technology to modernize our operations and risk and control infrastructure. We expect these investments to offset some of our sales and headcount reduction going forward. However, based on what we know today, we will likely be at the higher end of the expense guidance range, excluding the FDIC special assessment and the civil money penalties. With that said, we will, of course, continue to look for opportunities to absorb the civil money penalties. Before going into the balance sheet and the business results for the quarter, I'd like to also give more color on the transformation and address what the Fed and OCC announced Wednesday. We've made good progress on our transformation in certain areas over the last few years, and I want to highlight some of those areas before discussing the announcement. First, wholesale credit and loan operations, where we implemented a consistent end-to-end operating model and consolidated multiple systems with enhanced technology, this has not only reduced risk, but enhanced operating efficiency and the client experience. We've also made improvements in risk and compliance as we enhanced our risk assessment and technology capabilities to increase automation for monitoring. And in data, while there's a lot more to do, we stood up a data governance process and streamlined our data architecture to ultimately facilitate straight-through processing. Overall, we've improved risk management and consolidated and upgraded systems and platforms to improve our resiliency. These efforts represent meaningful examples of how we're making progress against our transformation milestones. That said, we have fallen short in data quality management, particularly related to regulatory reporting, which we've acknowledged publicly since the beginning of the year. As such, we've begun to put additional investments and resources in place to not only address data quality management related to regulatory reporting and data governance, but also stress-testing capabilities, including DFAST and Resolution and Recovery. We also reprioritized our efforts to ensure we're focused on data that impact these reports first. We take this feedback from our regulators very seriously and we're committed to allocating all the resources necessary to meet their expectations. Now, turning back to the quarterly results. On Slide 9, we show net interest income, deposits, and loans, where I'll speak to sequential variances. In the second quarter, net interest income was roughly flat. Excluding Markets, net interest income was down 3%, largely driven by the impact of foreign exchange translation, seasonally lower revolving card balances, and lower interest rates in Argentina, partially offset by higher deposit spreads in Wealth. Average loans were roughly flat as growth in cards and Mexico consumer was largely offset by slight declines across businesses. And average deposits decreased by 1%, largely driven by seasonal outflows and transfers to investments in Wealth as well as non-operational outflows in TTS. On Slide 10, we show key consumer and corporate credit metrics, which reflect our disciplined risk appetite framework. Across our card portfolios, approximately 86% of our card loans are to consumers with FICO scores of 660 or higher. And while we continue to see an overall resilient US consumer, we also continue to see a divergence in performance and behavior across FICO and income bands. When we look across our consumer clients, only the highest income quartile has more savings than they did at the beginning of 2019, and it is the over 740 FICO score customers that are driving the spend growth and maintaining high payment rates. Lower FICO bands customers are seeing sharper drops in payment rates and borrowing more as they are more acutely impacted by high inflation and interest rates. That said, as we will discuss later, we're seeing signs of stabilization in delinquency performance across our cards portfolio. And we've taken this all into account in our reserving and we remain well reserved with a reserve to funded loan ratio of 8.1% for our total card portfolio. Our corporate portfolio is largely investment-grade at approximately 82% as of the second quarter, and we saw a nearly $500 million sequential decrease in corporate non-accrual loans, largely driven by upgrades and repayments. Additionally, this quarter, we saw an improvement in our macro assumptions driven by HPI, oil prices, and equity market valuations. And our credit loss reserves continues to incorporate a scenario weighted-average unemployment rate of nearly 5% and a downside unemployment rate of nearly 7%. As such, we feel very comfortable with the nearly $22 billion of reserves that we have in the current environment. Turning to Slide 11, I'd like to take a moment to highlight the strength of our balance sheet, capital, and liquidity. It is this strength that allows us to support clients through periods of uncertainty and volatility. Our balance sheet is a reflection of our risk appetite, strategy, and diversified business model. Our $1.3 trillion deposit base is well-diversified across regions, industries, customers, and account types. The majority of our deposits are corporate at $807 billion and span 90 countries. And as you heard at the Services Investor Day, most of these deposits are held in operating accounts that are crucial to how our clients fund their daily operations around the world, making them operational in nature and therefore very stable. The majority of our remaining deposits, about $404 billion are well-diversified across the Private Bank, Citigold, Retail, and Wealth at Work offering, as well as across regions and products. Of our total deposits, 68% are US dollar-denominated with the remainder spanning over 60 currency. Our asset mix also reflects our strong risk appetite framework. Our $688 billion loan portfolio is well-diversified across consumer and corporate loans, and about one-third of our balance sheet is held in cash and high-quality short-duration investment securities that contribute to our approximately $900 billion of available liquidity resources. We continue to feel very good about the strength of our balance sheet and the quality of our assets and liabilities, which position us to be a source of strength for the industry and importantly for our clients. On Slide 12, we show a sequential walk to provide more detail on the drivers of our CET1 ratio this quarter. We ended the quarter with a preliminary 13.6% CET1 capital ratio, approximately 130 basis points or approximately $15 billion above our current regulatory capital requirement of 12.3%. We expect our regulatory capital requirement to decrease to 12.1% as of October 1, which incorporates the reduction in our stress capital buffer from 4.3% to the indicative SCB of 4.1% we announced a couple of weeks ago. We were pleased to see the improvement in our DFAST results and the corresponding reduction in our SCB. That said, even with the reduction, our capital requirement does not yet fully reflect our simplification efforts, the benefits of our transformation or the full execution of our strategy, all of which we expect to reduce our capital requirements over time. And as a reminder, we announced an increase to our common dividend from $0.53 per share to $0.56 per share following the SCB result. And as Jane mentioned earlier, we plan on doing $1 billion of buybacks this quarter. So now turning to Slide 13. Before I get into the businesses, as a reminder, in the fourth quarter of last year, we implemented a revenue-sharing arrangement within Banking and between Banking, Services and Markets to reflect the benefit the businesses get from our relationship-based lending. The impact of revenue sharing is included in the all other line for each business in our financial supplement. In Services, revenues were up 3% this quarter, reflecting continued underlying momentum across both TTS and security services. Net interest income was down 1%, largely driven by lower earnings on our net investment in Argentina, partially offset by the benefit of higher US and non-US interest rates relative to the prior-year period. Non-interest revenue increased to 11%, driven by continued strength across underlying fee drivers as well as a smaller impact from currency devaluation in Argentina. The underlying growth in both businesses is a result of our continued investment in product innovation, client experience, and platform modernization that we highlighted during our Services Investor Day last month. Expenses increased 9%, largely driven by an Argentina-related transaction tax expense, a legal settlement expense, and continued investments in product innovation and technology. Cost of credit was a benefit of $27 million, driven by an ACL release in the quarter. Average loans were up 3%, primarily driven by continued demand for export and agency finance, particularly in Asia, as well as working capital loans to corporate in commercial clients in Latin America and Asia. Average deposits were down 1%, driven by non-operating deposit outflows. At the same time, we continue to see good operating deposit inflows. Net income was approximately $1.5 billion, and Services continues to deliver a high RoTCE coming in at 23.8% for the quarter. On Slide 14, we show the results for Markets for the second quarter. Market revenues were up 6%. Fixed income revenues decreased 3%, driven by rates and currencies, which were down 11% on the back of lower volatility and tighter spreads. This was partially offset by strength in spread products and other fixed income, which was up 20%, primarily driven by continued loan growth and higher securitization in underwriting fees. In addition to a benefit from the Visa B exchange offer, we continue to see good underlying momentum in equity, primarily driven by equity derivatives, and we continue to make progress in prime with balances up approximately 18%. Expenses decreased 1%, driven by productivity savings, partially offset by higher volume-related expenses. Cost of credit was a benefit of $11 million as an ACL release more than offset net credit loss. Average loans increased to 11%, largely driven by asset-backed lending and spread products. Average trading assets increased 12%, largely driven by client demand for treasuries and mortgage-backed securities. Markets generated positive operating leverage, and delivered net income of approximately $1.4 billion, with an RoTCE of 10.7% for the quarter. On Slide 15, we show the results for Banking for the second quarter. Banking revenues increased 38%, driven by growth in investment banking and corporate lending. Investment banking revenues increased 60%, driven by strength across capital markets and advisory, given favorable market conditions. DCM continued to benefit from strong issuance activities, mainly in investment grade as issuers continued to derisk funding plans in advance of what could be a more volatile second half in the context of a number of important global elections as well as the macro environment. In ECM, excluding China A shares, we're seeing a pickup in IPO activity, led by the US as well as continued convertible issuance as issuers take advantage of strong equity market performance and expectations for rates to be higher for longer. And in advisory, we're seeing revenues from the relatively low announced activity in 2023 coming to fruition as those transactions close. Both year-to-date and in the quarter, we gained share across DCM, ECM, and advisory, particularly in technology, where we've been investing. Corporate lending revenues excluding mark-to-market on loan hedges, increased 7%, largely driven by higher revenue share. We generated positive operating leverage again this quarter as expenses decreased 10%, primarily driven by actions taken to right-size the expense base. Cost of credit was a benefit of $32 million, driven by an ACL release, reflecting an improvement in the macroeconomic outlook, partially offset by net credit loss. Average loans decreased 4% as we maintain strict discipline around returns combined with lower overall demand for credit. Net income was $406 million, and RoTCE was 7.5% for the quarter. On Slide 16, we show the results for Wealth for the second quarter. Wealth revenues increased 2%, driven by a 13% increase in NIR from higher investment fee revenues, partially offset by a 4% decrease in NII from higher mortgage funding costs. We continue to see good momentum in non-interest revenue as we benefited from double-digit client investment asset growth, both in North America and internationally, driven by net new client investment assets as well as market valuation. Expenses were down 4%, driven by the initial benefit of expense reductions as we right-sized the workforce and expense base. Cost of credit was a benefit of $9 million as an ACL release more than offset net credit loss. Preliminary end-of-period client balances increased 9%, driven by higher client investment assets as well as higher deposits. Average loans were flat as we continue to optimize capital usage. Average deposits increased 2%, largely reflecting the transfer of relationships and associated deposits from USPB, partially offset by a shift in deposits to higher-yielding investments on Citi's platform. Client investment assets were up 15%, driven by net new investment asset flows and the benefit of higher market valuation. Wealth generated positive operating leverage this quarter, and delivered net income of $210 million, with an RoTCE of 6.4% for the quarter. On Slide 17, we show the results for US Personal Banking for the second quarter. US Personal Banking revenues increased 6%, driven by NII growth of 5% and lower partner payments. Branded cards revenues increased 8%, driven by interest-earning balance growth of 9% as payment rates continue to moderate and we continue to see growth in spend volumes up 3%, primarily driven by customers with FICO scores of 740 or higher. Retail services revenues increased 6%, primarily driven by lower payments from Citi to our partners due to higher net credit losses and interest-earning balances grew 8%. Retail banking revenues increased 3%, driven by higher deposit spreads as well as mortgage and installment loan growth. USPB also generated positive operating leverage this quarter, with expenses down 2%, driven by lower technology and compensation costs, partially offset by higher volume-related expenses. Cost of credit increased to $2.3 billion, largely driven by higher NCLs of $1.9 billion and an ACL build of approximately $400 million, reflecting volume growth in the quarter. But let me remind you of the three things driving our NCLs this quarter. First, card loan vintages that were originated over the last few years are all maturing at the same time. These vintages were delayed in their maturation due to the unprecedented levels of government stimulus during the pandemic. Second, we continue to see seasonally higher NCLs in the second quarter. Third, certain pockets of customers continue to be impacted by persistent inflation and higher interest rates resulting in higher losses. However, across both portfolios, we are seeing signs of stabilization in delinquency performance, but we will continue to watch the impact of persistent inflation and high interest rates as the year progresses. Despite these factors, we still expect branded cards to be in the 3.5% to 4% NCL range for the full year, and retail services to be at the high end of the range of 5.75% to 6.25%. Average deposits decreased 18% as the transfer of relationships and the associated deposits to our Wealth business more than offset the underlying growth. Net income was $121 million, and RoTCE for the quarter was 1.9%. As we said before, we will continue to take actions to manage through the regulatory headwind, lap the credit cycle, and grow revenue while improving the overall operating efficiency of the business to ultimately get to a high-teens return over the medium-term. On Slide 18, we show results for all other on a managed basis, which includes corporate/other and legacy franchises, and excludes divestiture-related items. Revenues decreased 22%, primarily driven by the closed exit and winddowns and higher funding costs, partially offset by growth in Mexico as well as the impact from the Visa B exchange offer. And expenses decreased 7%, primarily driven by closed exit and winddowns. Slide 19 shows our full year 2024 outlook and medium-term guidance, both of which remain unchanged. We continue to remain laser-focused on executing on our transformation and enhancing the business' performance. And while we recognize there's a lot more to do on transformation, we are pleased with the progress that we're making towards our 2024 and medium-term targets and remain committed to these targets. With that, Jane and I will be happy to take your questions.

Mike Mayo:

Hi. Could you elaborate more on the amended consent order? Jane, you said it was disappointing to have gotten that this week. It's almost four years into the consent order. And a little bit why it hasn't been resolved? And what's on the -- that's the loss column, and maybe a little bit more on the win column too. I mean you have, what, 12,000 people thrown at the problem, billions of dollars. Is it not enough people? Not enough money? Is it -- do you need to look at it in a different way? Are you not talking the same language? I mean, you have John Dugan as your Lead Independent Director, exit of the OCC, and it seems like you got your report card, I guess you passed overall, they went out of the way to say some nice things, but it looks like you got failing grades and data and regulatory management. So, your confidence is going to be resolved, but it's already been four years and it hasn't been resolved. So, what is it going to take from here? And how can you resolve the regulatory concerns while continuing or serving shareholders better? And then, in the win column, since it's so nebulous this back-office, what are you achieving? You mentioned some items, but you could put more meat on those bones? Thanks.

Mark Mason:

Yeah. And so, what -- as Jane says, the progress that we -- that we've made, it spans multiple parts of the consent order and transformation work. Remember, that consent order and transformation work includes risk, it includes controls, it includes compliance, it includes data and data-related to the regulatory reporting. And we've got evidence and proof points of progress against all of those things.

Mark Mason:

Yes.

Mark Mason:

Yeah. And just to add a couple of data points to that, Mike, you've heard us mention some of these before, but we've retired platforms. We've reduced the number of data centers. Platforms are down some 300. We've moved from 39 corporate loan platforms down to south of 20. We've got 20 cash equities execution platforms down to one. We've reduced the six reporting ledgers down to one, 11 sanctioned platforms down to one. So, we've been making considerable progress over the past couple of years. With that said, there's a lot more work to be done around the data regulatory reporting work. If you think about Citi, we've got 11,000 global total reg reports, right? So, we've got to make sure that the data that's going into those reports is the quality of the data that we want it to be, but more importantly, that we're doing it efficiently that it doesn't take thousands of people to reconcile that information. And so, this is an end-to-end process in the way we're approaching it. One example is the 2052a liquidity report that we have. It has 750,000 lines of data, and that data is -- it's important again that we're efficiently collecting it from multiple systems with standards and governance that ensures that it's of the quality that we want it to be without again having to have manual activity supporting it.

Glenn Schorr:

Hi, thank you. So, Mark, I heard your comments on credit this year -- I'm talking US Personal Banking. I heard your comments for credit for the rest of this year and I think in a position that you're very conservative reserves. But right now, you put up a 3% margin, credit costs are almost half of what revenues are in the space. I guess, my question is, as we roll forward, in a slowing economy with likely a little bit lower some rate cuts, how does the P&L evolve? How does it improve from here? Because can we be expecting credit cost to come in a slowing economy? I'm just trying to figure out the path forward because it could be impactful that USPB obviously marches to where you need it to be.

Glenn Schorr:

Okay. I appreciate all of that. And one quickie on DCM. You had amazingly good performance. There's been plenty of conversation about pull-forward this year on just refi driving like three quarters of the activity. Could you just help us think through the second half, when thinking about DCM and just to make sure that we don't like start modeling this into perpetuity?

Mark Mason:

Yeah. The only thing I'd add to that is, look, the wallet for the year is obviously going to depend on a couple of things. So, one, the return of a more normalized IPO market; two, the direction of volatility of interest rates; the ongoing global conflicts that we're all kind of seeing and witnessing; and then finally, as Jane mentioned in her remarks, the elections and what those outcomes look like, not just in the US but abroad. And so, there are a number of factors there that will play to the wallet, but as we said, we believe we're well-positioned to be there to serve our clients and to do so in a way that makes good economic sense.

Jim Mitchell:

Hey, good morning. Just Mark, maybe on NII down almost 4% year-over-year, it seems a little bit more than the guidance, but down modestly for the year. So, can you discuss sort of the puts and takes this quarter and how we should think about the quarterly trajectory for the rest of the year?

Jim Mitchell:

That's helpful. And maybe just quickly kind of a similar question on expenses, better-than-expected this quarter, but there was no restructuring or repositioning charges. I think to get to the high end of your range, you'd have to be up a little bit in the back half from 2Q run rate, is that because you expect more repositioning/restructuring in the second half, or maybe just talk through expense trajectory from here?

Operator:

The next question is from Erika Najarian with UBS. Your line is now open. Please go ahead.

Mark Mason:

So, yes, the answer to last part of your question is yes. So, in the range that I've given, $53.5 billion to $53.8 billion, that includes our estimate for the full year of repositioning and any restructuring charges. That range excludes the FDIC special assessment that we saw earlier in the year and it excludes the CMP of $136 million.

Jane Fraser:

Okay. So, we are not going to be giving guidance going forward around our buybacks. We are going to continue to give quarterly -- and make it a quarterly determination as to the level. And a lot of that is to do with the uncertainty about the forthcoming regulatory changes. I think we were delighted to see a slight reduction in our stress capital buffer, reflecting the financial strength and resiliency of our business model and also good to see the benefits of our strategy playing out, but with the regulatory changes uncertain and we are -- that's one of the major factors for us to continue with the quarterly guidance.

Operator:

The next question is from Gerard Cassidy with RBC. Your line is now open. Please go ahead.

Mark Mason:

Good morning.

Mark Mason:

Yeah. So, on the first part of the question, look, we all kind of have talked about in the past the prospect of FICO inflation back during the COVID period of time. We've been very, very focused on ensuring that acquisitions that we've made have been appropriately kind of analyzed in the underwriting of that to get comfortable with the quality of new customers that we've been bringing on. In light of the environment, we have looked at moving towards higher FICO scores for new account acquisitions. But as I think about what we're seeing now, there is that dichotomy that I mentioned where we have the higher FICO score customers that are driving the spend growth and that frankly have still continued strong balances in savings and it's really the lower FICO band customers where we're seeing the sharper drop in payment rates and more borrowing. And so, the FICO inflation has effectively kind of fizzled out when we look at the mix and dynamic of the customer portfolio that we have at this point. And in terms of the CFPB, late fees, well, I don't have an update on that. Like I said, we've built in an assumption in the -- in our forecast, but in terms of the timing, I don't have a formal update on the certainty of it.

Ken Usdin:

Hey, thanks, good morning. Hey, Mark, talking about the NII outlook and the fact that now we've got a little bit of a discrepancy starting between US rates, maybe higher for longer, and then the beginnings of some of the non-US curves starting to at least put forth their first cut, I know we've got that good chart that you have in the Qs about the relative contributions, can you just help us understand a little bit of like just generally how you're thinking through that discrepancy and how that informs the difference between US-related NII and non-US-related NII as you go forward?

Ken Usdin:

Got it. Okay. And just one follow-up on the OCC amendment, and that's specifically related to the resource review plan. Do you have a line-of-sight on how long that will take you guys to finish because it seems like -- and is that what we should be thinking about in terms of just understanding like what side of what you need to get done in terms of the other language that's written in the order?

Operator:

The next question is from Betsy Graseck with Morgan Stanley. Your line is now open. Please go ahead.

Mark Mason:

Hello.

Betsy Graseck:

Okay. So, I know we talked a lot about expenses. I just have one kind of overarching question here, which is on how we should think about the path of expenses between now and the medium term as we have kind of come quite a long way in the simplification process, maybe if you could give us a sense as to how far along simplification impact on expenses we are? And overlapping with the regulatory requirements, do these net out or are we skewed a little bit more towards regulatory requirements being a bit heavier than what's left on simplification from here? Thanks.

Jane Fraser:

And I just want to reiterate, we remain confident that we will meet our 11% to 12% RoTCE target over the medium-term. And we've got the -- we have the ability to manage the different elements we've been talking about today, making sure that we're investing sufficient resources into the transformation, so we can be on-track with that, as well as in our businesses, as well as the return of capital to our shareholders. And so, we feel confident around that and good about that we can manage this.

Betsy Graseck:

Okay, great. Thank you very much. Appreciate that.

Vivek Juneja:

Hi. Okay, let me just clarify this, Mark and Jane, just to make sure that we all have it right. The $53.5 billion to $53.8 billion does not include anything thus far on what you think you may need to spend on the Resource Review Plan, meaning what additional resources you would have to put to fix the consent order, am I right there?

Mark Mason:

That's right, Jane. What you have heard is that, despite having to spend more, some $250 million or so more, we're not changing the guidance, right? And so, we have -- as Jane mentioned, we have worked on areas already that we've needed to and we have looked for ways to absorb that and are doing so within our guidance.

Mark Mason:

Look, the plan -- the Resource Review Plan, as Jane mentioned, is what we're working through now with the regulators. That will be a process for demonstrating to them that we are spending and allocating the appropriate resources to accomplishing the commitments that we have. Appropriate resources can range from people to technology to enhancing our processes and ensuring better execution. If you think about what that will entail, it will entail areas where we are delayed or behind as we identify those areas, being able to tease out the root cause of any delay and ensure that we've got proper funding allocated to get it back on track. And that's me framing out how I think about what something like this might look like. And so, what we're saying is that, if we identify issues in the quarters to come that we haven't identified already, that's the process we're going to apply to those issues. And as you've heard us say repeatedly, we're going to spend whatever is necessary to then get those things back on track, and as we've done thus far this year, we're going to look for opportunities to absorb those headwinds. I hope that's clear.

Matt O'Connor:

Hi. Apologies if I missed it in the opening remarks, but what drove the decline in credit card revenues from 1Q to 2Q? It looks like they were down about 6% in aggregate even though average loans went up, spending went up. What was the driver of that?

Jane Fraser:

Yeah. Seasonality...

Jane Fraser:

Sequentially.

Jane Fraser:

I think if you look year-over-year, you'll be able to see a pretty common trend there. The consumer is slowing in some of the -- in the spend, as Mark had referred to Matt, but -- and a lot of the spending and the growth areas we are seeing and the underlying numbers is being driven by the affluent customer.

Jane Fraser:

But nothing that's particularly worrying us, Matt.

Jane Fraser:

Look, the -- let's be clear. This action does not impact our ability to return capital to our shareholders. The dividends that are referenced are just intercompany payments from CBNA to the parents. So, first of all, don't confuse what a dividend is here. We will -- it's not going to impact how we run the company, the subsidiary, the capital or the liquidity at all, and the dividends are not capped.

Jane Fraser:

Until the resource plan is agreed...

Jane Fraser:

And as you'll have seen the resource plan needs to be submitted within 30 days. And as I indicated, we're working on that one and not anticipating that to be a problem.

Saul Martinez:

Hi, good afternoon. Thanks for taking my question. Just -- I guess I just want to follow-up on the latter question. I just want to be very clear. So, the -- what you're saying is that the requirement that CBNA receive a non-objection to before dividending upstream to the parent, that does not impact how you think about your capital flexibility, how you think about -- it doesn't restrict you in any way and shouldn't impact, for example, your ability to benefit from -- for example, a Basel endgame rule that is softened or some of the benefits, Mark, that you talked about in terms of simplification. So, you don't see this impacting your ongoing level of capital flexibility and your ability to repurchase stock going forward if some of these things actually do play out?

Saul Martinez:

Okay. That's fair enough. That's clear as it can be. Good.

Saul Martinez:

Second question on, I just want to follow-up on USPB. I mean, I still -- I get the point that you're seeing normalization in losses in cards, but even if I adjust for reserve builds, your RoTCE is still single-digit. I would think even at these NCL levels, your cards business is pretty profitable. You're a scale player. I mean, you're above sort of pre-pandemic levels, but not -- I don't know if I -- it doesn't seem like it's that much higher by a dramatic amount. It would seem to imply that the retail bank is a huge drag on profitability even maybe even losing money, I don't know. But can you just talk about what you can do to sort of improve the retail bank profitability and just give any more color that you can in terms of the path to get to that high-teen RoTCE that you talked about?

Operator:

The next question is from Steven Chubak with Wolfe Research. Your line is now open. Please go ahead.

Mark Mason:

Mason Yeah, thank you. So, I'm going to give you a very simple answer to a very complicated question. It really comes down to driving US income, right? And so, we are focused on not just all of the things that we've mentioned, but driving higher income in the US that allows for us to utilize the disallowed DTA. We saw some of that in the quarter, and we expect to see more of it as we move through the medium-term, but that is the major driver of that utilization. And...

Steven Chubak:

Yeah, thank you both for that color. And maybe just a quick follow-up. Just on the retail services business, we are seeing some evidence that your competitors in this space have been more aggressive leading with price in an effort to win some new mandates. I was hoping you could just speak to what you're seeing across the competitor set and your appetite or willingness to potentially offer better economics in response to increased competition from some of your peers?

Mark Mason:

And that may be different from what you hear and see from other players in the space, but as Jane mentioned, we're keenly focused on ensuring that, yes, we have a good partnership, but that we're generating an appropriate return. That's part of achieving our medium-term targets. And as you know, since you brought up retail cards, I mean, when we think about how CECL works in the reserves you have to establish for these partnerships, we're establishing full lifetime reserves that's on the balance sheet where ultimately we end up splitting those through the partner sharing economics. So, it's another important consideration as we think about expanding and taking on these relationships and renegotiating partnerships to making sure that returns make good sense for us.

Operator:

The next question is from Vivek Juneja with JPMorgan. Your line is now open. Please go ahead.

Jane Fraser:

Look, in terms of the consent order and the areas we've had delays, there are four areas to the consent order; it's risk management, it's data governance, it's around compliance, and it's around control. As we've said, we were falling behind in certain areas related to data and we've been investing to address the areas that we were behind. We also saw an increase in the scope related to regulatory reporting. So, we added some more bodies of work there and we are well underway. So, we are not expecting this to extend on the original expectations that we have on when we will complete the body of work for the consent order. We have a target state for the different areas of it. We have the plan to achieve those target states. We'll make the investments necessary to ensure that we do so. We'll try and get this done as quickly, but as robustly as possible. And we're doing this by making strategic fixes and investments rather than what I would call the old city way, which is a series of band-aids that remediate, but don't actually fix the underlying issue. And that way, we are delivering for our shareholders as well as our regulators and our clients because we're putting in strategic solutions that will benefit all, but I'm not expecting this to change the timeframes.

Operator:

The final question comes from the line of Mike Mayo with Wells Fargo. Your line is now open. Please go ahead.

Jane Fraser:

Yeah. Mike, maybe I just -- you're asking a great and it's an important question. So maybe I try and explain what we -- the data elements because it's an area that Mark and I have pointed to. So, first of all, we use data all over the firm. We use it to deliver 72 million customer statements every month. Our corporate clients, that you heard about at our Service Investor Day access account data real-time across multiple countries on CitiDirect, and we're moving $5 trillion roughly per day for those clients around the world. We trade billions of dollars in a millisecond on our trading platforms. We can see our liquidity positions real-time around the world. This can only be done if you've got pretty pristine data and highly automated ecosystems. So -- but what is the transformation doing? What it is doing is simplifying how data moves through the firm and it's about upgrading the management and governance over those flows. And we -- as I've said, we're doing a strategic overhaul of large parts of our infrastructure. So, what are we doing? We're making sure we're capturing data accurately using smart tools and automation. We will often talk about this smart system, make sure there's no errors when we book a trade. We've seen our error rate down 85% as a result of it. We're housing our upstream data in two standardized repositories. They're the golden sources, Olympus and Data Hub, which you've heard me talk about a few times. And they're a golden source now for all of the downstream data use, populating the thousands of regulatory reports Mark talked about and other areas. And what a single repository means is that the data models, the data quality rules, the controls you put in place to govern and manage that data, they all sit in one place rather than being distributed all over the firm as they have been historically. Mark has been investing in building a standardized reporting infrastructure. You've heard us talk about a single full-suite reporting ledger versus the six or so reporting ledgers that we've had in the past. And we're delivering all of this through consolidated systems, through the automation and streamlining of data flows. So, instead of being in multiple pipes, the flows go through single pipes. So, it's a -- sorry to get a bit plumber on you for a moment, but I think it's important to understand what it is, because it's a lot of work. It's a strategic overhaul. It's not a series of tactical fixes. Where we're behind, as we do the work on data, we identify specific issues we need to fix as we execute the plan that we have in place. There's some more areas to address and we knew back when we did the plan. So, we've -- and we've also accelerated the work on improving the accuracy of our regulatory reports and we increased the scope of this work as well. It's more comprehensive than originally planned. So, what we're doing? We're adding resources and data experts. We're learning from best practices. And we're using some great AI and other data tools that are helping to identify anomalies in data and data flows much quickly. We're also to the -- to some of the culture side, we're learning from pilots how do we accelerate broader deployment at scale across the firm in a consistent enterprise-wide manner. So, all of these things in the data side are going to enable us to leapfrog competitors, more revenue opportunities, better client service, fewer buffers, drive more efficiencies, and hope at the end of -- the end goal here is, it becomes a competitive advantage for the firm. That is the data plan. Clearly, there's a very important element of it related to the consent orders. We're behind in a few areas. We're investing. We've already begun that investment, as Mark and I have talked about, to get it done, we'll get it done.

Mike Mayo:

Real short follow-up...

Mike Mayo:

Yeah, just to say -- real short follow-up to that. So you're doing all this great stuff, but you still fell short. Just in, like, one sentence, despite doing all this great stuff that you described, the regulators still said you didn't get it done. Why after doing all that, didn't you get that it done in the eyes of the regulators and why won't be fixed now? Just like a one-sentence explanation for that if you have it?

Mark Mason:

And Mike, if I could just put one number into context, because you played back the 11,000, which was a number of global regulatory reports across the landscape here. There are probably 15 to 30 that are core US reports that are pivotal to our US regulators. And a lot of what we're discussing here is about ensuring that we're prioritizing the data that impacts those 15 to 30 reports as we work through this.

Jenn Landis:

Thank you all for joining us. Please let us know if you have any follow-up questions. Thank you.

Jennifer Landis :

Thank you, operator. Good morning and thank you all for joining our First Quarter 2024 Earnings Call. I am joined today by our Chief Executive Officer, Jane Fraser and our Chief Financial Officer, Mark Mason. I'd like to remind you that today's presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials, as well as in our SEC filings. And with that, I'll turn it over to Jane.

.:

As you've seen, Andy continues to form his team and is focused on three areas. First, rationalizing the expense base. Second, turning on the growth engine by focusing on investment revenues. And third, enhancing our platforms and capabilities to elevate the client experience. Now these won't happen overnight, but getting these things right will help us get more than our fair share of the $5 trillion of assets that our clients have away from us. And that will help us get our returns to where they need to be in this business in the medium-term. USPB had double-digit revenue growth for the sixth straight quarter. We feel good about our position and our resiliency as a prime lend-centric issuer and are seeing positive momentum across proprietary card and partner card businesses. Healthy spend growth persists in branded cards, primarily driven by our more affluent customers. Across both portfolios, increased demand for credit continues to drive strong growth in interest earning balances. And while they're only a small part of our portfolio, we are keeping an eye on the customers in the lower FICO bands. We also continue to see strong engagement in digital payment offerings, such as Citi Pay, as a point-of-sale lending product, which is easily integrated into merchants’ checkout processes. And we are driving more value from our retail branches, as well as getting the expense base right to increase returns there. Our balance sheet is strong across the board, an intentional result of our high quality assets, robust capital and liquidity positions, and rigorous risk management. During the first quarter, we returned $1.5 billion in capital to our common shareholders and that includes $500 million through share buybacks. Our CET1 ratio ticked up to a preliminary 13.5% and we grew our tangible book value per share to $86.67. We have a great franchise around the world with great clients who are served by great colleagues. I'm pleased with where we are and I'm excited about where we're going. With the organizational simplification behind us and a good quarter under our belt, we have started this critical year on the right foot. Now while there will be bumps in the road, no doubt, we will continue to execute with discipline and we are committed to reaching our medium-term targets. With that, I'd like to turn it over to Mark, and then we will both be delighted, as always to take your questions. Thank you.

Operator:

At this time, we will open the floor for questions. [Operator Instructions] Our first question will come from Mike Mayo with Wells Fargo. Your line is open. Please go ahead.

Jane Fraser:

Thank you, Mike, for the question. The simplification that we've just gone through, it is what we said it is. It is the most consequential set of changes, not only to the organization model that we have, but how we run the bank. It's aligned the structure with the strategy. It's simplified the bank, it's eliminated needless complexity. It's created greater transparency into the five businesses and their performance, as you can see. It's increased accountability. And very simply, it's just easier for our people to focus on our clients, but also getting things done and the execution that we have ahead of us. So maybe if I try and bring this a bit more alive. The first thing we did was we elevated the five businesses and that eliminated the ICG and PBWM layer. And we brought all the elements that the businesses needed to run end-to-end under the direct management of those five business heads, an example being operations. And -- it's enabled transparency, greater accountability, and this end-to-end and total P&L focus, so focus on the bottom-line and the returns, driving growth, expense discipline, et cetera. We also right place businesses to align with the strategy. So banking, all being under one umbrella, the investment bank, the corporate bank, commercial bank, really helping us drive synergies there. Putting finance, F&S and securitization into markets so that we have a unified spread product there, also beginning to see the benefits of that this quarter. So that's an example on the businesses, but I do want to highlight a couple of other areas around this change. So by eliminating the regional layer and putting in a far slimmer, lighter management structure in place in the geographies. That's enabled us to make sure that our countries are focused on client delivery and legal entity management. And we've eliminated the whole shadow geographic P&L. We've eliminated a large number of committees in the geographies. And this is where a lot of the functional and management roles were streamlined and eliminated through the last seven months. And we also broke the regions into smaller, lighter clusters. And that allows us to much better capture the big changes in trade flows and financial flows, et cetera, we're seeing around the world. It's just much nimbler. The third piece, we created the client organizations. So that organization makes sure that our core capabilities and disciplines are being applied firm-wide to drive revenue synergies. And then the governance has got a lot easier. It took up a lot of time. And we've given much clearer mandates in that we've more than halved the number of committees. That's 200 committees plus that we've eliminated in the firm, either by consolidating them or eliminating them. The spans and layers, if you exclude me, 98% of the firm now operates within eight layers. That is a much, much faster decision-making. It's much quicker to get execution done. It also means that you can very quickly get closer to where the engine [room] (ph) of the firm is. We've got clearer accountabilities, we've eliminated most co-heads, we've reduced matrix reporting, we've got the producer to non-producer ratio improved. So all of this really means, as I've said, a clearer deck, so we can be laser-focused on business performance in those five businesses and the transformation. It already feels different. Around my table, I'm much closer to the businesses and the clients. It makes it much easier for Mark and I and the rest of the team to run the bank like an operator versus the head of a holding company. You don't have to go through these aggregator layers to get things done. And we're done, as we said we would be at this point, we're wrapping up the final consultation period, not an easy few months with the organization. We've had to say goodbye to some very good people. We put a lot of change through the organization. And now as we close the chapter on this, we look forward to being back in BAU mode, again continuing to drive improvements in simplification and processes and alike. But now the focus is going to be really getting the full benefit from all the changes we've made in business and organization and moving forward.

Glenn Schorr:

Thanks very much. Yes, so I think it shows how much you've helped us, see the simpler organization. I think people have totally bought into the expense story, so a lot of credit for you guys. I think where I personally and others still have questions on is, on the revenue side and getting to those 4% to 5% medium-term targets. So could you take us just conceptually where we're going to -- where you think you'll drive that growth from this baseline where we're at now? And if you want, you can totally use my second question in there and tell us what good things you're doing inside the Investment Banking line to help tease out one of the [industry] (ph)?

Mark Mason:

Sure. And good morning, Glenn. And we appreciate the acknowledgement around the expenses. As you know, we've been quite focused on that and working hard to ensure that we deliver on what we say, we're going to do there. I'd point on the revenue line, I'd first point to, if you look back since Investor Day, we've in fact been able to deliver on the guidance that we've given for the medium-term, so that 4% to 5% top-line growth. And yes, it was a different rate environment, but that growth that we delivered over the past couple of years has been a mix of both revenue and underlying business strength. As you think about the guidance we talked about for this year, we talked about the NII ex-markets being down modestly. And so what that means is that the momentum and the growth that we expect is going to come from the non-interest revenue. And I think this quarter, is a good example of where and how that’s likely to play through. So the revenue topline being up 3 plus percent. But when you look through each of the businesses and if you look on each of the pages where we disclosed the revenue, you can see the underlying NIR growth in the bottom left hand corner of each of those pages that's coming through as well. So security services up 14% with growth in both TTS between cross-border clearing commercial cards, but also -- and security services, right, with the growth that we're seeing from continued momentum in assets under custody. We expect that trend to continue with existing clients and more -- and new clients, as well as how we do more with our commercial market -- commercial middle market business excuse me. So NIR growth there, the investment banking pieces, the other driver of fees, we’re seeing that while it start to rebound, we’re part of that rebound, the announced transactions were part of those in sectors that we've been investing in. We're bringing in new talent to help us realize and experience that. And even in wealth, where we're not pleased with the top-line performance this quarter, down 4%. When you look through that, we do have good underlying NII growth in the quarter in wealth, and that's up 11% year-over-year. And it's in the area that Andy and the team is leaning in on, which is investments, and not just in one region, but across all the regions. And then finally, the USPB piece, which is showing good NII growth as well. So the long and short of it is that the 4% growth that's implied in $80 billion to $81 billion, is going to be continued momentum, largely in fees, helping us to deliver for our clients and make continued progress towards that medium-term target.

Operator:

Our next question is from Betsy Graseck at Morgan Stanley. Your line is open. Please go ahead.

Jane Fraser:

Hi Betsy.

Betsy Graseck:

I guess a couple of questions. Well, I know we talked through the institutional securities business already on moving that expense ratio a little bit. Could we dig in a little bit on the wealth side, because the expense ratio there is running a little higher, and so it would be useful just to understand the pace or speed or timeframe when we should expect to see that start to inflect?

Mark Mason:

Yes, I mean, look, I think that the quarter expenses that you see of growth of 3% is not yet reflective of the work that Andy has been steadfast at. There is still some investment in there in technology and in the platform that's important, but I think coming out of the first quarter you'll start to see some of the reduction in expenses that's a byproduct of that work. And the work has been across the entire expense base in the wealth business. So that includes non-client-facing roles and support staff. It includes looking at the productivity of existing bankers and advisors. And those kind of reductions will start to play out in the subsequent quarters. I do want to point out, as Jane mentioned, this is a growth business for us. And so you can see on some of the metrics on page 15, the bottom left, some of those good signs of investment momentum. And I highlight that because as the expenses come down from some of those efficiencies, there will be a need for us to continue to invest and replenish low-performing or low-producing bankers and advisors with resources that actually can generate the revenues we expect and take advantage of the client opportunity that's in front of us. So long-winded way of saying, there's some operating efficiency upside for us for sure is a combination of the top-line and the expense we’re playing through the balance of the quarters in the year here.

Jim Mitchell:

Okay, good morning. Jane and Mark, I very much appreciate the comments on your growth opportunities and driving growth, but revenues are often dictated by the macro that – it’s a little bit out of your control. Can you talk a little bit about the flexibility on the expenses, you have a range in 2026 of [51 to 53] (ph), So if revenues are coming in below the targets, is it, I guess, a, fair to assume you'd be at the very low end of that range, or is it -- and I think there is some revenue growth built in there. So is there some flexibility to the downside to try to get your targets in a tougher revenue environment? Thanks.

Operator:

Our next question is from Ebrahim Poonawala at Bank of America. Your line is open. Please go ahead.

Mark Mason:

Sure, look – and I've said it repeatedly, Jane has said it repeatedly given where we trade, we think buying back is smart and we'd like to do as much as we possibly can and -- as much as makes sense, in light of the uncertainty that's out there. We have run at about [$13.5 billion] (ph) this quarter. That does give us capacity above the [$13.3 billion] (ph). (Technical Difficulty) we want to make sure we can support the clients that want to do business with us, whether that be in markets or other parts of the franchise. And then there's still uncertainty out there about how the capital regulation evolves. The good news is, we are hearing kind of favorable things about how the Basel III endgame proposal could evolve, but that hasn't happened yet. It's not finalized. It's not in place yet. And so we want to see how that continues to play out. We're obviously in the midst of a CCAR process. We want to see how that evolves. And we'll continue to take the buyback decision on a quarter-by-quarter basis, but we recognize that there's an opportunity there and we'll get after it just as soon as it makes good sense for us.

Erika Najarian:

Hi. Good afternoon. Hey. So, you know, clearly the theme of this -- that's emerging on the Q&A is, you know, a healthy skepticism about the revenue targets in-line with the, in light of the expense declines, which you know, it's not really as analysts, where we're sort of a little bit [parroting] (ph) what we're hearing from long-only investors that haven't yet you know jumped into the stock. So to that end I guess I'm going to ask Ebrahim's question differently then ask a question about card late fees. How are you balancing, clearly your valuation would demand that the buybacks be ramped up from $500 million, but growing revenues at a 4% to 5% CAGR, you know, would mean potentially some capital clawback into the business. I guess, how are you balancing that, especially given that the demand for buyback is louder at Citi than any other money center peer. And could you give us a sense of what card late fees are and, you know, how that would impact the $80 billion to $81 billion for the year, if we do get an earlier implementation in October?

Jane Fraser:

And also just as a reminder, 85% of our [two-CCAR] (ph) portfolios are prime. And in CRS, where you tend to see some of the lower income households, we do have that -- the economics of the fee change will be shared with our partners in CRS. So we want our customers to pay on time with a number of mechanisms to do so. But in terms of the economics, I think we, along with the rest of the industry, will be putting in mitigating actions over time, some of which we've already begun to implement.

John McDonald:

Thanks. Mark, I was hoping you'd give a little more color on how you're feeling about the credit card charge-offs. You maintained the outlook for the year. You mentioned the higher end on retail services. You still feel like -- you'll see a peak this year and what kind of metrics are you looking at in terms of delinquency formation and seasoning to inform that view that you might see the peak in card charge-offs this year?

John McDonald:

Okay, and on the branded side, you still expect kind of the peak this year. You're still inside of the range for the full year and expect 2025, you could move lower on the branded charge-offs?

Operator:

Our next question is from Ken Usdin at Jefferies. Your line is open. Please go ahead.

Mark Mason:

Yeah, sure. Look, I think that, you know, when I think about the reserve builds, I think it's the same factors that come into play. So obviously the view on the macro is important. And right now, if you think about some of the key macro factors that impact the cards portfolio, the unemployment assumption weighted is about 5%, the downside is about you know 7% kind of weighted over the period. And so feel -- how that evolves will be an important factor. How [HPI] (ph) evolves will be, you know, important consideration here for this portfolio. But also what happens with volumes becomes a factor on reserve builds and how important or how much they increase or decrease. And then the final piece is mix, and it's kind of related to that revolver point. As we see the mix evolve from transactors to revolvers, that's going to play into how much of a reserve, from a lifetime point of view, we have to continue to build. And so it's -- why I mentioned on John's question, you know, the importance of looking at, you know, the interest rates looking at what's happening with inflation, watching the lower income customer base, because all of those things combined with how we think about the scenarios and the weighting will be a factor on the reserves. But I will say, Ken, as I sit here and think about what we have in the quarter, I feel very good about the reserve levels. The 8.2% for combined kind of, you know, ACL to loan ratio feels right for the mix of this portfolio, and we'll continue to watch it.

Mark Mason:

Sure. Yeah, I think I'd say a couple things. We do have some Argentina playing through the NII line. I will say that the best way to think about it is kind of the underlying beta activity. And we have seen, this is a corporate client, it is an institutional client, we have seen betas, particularly in the US, at kind of normalized or terminal levels and playing a bit through that. We are seeing betas outside of the U.S., continue to increase as it relates to the TTS client base. But all of that, again, is inside of the range that we've talked about. I don't expect to see kind of year-over-year growth on the NII line anywhere close to kind of what we've seen in prior years, prior quarters, just in light of kind of how the rate environments evolved and in light of kind of quantitative tightening – and tightening and the impact on deposit levels. The last point I'd make on this is, we will continue to drive and see growth as it relates to the operating deposits. And that'll be an important tailwind that kind of plays through.

Vivek Juneja:

Hi, thank you. Jane, Mark, just a question maybe on Argentina. You had -- you've shown $100 million in NII, total net income benefit of $500 million after tax, so probably implying about $500 million, $600 million of non-interest income benefit. Which line item -- sorry, which segment did that come through and is that sustainable?

Operator:

[Operator Instructions] Thanks so much. Our next question is from Scott Siefers at Piper Sandler. Your line is open. Please go ahead.

Mark Mason:

Yeah, let me try and take it in two pieces, I guess. So one is, if I think about how the rate implies have evolved from the three to six to now something a little bit north of one, in the context of what I expect for our performance. It doesn't have a material impact on the guidance that I've given of $80 billion to $81 billion. And in part, that's because, as I think about the timing for the planned cuts, which was generally backloaded, as well as some of the other factors that play through. So, you know, Argentina just announced a policy rate reduction yesterday or a couple of days ago. If rates are a bit higher for longer, we'll watch how the betas continue to evolve. I mentioned earlier the late fees for the cards business happened a bit sooner. Late fees are actually booked in our NII line and so those factors you know put me in a place where I feel like, there'll certainly be puts and takes around how that rate curves evolve, and therefore I'm very comfortable kind of leaving the guidance where it is. To answer your broader question in terms of kind of how we're positioned, you know, I'd point you to the 10-K that we have that's out -- and in that 10-K, we offer as we have before a number of IRE scenarios for plus or minus 100 basis points and what it means for our business. And if you look at it, you'll see that for the aggregate firm, for Citi, U.S. dollar and non-U.S. dollar, that we're asset sensitive. So as rates increase, we should see an increase in our NII performance. But if you look at the breakdown, and that's about, I think it was about a [$1.4 billion] (ph) or something in terms of the impact of that move. But if you look at the breakdown, what the breakdown will show is that for U.S. dollar, at this point, we're neutral. So if rates were to go up, rates were to go down, no material impact as it relates to our revenue. For the non-U.S. dollar, we're still quite asset sensitive, right. And so that should give you some sense for at that -- and we recognize the limitations with IRE, it assumes, you know, a 100 basis point parallel shift across the curve, the static balance sheet, et cetera. But that should give you some sense for the implications of the rate curve moves as it relates to our book of business.

Gerard Cassidy:

Hi Mark, hi Jane.

Mark Mason:

Hi Gerard.

Mark Mason:

Look, we're still seeing good demand for corporate credit. And what I'd say is that we've been very disciplined about where we want to play on the risk profile here. We've been very disciplined in terms of the investment grade, you know, large multinationals that we serve. And that hasn't shifted from an underwriting point of view. We have seen spaces like private credit pick up quite a bit. And that, I think, will continue to evolve. I think, importantly, as we think about our corporate lending activity, you'll note that, actually, we've been very disciplined about how we want to deploy balance sheet and part of that again is a byproduct of the revenue sharing that we've implemented where there's been healthy debate and discussion around the names that we want to continue to serve and whether they're positioned to take advantage of the broader platform that we have. And so I think the space will continue to evolve. I think there's been good, healthy demand, despite continued strong balance sheets. And part of that demand has been because of where rates are likely to go and continue to evolve. And I think we're well positioned to be thoughtful about that. But Jane, you may want to add a couple points to it.

Mark Mason:

Important for us to take …

Matt O'Connor:

Hi. In your prepared remarks, you talked about intensifying certain efforts regarding regulatory processes and data on Slide 4 here. And I was just wondering if you could elaborate on, you know, I guess what you're doing or trying to do differently on that front and if there's any meaningful financial impact. Thank you.

Mark Mason:

Yeah -- I mean, I think that's exactly right. But you'd also expect that in this type of environment and on the heels of the regional bank stress last year that we're looking at stress scenarios, we're enhancing our CCAR processes, we're enhancing our resolution and recovery processes, all of those things just to kind of -- to make sure that we're shoring up capabilities and you'd expect that across the industry quite frankly.

Saul Martinez:

Hi, good afternoon. I'll change tack a little bit here, but I'm curious if there's any update on the Mexican IPO, and more specifically I'm kind of curious how [set it stone] (ph) the IPO processes -- you will have a new administration and even if the candidate from same-party, she may have a less confrontational view the private sector, perhaps be more allowing a low bank -- local bank to extract value from buying a bank. And, you know, I guess if the facts on the ground were to change, would you be open to a sale potentially being back on the table? Because it does seem like this is a situation where a private market valuation could be higher and even materially higher than a public market valuation.

Operator:

Our next question is from Chris Kotowski at Oppenheimer. Please go ahead.

Mark Mason:

I'll take it. I'll take that.

Mark Mason:

I'll take that. I mean I'll take the win, a downward trajectory from here through the end of the year in-line with the guidance of $53.5 billion to $53.8 billion. And so yes.

Steven Chubak:

Hi, good afternoon. So Mark.

Steven Chubak:

Hi, Jane. Hi, Mark. I did want to ask on DFAST and SCB, just recognizing this will be the last opportunity before the results come out. The macro scenario Fed assumptions look quite similar to last year, but just given the significant transformation that's underway, repositioning actions which [admittedly] (ph) depressed earnings last year. I want to get a sense as to whether there are any [IDEO] (ph) factors that could result in greater SCB volatility in the coming exam and just broader thoughts on the longer-term trajectory for the SCB, just given the Org simplification efforts are underway.

Operator:

Our next question is from Mike Mayo at Wells Fargo. Your line is open. Please go ahead.

Mark Mason:

We have seen growth in the quarter, in operating deposits. The confidence comes from the focus that we've had with our existing clients, as well as the growth we've seen with new clients, doing more with existing and more countries, more deeply penetrating the commercial middle market space. And so we've been very thoughtfully focused on deposits that obviously give us the most value and also provide the most stickiness, as it relates to that relationship. And so yes, the confidence is rooted in what we're seeing in the way of underlying operating deposit growth, including inside this quarter.

Operator:

Our next question is from Vivek Juneja at JPMorgan. Your line is open. Please go ahead.

Mark Mason:

Yeah, I don't -- we haven't broken down the transactor versus revolver mix, and so I'm not going to get into that. I will say that the revolver levels are at least back to where they were pre-pandemic and leave it at that. But we are seeing kind of continued revolver activity which you'd expect kind of given the way the cycle has evolved and given payment rates have started to moderate and the stimulus has kind of unwound and so all of that is kind of consistent with expectations but obviously is a factor in reserve levels as I mentioned earlier.

Betsy Graseck:

Hi. Thanks so much. I just wanted to make sure of one thing on the expenses. I know in the past you've talked about the fact that 1Q will be a little elevated with the restructuring, and you showed that was the $225 million in the quarter. And then when we look to 2Q, should we still be expecting a step down in 2Q? And is that step down just the elimination of the $225 million? Or is there some restructuring that we're likely to see in 2Q as well? In other words, should I just fade sequentially 2Q, 3Q, 4Q to hit your annual number? Or is there a bigger step down in 2Q that I should still be expecting here, thanks.

Operator:

There are no further questions. I will turn the call over to Jenn Landis for closing remarks.

Operator:

This concludes the Citi First Quarter 2024 Earnings Call. You may now disconnect.

Jennifer Landis:

Thank you, operator. Good afternoon and thank you all for joining our fourth quarter 2023 earnings call. I am joined today by our Chief Executive Officer, Jane Fraser, and our Chief Financial Officer, Mark Mason. I'd like to remind you that today's presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials, as well as in our SEC filings. And with that, I'll turn it over to Jane.

Mark Mason:

Thanks, Jane, and good morning, everyone. We have a lot to cover on today's call. I'm going to start with the fourth quarter and full year firm-wide financial results, focusing on year-over-year comparisons, unless I indicate otherwise. I'll also focus on our guidance for 2024 and end with the path to our medium-term return target. The presentation of our results reflects the changes we've made in conjunction with our organizational simplification, including reporting legacy franchises and corporate other in all other. However, before I go into the results, let me walk you through some of the notable items that impacted the quarter that were included in the 8-K we recently filed. At the top right of slide seven, we show these items on a pre-tax basis. The FDIC special assessment of approximately $1.7 billion related to regional bank failures in March. This impacted expenses in all other. A restructuring charge of approximately $780 million related to actions associated with our organizational simplification, which will drive headcount reductions and future savings over the medium term, impacted expenses in all other the impact of the currency devaluation in Argentina of approximately $880 million. This was recorded in noninterest revenue across services, markets and banking and you can see the impact by business in the appendix of the presentation. While we did have an adverse impact from the Argentina devaluation this quarter, we also benefited from high interest rates, earning approximately $250 million of NII on the net investment in the quarter given the hyperinflationary environment and a reserve build of $1.3 billion related to increases in transfer risk associated with exposures to Russia and Argentina as described in the 8-K. This impact is mostly included in other provisions and cost of credit and spans multiple businesses due to their globality. The combination of these items negatively impacted diluted EPS by approximately $2 and RoTCE by approximately 920 basis points. Now turning to the left side of the slide where we show our financial results for the full firm. In the fourth quarter, we reported a net loss of $1.8 billion and a net loss per share of $1.16 on $17.4 billion of revenue. Excluding the notable items, diluted EPS would have been $0.84 with an RoTCE of 4.1% for the quarter. In the quarter, total revenues decreased by 3% on a reported basis. Excluding divestiture-related impacts and the impact of the Argentina devaluation, revenues increased 2% driven by strength across services, USPB and investment banking, partially offset by lower revenues in markets and wealth and the revenue reduction from the closed exits and wind down. Turning to expenses, we reported expenses of $16 billion, which include the FDIC special assessment and modest divestiture-related costs. Excluding these items, expenses increased 10% to $14.2 billion, largely driven by the restructuring charge I just mentioned. Cost of credit was approximately $3.5 billion. Excluding the reserve bill for transfer risk, cost of credit was primarily driven by card net credit losses, which are now at pre-COVID levels as well as ACL builds for new card volume. At the end of the quarter, we had nearly $22 billion in total reserves, with a reserve to funded loan ratio of approximately 2.7%. And on a full year basis, we delivered $9.2 billion of net income and an RoTCE of 4.9%, adjusting for the notable items, net income was approximately $13.1 billion with an RoTCE of 7.3%. On slide eight, we show full year revenue trends by business from 2021 to 2023. It is important to highlight that in conjunction with the change to align with our new financial reporting structure, we moved the majority of the financing and securitization business from banking to markets. We also implemented a revenue-sharing arrangement within banking and between banking, services and markets to reflect the benefits of businesses get from our relationship-based lending. These changes are now reflected in our results and our historical financials. Now looking at the full year numbers. Services had a record year with revenues of $18.1 billion, up 16%, benefiting from both rates and business actions, new client wins and deepening with existing clients, partially offset by the Argentina devaluation. Markets revenues decreased 6% to $18.9 billion, largely driven by lower volatility and a significant slowdown in December. The markets business was also impacted by the Argentina devaluation. Banking revenues decreased 15% to $4.6 billion, primarily driven by the mark-to-market on loan hedges as well as a decrease in corporate lending. Investment banking revenues were relatively flat for the year as we gained share amidst the declining wallet. Corporate Lending revenues were down 4%, excluding mark-to-market on loan hedges. Wealth revenues decreased 5% to $7.1 billion, primarily due to the deposit mix shift towards higher-yielding products, which drove lower deposit spreads. USPB revenues increased 14% to $19.2 billion, primarily driven by growth in card balances as we continue to see the benefit of our investments in digital acquisition and customer engagement. Total revenues, excluding divestitures, came in at $77.1 billion, below our guidance of $78 billion to $79 billion for the year, largely due to the impact of the Argentina devaluation, softer markets performance, particularly in December and losses on loan hedges. However, NIIX ex-markets came in at $47.6 billion in line with our guidance. Despite the challenging environment and the impact of the Argentina devaluation, we grew firm-wide revenues by approximately 4% ex-divestitures in line with our Investor Day target, demonstrating the benefit of our diversified business model and the investments we've been making. On slide nine, we show full year expense trends from 2021 to 2023, excluding the FDIC special assessment and divestiture-related impacts, full year expenses were $54.3 billion for 2023 in line with our guidance. As I mentioned, this includes roughly $780 million of restructuring costs associated with our organizational simplification and additional severance costs of approximately $730 million, which included actions to address stranded costs and start to right-size the businesses. Relative to the prior year, expense growth continued to be driven by transformation and business-led investments, volume-related expenses and other investments in risk and controls and technology, partially offset by productivity savings and a reduction in expenses and legacy franchises within all other. Over the past few years, we've been investing across these themes, which has not only impacted the performance of the firm, but also the businesses. On slide 10, we show the components of our transformation and technology spend from 2021 to 2023. Over the past three years, we have invested significantly in our infrastructure, platforms, applications, processes and data. As you can see in the bar chart at the top of the slide, roughly 30% of our transformation investments over the last three years were in technology, with the remainder related to non-tech employees and consultants. In 2023, we've seen a shift from consulting expenses to technology and compensation as we've gotten deeper into the execution of our transformation. And you should expect to see this trend continue. In total, we invested over $12 billion in technology in 2023. Beyond transformation, our technology investments are also focused on digital innovation, new product development, client experience enhancements and areas that support our infrastructure like cloud and cyber. On slide 11, we show key consumer and corporate credit metrics. Across branded cards and retail services, approximately 80% of our card loans are to consumers with FICO scores of 680 or higher. And across both portfolios, NCL rates have reached pre-COVID levels, but we continue to be well reserved with a reserve to funded loan ratio of 7.7%. In our corporate portfolio, the majority of our exposure is investment grade, which is reflected in our low level of nonaccrual loans at 63 basis points of total corporate loans. We feel good about the quality and mix of our portfolio and are well reserved for the current environment. As it relates to Argentina, we've included a slide in the appendix summarizing the value it brings to the global network and the broader institutional client relationships we hold as well as the strength of our financial profile in Argentine. As it relates to Russia, we've also included a slide in the appendix. You will see that the reserves for transfer risk that we have taken have significantly reduced our net investment and therefore our risk of loss related to Russia. On slide 12, we show our summary balance sheet and key capital liquidity metrics. We maintain a very strong $2.4 trillion balance sheet, which is funded in part by a well-diversified $1.3 trillion deposit base, which is deployed into high-quality diversified assets. The majority of our deposits, $801 billion, are institutional and operational in nature and span across 90 countries and are complemented by $426 billion of US personal banking and wealth deposits. We have approximately $561 billion of HQLA and approximately $690 billion of loans and we maintained total liquidity resources of $965 billion. Our LCR decreased modestly to 116% and our tangible book value per share was $86.19, up 6%. On the bottom left corner of the slide, we show a full CET1 walk to provide more detail on the drivers in 2023. First, we generated $8 billion of net income to common, which added 70 basis points. Second, we returned $6.1 billion in the form of common dividends and share repurchases, which drove a reduction of about 53 basis points. Third, we benefited from the impact of lower rates on our AFS investment portfolio, which drove an increase of 20 basis points. And finally, the remaining three basis points was largely driven by higher RWA, partially offset by capital releases from the exit markets. We ended the quarter with a 13.3% CET1 capital ratio, approximately 100 basis points above our regulatory capital requirement of 12.3%. As you can see, we've grown our CET1 ratio by approximately 30 basis points over the course of the year while returning over $6 billion to shareholders in common dividends and repurchases. Before I take you through each business, as Jane mentioned, we are not satisfied with the performance and returns of our businesses. And therefore, we are laser-focused on executing against our strategy, simplifying the organization and rightsizing the expense base. As a reminder, the investments that we've been making have impacted each of the businesses, as you will see in the next few slides. So now turning to slide 13, where we show the results for services for the fourth quarter and the full year. Revenues were up 6% this quarter, largely driven by NII across TTS and security services, partially offset by NIR, driven by the Argentina devaluation. Services noninterest revenues were up 20%, excluding the impact of the Argentina devaluation. Expenses increased 9%, primarily driven by continued investments in technology, product innovation and client experience. Cost of credit was $646 million, driven by a reserve build of approximately $652 million primarily associated with transfer risk in Russia and Argentina. Net income decreased to $776 million as higher revenues were more than offset by higher cost of credit and higher expenses. Average loans were up 6%, primarily driven by strong demand for working capital loans in TTS, both in North America and internationally. Average deposits were down 3% as the impact of quantitative tightening more than offset new client acquisition and deepening with existing clients. However, sequentially, deposits were up 1%. Services delivered an RoTCE of 13.4% for the quarter. And for the full year, services delivered an RoTCE of 20% on $18.1 billion of revenue. On slide 14, we show the results for markets for the fourth quarter and the full year. Markets revenues were down 19% versus a strong quarter last year, driven by a decline in fixed income and the impact of the devaluation, partially offset by an increase in equities. Fixed income revenues decreased by 25% largely driven by rates and currencies on lower volatility and a significant slowdown in December as well as the impact of devaluation. However, we saw a good underlying momentum in equities with revenues up 9%, driven by gains across all products and we continue to grow prime balances while making solid progress on our revenue to RWA targets. Expenses increased 8%, driven by investments in transformation and risk and controls and volume-related costs, partially offset by productivity savings. Cost of credit was $209 million, driven by a reserve build of approximately $179 million, primarily associated with the transfer risk in Russia and Argentina. Markets reported a net loss of $134 million as revenues were more than offset by higher expenses and higher cost of credit. Average loans increased 4% to $115 billion as we saw increased client demand for credit driving growth in warehouse lending. Average trading assets increased 18% to $391 billion, largely driven by treasuries and mortgage-backed securities, given the strong client activity in fixed income for much of the year. While it was a challenging quarter, markets performed relatively well for the full year with revenue of $18.9 billion and an RoTCE of 7.4% compared with very strong performance in the prior year and we are focused on improving returns over time through a combination of revenue growth, expense discipline and capital optimization. On slide 15, we show the results for banking for the fourth quarter and the full year. Banking revenues increased 22%, driven by growth in investment banking fees and lower losses on loan hedges, partially offset by lower corporate lending revenue. Investment banking revenues increased 27% year-over-year, driven by DCM and advisory due to improvements in market sentiment. In advisory, we saw signs of strength across technology, health care and energy, and we feel good about the strength of our pipeline. Corporate lending revenues, excluding mark-to-market on loan hedges decreased 26%, largely driven by lower revenue share from investment banking services and markets. Expenses increased 37%, primarily driven by the absence of an operational loss reserve release in the prior year. Excluding the reserve release, expenses were roughly flat. Cost of credit was $185 million, driven by a reserve build associated with the transfer risk in Russia and Argentina. The NCL rate was 32 basis points of average loans and we ended the quarter with a reserve to funded loan ratio of 1.6%. Banking reported a net loss of $322 million as higher expenses and cost of credit more than offset higher revenue. RoTCE was negative 6% for the quarter. And for the full year, banking reported an RoTCE of negative 0.2% on $4.6 billion of revenue. So clearly, we have more work to do on returns. And while it's difficult to predict when activity will normalize, we're positioning the business to capitalize on the rebound in the market wallet, and that includes continuing to invest in key growth areas, upgrading talent in traditional sectors and continuing to right-size the business. On slide 16, we show the results for wealth for the fourth quarter and the full year. Wealth revenues decreased 3%, driven by lower deposit spreads, partially offset by lower mortgage funding costs and higher investment fee revenues. We're seeing good momentum in noninterest revenue, which was up 13% in the fourth quarter, driven by higher investment assets, increased client activity and market performance. Expenses were up 4%, primarily driven by investments in risk and controls and technology, partially offset by replacing strategic investments and tighter expense control as we begin to right-size the expense base in the business. Wealth reported a net income of $5 million as revenues were mostly offset by higher expenses. Client balances increased 6%, primarily driven by higher client investment assets, partially offset by lower deposit balance. Average loans were flat as we continue to optimize capital usage. Average deposits decreased 2%, reflecting the continued mix shift of deposits to higher-yielding investments on Citi's platform. Client investment assets were up 12%, driven by new acquisitions and the benefit from higher market valuation, and we're seeing good momentum in net new assets, which more than doubled to $16 billion for the quarter. For the full year, we added an estimated $21 billion in net new assets. RoTCE was 0.1% for the quarter. And for the full year, RoTCE was 2.6% on $7.1 billion of revenue. Looking ahead, we're going to improve the returns in the business as we invest in talent to execute on our refocused strategy to drive investment revenue with an eye towards rightsizing the expense base. We will wind down non-core initiatives, exit less productive performers and enhance discipline across every expense line. On slide 17, we show the results for US Personal Banking for the fourth quarter and the full year. US Personal Banking revenues increased 12%. Branded cards revenues increased 10%, driven by higher net interest margin and interest-earning balances growth of 13% and we continue to see healthy growth in new account acquisition up 8% and spend volumes up 3%. Retail services revenues increased 15% also driven by higher net interest margin and interest-earning balance growth of 11% as well as lower partner payments due to higher net credit losses. Retail banking revenues increased 15%, driven by higher deposit spreads, loan growth and improved mortgage margins. Expenses decreased 1% as higher expenses to support lending programs and client engagement as well as the rollout of simplified banking were offset by lower non-volume-related expenses. Cost of credit of $2.1 billion, increased 20%, driven by higher NCLs, partially offset by a lower ACL build. Net income increased to $201 million, driven by higher revenues, partially offset by higher cost of credit. Average deposits decreased 5%, driven by the transfer of relationships and the associated deposits to our wealth business. We continue to make progress against our digital strategy with digital deposits up 14% and active digital users increasing 6%. RoTCE for the quarter was 3.6%. And for the full year, US Personal Banking delivered an RoTCE of 8.3% or $19.2 billion of revenue. Here again, we are focused on improving the return profile of the business. Managing through this part of the credit cycle and continuing to make progress in retail banking will be key. On slide 18, we show results for all other on a managed basis, which includes corporate other and legacy franchises and excludes divestiture-related items. Revenues decreased 17%, driven by a decrease in NII of 29% driven by the closed exits and wind down, partially offset by higher noninterest revenue and expenses increased to $4.5 billion, driven by the FDIC special assessment and restructuring costs, partially offset by lower expenses in both wind down and exit markets. Turning to slide 20, as we kick off 2024, the environment remains somewhat uncertain and markets remain difficult to predict. But based on what we see today, we expect revenues to be approximately $80 million to $81 billion, as shown on the left side of the slide. And on the right side of the slide, we list the key drivers. In TTS, we expect revenue growth to be driven by new client wins, deepening with our existing clients and continued momentum with commercial clients as we continue to leverage our global footprint and product innovation. In Security Services, we have a very healthy pipeline, and we'll continue to on-board assets under custody from new mandates, win new clients and deepen relationships with existing clients. In Investment Banking, we anticipate a rebound in activity and to maintain our position as the wallet recovers. Over time, we do expect the investments that we've made in key growth areas, such as health care and technology to allow us to gain share. And we also expect a modest rebound in wealth as we execute on our refocused strategy with an eye towards growing investment fees, particularly with our existing clients. In USPB, we expect continued growth in card balances driven by the investments we've been making as well as lower partner payments in retail services to continue to drive revenue growth. We also expect to continue to improve our retail brand performance. And as it relates to NII, excluding markets, we expect net interest income to be down modestly as the volume growth we expect from loans and deposits is more than offset by lower US rates and the reduction from the closed exits and wind down. Turning to slide 21. We expect expenses to be approximately $53.5 billion to $53.8 billion, down from $54.3 billion, subject to volume-related expenses. The decrease in expenses will be driven by the benefits of our organizational simplification, a continued reduction from exit markets and wind down and productivity savings partially offset by investments in risk and controls and volume-related expenses. Embedded in this guidance, includes an elevated level of severance as well as additional potential costs related to the organizational simplification totaling approximately $700 million to $1 billion. This will contribute to reducing headcount over 2024 and the medium term, which we will discuss on the next slide. On slide 22, we show the drivers of headcount and expense reduction over the medium term. As we've discussed in the past, there are three drivers that will reduce our expenses, organizational simplification, including the reduction of management layers, eliminating stranded costs as we take additional actions to reduce excess overhead in light of the exit markets and realizing productivity savings from our investments in the transformation and technology. We expect the combination of these three drivers to reduce our headcount by a net 20,000, excluding Mexico and generate a net run rate save of $2 billion to $2.5 billion over the medium term. This will underpin our path to $51 million to $53 billion of expenses, subject to volume-related expenses. Both the headcount and expense reduction will allow us to right-size the firm and businesses to improve performance and returns. On slide 23, we show our outlook for US Cards in 2024. In terms of credit performance, based on the trends that we're seeing, we expect NCL rates both in branded cards and retail services portfolios to rise above pre-COVID levels and peak in 2024. On a full year basis for 2024, we expect the branded card's NCL rates to be in the range of 3.5% to 4% and the retail services NCL rate to be in the range of 5.75% to 6.25%. From an allowance perspective, we are reserved for a weighted eight quarter average unemployment rate of almost 5%, which embeds a downside scenario of approximately 6.8%. ACL builds in 2024 will primarily be a function of the volume growth that we see as well as changes in the macro scenarios and the probabilities associated with them and we expect continued momentum in cards, albeit more in line with mid-single-digit loan growth. On slide 24, we summarize our medium-term targets. From a revenue perspective, we continue to expect 4% to 5% revenue CAGR in the medium term, including the ongoing reduction of revenue from the closing of the exits and the wind down. From an expense perspective, we're now on the path to lowering our expenses beginning in 2024. From a credit perspective, we expect credit costs to be a function of portfolio mix, volumes and macro assumptions. And we are committed to returning capital to our shareholders and, in fact, expect to do a modest level of buybacks in the first quarter of 2024. So to wrap it up, while the world has changed significantly and the components have shifted since Investor Day, our strategy has not, and we are confident we are on the right path to deliver our 11% to 12% RoTCE in the medium term. With that, Jane and I will be happy to take your questions.

Mike Mayo:

Hi. I looked in detail at the earnings presentation, especially slide four. And I think the question is on many people's minds. I count 12 restructurings at Citigroup. And I count 12 restructurings that have failed at Citigroup. You might disagree with the number 12. It could be five, it could be eight, it could be 12. It could be more, but I've not spoken to one person of any investor who would say that Citi has succeeded on its prior restructuring. So the question is, why is this time different? Number one, who is this new and improved Citigroup? Number two, why are expenses down even more, especially when few people that I talk to think you'll hit your revenue target. And three, Jane, what is your conviction level of getting to that 11% to 12% RoTCE in '25 or '26? Thank you.

Mark Mason:

Yeah. Thanks, Jane. And why are expenses down more? I think, to your point, Jane, we've been investing in the franchise, both on the front end and importantly on the transformation and the risk and controls. What I would point out is that in 2023, we delivered expenses of $54.3 billion, ex the FDIC charge. That is the guidance that we gave. But I'd also highlight that we also included $780 million associated with the restructuring charge that is more than I had articulated in the way of guidance. So the capacity that we created through our efforts through the year, we use that in a smart way. We use that to fund the org simplification costs so that we can realize the savings down the line and we're going to continue to manage our expenses in a disciplined and smart fashion. That means spending what we need to spend on the transformation and risk and controls, but driving greater efficiencies and productivities along the way to ensure we get to that 11% to 12%. And to your point of revenues are to come down or come in lower-than-expected, we'll adjust the expenses accordingly.

Glenn Schorr:

Hi. Thanks very much. So, you're clearly making a lot of progress, and I hate to like ask this question too early, but I think it is important. Your expense guide is good, your revenue guide is good, and you have your arms around the expenses, so the question I have is, how do you think about balancing that near-term profitability improvement that we all want desperately with making sure you do make the right investments, because if you look around the world, there's a lot of places to grow, whether it'd be your branch network or wealth management aspirations that you have or the digital investments, so how do you -- how do we know that all the right future investments are being made, while you extract costs in all the good ways that you've been doing?

Glenn Schorr:

I appreciate that. Maybe a quickie on Services, obviously, up 16% in a record, it's great. I don't know if you've dimensionalized how much was rate versus new business, but you have good core business momentum and a pipeline of one, but not yet funded. So I guess the question is that, where can Services be over, let's say, the next two years in terms of growth, while rates come down yet your business is winning new wins?

Jane Fraser:

Yeah. And I'll jump in. Let's maybe start with TTS. When we think about the performance of TTS, which, as we say, the growth this year, up 19%, ex-Argentina, came from a combination of both rates and the strong business actions we've taken. And you can see that in the different drivers. Cross-border was up 23%, commercial cards up 8%. And in terms of the growth prospects, we've generated 22% in average revenue growth from '21 to '23, well ahead of the Investor Day guidance we had a high single-digit. That was not just because of the rate cycle. It obviously helped, and we certainly expect to grow revenues at mid-single digit now as we lap the prior periods that benefited from those rate increases. And that's going to come from a few different areas. One, the focus on our fee strategy, where we're capitalizing on strong client engagement, market-leading client solutions, and we're delivering on a lot of the different growth initiatives that we've been investing in across all our client segments. We'll continue optimizing our deposit book and bringing in high-quality deposits. And in a lower rate environment, GDP is typically higher, so you'd expect to see some higher growth in our capital-efficient payment volumes. You'll see us continuing to acquire new clients and deepen relationships with existing clients. And I point to our confidence here 27% increase in our new client acquisition this year and a sustained win-loss ratio of 82% on new deals. And that was across different client segments. And revenues from these clients just continues to ramp up as we expand across the different geographies and product suites with them. And you'll also continue to see us investing in the infrastructure and platforms we've been doing, launching new innovative products, and we're seeing momentum from some of the things we've recently done, Citi Token Services, Payment Express, 24/7 Clearing, et cetera. So I think the main takeaway from TTS is that we'll continue to invest in it. We expect to see strong client momentum. We've been getting consistently good client feedback regarding our capabilities. So we expect to see good global growth that will certainly help as the rate cycle comes down. And it is a crown jewel for a reason. And then just quickly on security services, I think, where we're seeing, we mentioned we've got a number of marquee wins there across all the client segments. That pipeline is both investors and issuers, and one of the core strategies that open put in place was to grow share with the US-based asset managers. We had a very low -- we were at 2.6% share in 2020. We're now at 4.3%. And a lot of the growth in the pipeline has been coming not only from our global network names but also from the marquee players in the US asset manager space. And I think that's our ability to connect our capabilities and that gives these players huge efficiencies for our clients. Mark, anything I've missed there? You know I know this business.

Operator:

Our next question comes from John McDonald with Autonomous Research. Your line is now open.

Mark Mason:

Yeah, sure. So look, John, obviously the Basel III proposal still out there and under discussion. We've been very vocal about the potential impact of that. We've also been very disciplined about how we've been managing our capital. We've built that over 30 basis points over the course of the year. You've seen us actively manage that through the year. We're going to continue to do that. We obviously, generate earnings that contribute to that. We want to continue to drive growth across the business. We're trading at 0.5 times book, where we can we want to buy back as much as we can in shares and we tried to be disciplined about that over the past couple of quarters doing that as a modest level. You heard me saying -- you heard me say, we're going to do that again this quarter at a modest level. But we're going to be -- we have to be thoughtful about what those headwinds might look like and we're actively working what mitigation actions we have to put in place, should it turn out closer to the way the current proposal sit. So it's an ongoing active management that drives the balance servicing our client needs, with obviously, holding a responsible amount of capital in light of the uncertainty that's out there, and with an eye towards buy backs where we can do that.

Mark Mason:

Yeah. So to be clear, we're going to continue to spend whatever we need to spend on the transformation and on risk and controls. And so we did see a tick up this year. We've got a plan for 2024. And if we've got to spend a bit more than what we spent this year, we're going to spend more. That's what the plan calls for. And so that's what we'll do. That's inside of the number that I've given you for guidance, right? And so that is -- that's important for us. I think it will drive, obviously, operational improvement and saves down the line. It is part of the $2 billion to $2.5 billion, but that is the early stage, if you will, of the transformation spend paying back. I think as we talked about at Investor Day, frankly, we'll continue to see expense benefits beyond the medium term from some of this transformation investment that we've been making. And so I would think of the medium term as the start of the benefits that we'll see from the investments we've been making in transformation and risk and control.

Operator:

Our next question will come from Jim Mitchell with Seaport Global. Your line is now open.

Mark Mason:

Yeah, I think the thing I'd point out to you is a couple of things. One, obviously we're forecasting revenue growth over this period of time. And so it's going to be volume-related expenses associated with that. The second thing I'd point out, as I just mentioned to the prior question, is that we're continuing to invest in risk and controls and in the transformation over this period of time. And so what you see is, there is an increase in expenses associated with at least those two things and that's offset by the savings that we're starting to generate, particularly from the org simplification that Jane has talked about, as well as from the stranded cost reduction that will continue to play out, as well as from some of the rightsizing of businesses that we've referenced in some of the prepared remarks. And so important to think about their headwinds and tailwinds that kind of net down to this $2 billion to $2.5 billion. And then the final point that I'd make is, if I look at this medium-term number of $51 billion to $53 billion that still has Mexico in it. And in one of the other pages, we point to expenses around Mexico, but because of where we are, will be in the IPO process, that's still going to be part of this expense base. And so, you can't lose sight of that.

Mark Mason:

As you know, it's a tough business to forecast, certainly for full year and in some instances for a quarter. And so we basically kind of back that out, but we've assumed markets kind of flat to modestly down, but we've backed it out, and it's roughly flat. Not of the 81 -- not of the 80 to 81, but you see the guidance of NIR ex-markets and NII ex-market. So in the 80 to 81, we've assumed it roughly flat.

Operator:

Our next question will come from Ebrahim Poonawala with Bank of America. Your line is now open.

Jane Fraser:

Hi. It's Jane. Obviously, I want to just jump in on one bit, which is, we are committed and we're very confident around the 4% to 5% revenue growth rate, and so there isn't any backing away from that number, and that's in various macro environments, et cetera. And as we look across the different businesses and the projections we have, we're confident around that. Obviously, if there is a very adverse macro environment, et cetera, we've got other levers we can take, but Mark, let me pass it to you.

Ebrahim Poonawala:

Perfect. Just what I needed. And one quick question. As we think about rightsizing the Markets business, there's been headlines around the muni and the distressed business that you've gotten out, is there a risk where you the Markets business becomes too small? Any lack the scale to be sort of efficient and relevant in certain just across the breadth of, be it fixed-income or equities, just if you can talk about that? Thank you.

Operator:

Our next question will come from Gerard Cassidy with RBC. Your line is now open.

Mark Mason:

Good afternoon.

Gerard Cassidy:

Mark, can you share with us on your revenue guide in the net interest income, I know you mentioned this going to be lower and part of it is due to lower interest rates. Some of your peers have come out with their guides using the forward curve in their net interest income forecast, which includes the Fed in our country, six cuts. Can you give us some color what kind of rate environment. I know you said lower rates, but any insights around that guide?

Gerard Cassidy:

Very good. I appreciate that. And then, Jane, more of a qualitative question rather than quantitative. But obviously, there's numerous moving parts of the strategies that you guys are executing on. Exiting businesses, downsizing businesses, especially on the downsizing, I think you guys mentioned the headcount of about 20,000 coming down. How do you keep the morale of the organization elevated when you have these types of tough decisions that you all have to make.

Operator:

Our next question comes from Erika Najarian with UBS. Your line is now open.

Jane Fraser:

Erika, it's a great question. It's one I ask myself every morning when I get up, because it -- given where we trade, the value for our shareholders of buybacks is enormous. And Mark and I are very committed to doing so. We also know that we're building our credibility. And I don't want to say things that we're not going to deliver against although we're going to have to change. I think it's one of the values that we're really trying to adhere to very strongly. And with the NPL, I think we'll get a better sense about this soon. The comment period just got extended and we want to see what that is. I think you've all heard us at the Senate banking hearings with our concerns about it. I very much hope that it is either completely revised or very materially, so it doesn't have a negative impact on the economy and the US banking system competitiveness, the move for more business, the shadow banks, which I think has got to a point, which is not healthy. So we're going to wait and see before -- where that comes out before we give it to you, but I would be asking exactly the same question in your shoes as well.

Jane Fraser:

Thank you.

Matt O'Connor:

Hi. I want to follow-up on the Russia exposure on page 34. Looks like you guys have taken a really good whack on the vet investment, and you also highlight how this CTA would be capital neutral you know if you're going to write that down. But what about the remaining exposure and just like how frame -- are you responsible for some of these unremidable corporate dividends. I just don't -- I think a lot of us don't understand that type of exposure? And is there a risk to you going forward? Or did you hope for clear the deck from the fund exposure going forward?

Mark Mason:

Yeah, very quickly on the Russia point, as you know and as the slide points out, we continue to bring our exposure down there. It's down to $6.5 billion, it's down 13% from the previous year. And a third from 2021, we brought down the consumer loans, the consumer deposits in a significant way there. And essentially, what's left in -- is that we have a custody business and we are holding corporate dividends that are our clients' proceeds. We're unable to pay those out by law by regulation. And so we have to hold those and that's what's being referenced in the slide where we say unremitdable Russia corporate dividends. And so that is not a risk that -- of loss for us, but we're unable to kind of clear those because of the state of play in Russia at this stage.

Mark Mason:

Sure. There's a step-up coming. We give a forecast when '23 as you point out to what the full year estimate for NCLs will be for both branded and for retail services. What I'd point out is you can see actually on the slide how there was a dip in loss rates during the COVID period. And so to some extent, what we're seeing is kind of a catch-up of those as those portfolios go through a longer maturation than what you'd normally see in our cards portfolio. On top of that, we've been originating new card, you've noticed our acquisitions have grown, so we obviously have new card loans and those are going through a much more normal maturation period. And so as we look at kind of the early buckets and the delinquencies that are playing out, we've got a pretty good sense for when we would expect those to peak and at what level. And we think they'll peak inside of '24, so that's captured in that average forecast that we've given. We haven't made material changes to our underwriting. However, there is mix evolution that happens. Transactors, we have a number of transactors that have kind of come on to our portfolio and are in the mix of our branded portfolio as well. And so anyway, those are the drivers that give us confidence and inform the trajectory that we -- that we're talking about here.

Ryan Kenny:

Hi. Thanks for taking my question. So I have a question on quantitative tightening. Wondering if you have any early thoughts on how Citi is positioned if the Fed ends Q2 early. Is that a material catalyst for you? And would that help you hit your revenue targets even sooner?

Ryan Kenny:

And there's a lot of optimism and debate around capital markets rebound. Are you seeing that? And can you help us update us on investment banking pipeline across M&A, ECM, DCM?

Mark Mason:

I completely agree.

Operator:

Our next question comes from Scott Siefers with Piper Sandler. Your line is now open.

Jane Fraser:

Scott, Sorry, I didn't hear what it was. I think the phone line cut out. The revenue in attrition?

Jane Fraser:

Okay. No, we haven't. I think a lot of the moves that we've made from the organization simplification. So the 5,000-or-so roles we talked about, they're mainly managerial roles. And they've mainly impacted the functions and the geographies, not nearly so much the revenue from revenue generators. And the other piece is with the client organization, we're actually putting much more time into the hands of our people to drive revenue forward. So I think what we're looking at here is it getting a bit of areas of bureaucracy and where we've been too complicated, where we can drive efficiency whilst preserving our frontline and encouraging them to be as revenue-productive and delivering the full force of the firm to the client. So I'd like to see the opposite actually.

Mark Mason:

I think what I'd say is that you should expect that in the first quarter, we'd likely see an uptick in our total expenses relative to the fourth, in part because, as Jane has mentioned, we anticipate that there'll be more to the org simplification and, therefore, dollars associated with that in Q1. And then from there, I would expect that you'd see a downward trend through the fourth quarter.

Mark Mason:

Yeah.

Vivek Juneja:

Hi, Jane. Hi, Mark.

Vivek Juneja:

A couple of quick clarifications. On your NII guide, you talked about you're assuming three to six cuts. That's US, I presume. So are you assuming flat unchanged rates outside the US since you're more sensitivity outside?

Vivek Juneja:

Okay. And then, Jane, to your point about the 20,000 headcount cuts, and I heard you just mentioned 5,000 from managerial positions. Where are the rest 15,000 coming from?

Operator:

Our next question will come from Steven Chubak with Wolfe Research. Your line is now open.

Mark Mason:

So let's see. So obviously, the proposals out there, and we've factored in what's knowable as it relates to that. We haven't given guidance externally on what that impact is, but we do believe there offsets and mitigants that over time, we'll be able to kind of bring into play. And so long-winded way of saying our revenue forecast does assume some basic level of late-fee adjustment.

Mark Mason:

I mean there are a lot of factors in there. There's obviously as well the mix as it relates to what we have in the US versus outside of the US. So it's -- there are a number of factors there and probably too much to kind of take you through on the call here, but we're happy to kind of follow-up with you off-line and take you through it.

Mike Mayo:

Yeah. Just a clarification, when you said medium term in this call as it relates to employee reductions, expense savings, revenue targets and 11% to 12% lastly, does medium term mean by 2026, or does it mean something different?

Jane Fraser:

2026.

Jane Fraser:

Thank you, Mike.

Jennifer Landis:

Thank you, everyone, for joining the call. If you have any follow-up questions, please contact IR. Have a great day. Thank you.

Jen Landis:

Thank you, operator. Good morning, and thank you all for joining our third quarter earnings call. I'd like to remind you that today's presentation which is available for download on our website, citigroup.com, may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And I'm joined today by our Chief Executive Officer, Jane Fraser; and our Chief Financial Officer, Mark Mason. Now let me pass it over to Jane.

Mark Mason:

Thanks, Jane, and good morning, everyone. I'm going to start with the firm-wide financial results focusing on year-over-year comparisons for the third quarter, unless I indicate otherwise, and then spend a little more time on the businesses. On Slide 4, we show financial results for the full firm. In the third quarter, we reported net income of approximately $3.5 billion, EPS of $1.63, and an RoTCE of 7.7% on $20.1 billion of revenues. Embedded in these results are divestiture-related impacts of approximately $214 million after tax, primarily driven by the Taiwan consumer business sale. Excluding these items, EPS was $1.52, with an RoTCE of 7.2%. In the quarter, total revenues increased by 9% on a reported basis and 10% excluding divestiture-related impacts, driven by strength across services, cards and markets as well as modest growth in banking, partially offset by the revenue reduction from the closed exits and wind-downs. Our results include expenses of $13.5 billion, up 6% on a reported basis and $13.4 billion excluding divestiture-related costs, also up 6%. Cost of credit was approximately $1.8 billion, up 35%, primarily driven by the continued normalization in card net credit losses and volume growth. At the end of the quarter, we had over $20 billion in total reserves with a reserve-to-funded loan ratio of approximately 2.7%. And year-to-date, we reported an RoTCE of 8.3%. On Slide 5, we show expense drivers for the third quarter as well as our key investment themes. Expenses were up 6% and our level of expenses continue to be driven by a number of factors, including investments in transformation, as well as risk and controls, business-led and enterprise-led investments, macro factors including inflation and FX, severance, which was approximately $190 million in the quarter, and roughly $640 million on a year-to-date basis. This included actions across banking, markets, wealth and the functions. And all of this was partially offset by productivity savings and expense reductions from the closed exits and wind-downs. And our technology spend across the firm was $3 billion in the quarter, up 8%, largely driven by investments in product development, platform enhancements, and improving the client experience. Also driving the increase is continued investment in technology for the transformation as we address the consent orders and modernize the firm. As we said last quarter, our transformation and technology investments span the following themes

Mike Mayo:

Hi. Jane, you spoke more about the restructuring that you commented on recently. The real question is, why is this restructuring different than the other five or 10 or 15 restructurings you've heard about since Citi's creation in its current form 25 years ago, I think, just like a week ago. So, I'd say, why is this different? We hear the talk about cascading downward and the simplification, reducing dual heads and the committees, but we've heard this so much that -- why is this time different?

Operator:

And our next question comes from Glenn Schorr with Evercore.

Mark Mason:

Yes. So let me -- good morning, Glenn. It's good to hear from you. Let me make a couple of comments on that, and then Jane, feel free to chime in if you'd like. The first thing is that when I talked about this at the last conference we attended, I mentioned that analysts were somewhere in the 16% and 19% range in terms of a capital increase, and we're likely to be inside of that range, assuming the Basel III proposal as it's structured as it's written. And obviously, that's not the final. There's a period of review that's going on now. What I'd say is a couple of things, Glenn. One, we haven't fully executed against the strategy that Jane has just described. And obviously, continuing to simplify the business, managing through the transformation, changing that business mix that we have to something that's more consistent and predictable and repeatable as it relates to PPNR. Those things matter and impact the SCB. We talked about the exiting of our business, the international consumer businesses. That will be a factor in what our balance sheet looks like and what stress losses might look like, as well as lowering the expense base, which we know is an important factor in that PPNR math as well. And so those things help, I think, to reduce the amount of capital that might be required as we get into that medium-term period. Importantly, as you point out, there are other elements of the proposal that are going to require that we take a hard look at as well and identify mitigating actions to the extent that they make it into the final. So think about the increase in operational risk and the fact that some of that's already included in SCB is something of a point of advocacy, but that's obviously a big headwind that we'll have to kind of work through; the FRTB and the enhancement of models. Now there's a global market shock as well, but again, another point of advocacy that we need to work through, the equity investments, and now that they go from 100% risk weighting to 400% risk weighting. I think we're going to take a hard look at whether those are worth keeping in light of the higher capital associated with them, that's going to challenge the returns, that's going to force us to look at those through a different strategic lens, and we're going to do that. And then that's not to even mention the credit component that impacts both corporates and consumers as it relates to unfunded commitments, for example. And so as we've done with CCAR and other types of reg changes, we're going to have to look at what it means for our product mix, the returns associated with those, whether there are opportunities to pull levers like pricing or whether we have to take other decisions around those. And so that's what I mean by the mitigating actions that we're dimensioning and putting on paper and working through. But again, we want to be thoughtful because the rule is not final yet, and there are more discussions to be had around those important elements that I mentioned already.

Erika Najarian:

Good morning.

Erika Najarian:

You've talked a lot about defense, as I like to call it, in terms of the transformation that Jane had outlined and bending the expense curve. What I'm wondering for Jane and Mark, if you could sort of address what I think is probably the most debated part of your target, which is that revenue CAGR of 5%. You put up a very nice quarter in terms of revenues, both in net interest income and fees. And maybe help us sort of look underneath the surface in terms of that momentum, and maybe break it down in terms of what's really going well? I think TTS continues to surprise to the upside. It's going to take -- are we going to be two years from now, and we were like, oh, well, TTS is continuing to doing well. So what are the businesses that really sort of strong secular momentum that you feel is being under recognized versus how you could position cyclically and hire for longer? And what is still to come as we think about that path to at least the numerator of that RoTCE target?

Operator:

And our next question comes from Jim Mitchell with Seaport Global.

Mark Mason:

Yes. Thanks for the question. Look, I'm not going to give guidance for 2024. We'll do that obviously at the fourth quarter '23 earnings. But I think it's reasonable to expect that some of the trends that we've seen so far, we'll continue. So if you think about what's underneath this, we'll continue to benefit from higher rates across currencies. I think we'll continue to see benefits from card interest-earning balance growth. Recall that when you look at our U.S. dollar IRE position, it's relatively neutral at this point. And interest-earning balance growth is expected to be driven by continued card spend and lower payment rates. And so I think what's important to remember as it relates to our business is that it's global that we've got, while you're right in that on the U.S. dollar side, we've seen betas kind of reach -- particularly for our corporate clients reach terminal levels at the end of last year. On the non-U.S. dollar side, betas run lower, they lag and there's still upside there because it's a different rate curve and a different pace of increases. And so those will be some of the puts and takes to think about volumes, the rates, the speed of the curve moves and then how betas evolve, that will kind of factor in. And then the final thing to remember is that in our NII, we show it both with and without markets. On the ex-markets, we'll have the impact of the drag from the exits of the countries that kind of play out. So we just exited Taiwan, that's going to impact, obviously, the next quarter's NII. So just a couple of factors to think about. And obviously, I'll give you more detail on 2024 and at the fourth quarter earnings call.

Ryan Kenny:

Hi, good morning.

Ryan Kenny:

On the capital markets side, I heard the comments around it being hard to predict when deal activity will sustainably rebound. Can you just give us an update or more color on how CEOs are thinking about bringing deals live across M&A, ECM and DCM? And does the market and rate volatility over the last few weeks have any significant impact on bringing deals to completion or on the pipeline?

Operator:

And our next question comes from Steven Chubak with Wolfe Research.

Mark Mason:

Good morning.

Mark Mason:

Yes. So, look, I'm not going to give you headcount guidance. But what I will say is, Jane has talked before about the heads associated with the divestitures that are underway. And obviously, as we continue to progress in those divestitures have weighed a lot of progress already. We'll see those heads come down. It's also important to point out that as part of our effort, there's been in-sourcing. And so we've captured the extended workforce in the headcount that we have here. And then I think the final point is that as we continue to execute against the transformation work and as we implement the org simplification that we've just announced, undoubtedly, the technology investment, the automation that we're putting in place, the straight-through processing that occurs, the fewer reconciliations that are required, the streamlining from all of those layers that Jane mentioned will be eliminating. All of those things will also work to reduce headcount as well. And so while we're investing and hiring on the front end to capture the upside as markets turn, but also as we position ourselves to grow with clients, we're also going to realize efficiencies that come out of headcount reduction. One additional point is that you've heard me mention before that we've taken probably about $600 million or so, year-to-date, in repositioning charges. And with that will come roughly 7,000 or so headcount coming down associated with those repositioning charges. And so -- and we'll continue to do that, by the way. We haven't even begun to take repositioning charges associated with the org simplification that's underway. That will come in the fourth quarter and in the first quarter of next year. And so we will see heads continue to evolve through this process. But keep in mind that there are puts and takes associated with that as we look at where we need to in-source versus use external parties.

Ebrahim Poonawala:

Good morning. Just maybe, Mark, following up on that. As we think about bending the curve through the end of next year, maybe if you can talk to around - as you think about the puts and takes between investments and expense saves. How much of that cost save or bending the curve is going to happen in legacy versus PBWM and ICG? Like just how do you break - how should we think about that as we think about bending the curve and where the savings are coming from?

Operator:

And our next question comes from Matt O'Connor with Deutsche Bank.

Jane Fraser:

Yes. Look, I think most of the pressure in the lower FICO, we do have a lot of customers in lower FICO. So we're seeing it out in the market. We've got - we obviously have some in the retail services business. We also have to say have the benefit of that loss sharing agreement that really makes a difference there because we're having to reserve fully for that, but we get it back on the revenue line, as you know. But as we look at the off-us book, as we look at some of the pressures in the market as we look at spending, we can certainly see some of that pressure for the lower FICO, whereas when I think about the cards business, it's very much driven by the affluent customer. So the affluent is accounting for almost all the spending growth that we're seeing. And that's similar to the numbers that we saw from coming out of the Fed from the deposit side, the excess savings are sitting there, now primarily with households with over $150,000 of income. And it's down in the rest. So these are things we're keeping an eye on. I want to be very clear. I'm not that worried about it for Citi, given the prime nature of our card portfolio. And then the rest of our PBWM exposure is obviously is very affluent. But when I look out at the market, I talked to our corporate clients, that's where we tend to see them be more nervous about the softness in the consumer. And just I call it, they're much more mindful about where they're spending, right? So you're seeing them moving down within a category. They're certainly looking more on the bargain front. We've been hearing that from our retail partners. We've been hearing that across the board. And so growth of card loans is good. Our spend is up but less than loans, I think it's softening, but it's not worrying.

Operator:

And our next question comes from Gerard Cassidy with RBC.

Mark Mason:

Good morning.

Gerard Cassidy:

Jane, as you pointed out, you're very excited about the opportunities in TTS. You're winning some new mandates in the custody business. Can you feel on this, is it because the competition is struggling with other issues, what gives you - because it has always been well regarded in this area. So what gives you that added excitement that this is even getting better?

Mark Mason:

The only thing - I think that's spot on. The only thing I'd add is that the middle market commercial space is a huge opportunity for us, as you said earlier, leveraging that TTS platform. And then on the security services side, the reality is that we're finally seeing real traction in North America. Right? We've always had kind of strength in many of the other regions, but we're really winning some major mandates here in North America, which I think is enough to get really excited about.

Operator:

And our next question comes from Vivek Juneja with JPMorgan.

Jane Fraser:

Hi, Vivek.

Jane Fraser:

So let me take the second one first. I'm not planning on replacing it with anything. We don't need them. We're no longer running consumer franchises in the countries. Instead, we've got global businesses that are operating very consistently in the individual geographies. So we just don't need replace them. And it enables us just to have the legal entity financial management that we need. And then our internal reports get greatly simplified same as they get greatly simplified by taking out ICG and PBWM is another - eliminating that layer also eliminates a lot of different reports. So the wonderful answer is nothing, a simplicity. The first question was about, okay, help you understand what we've done. So on the geography front, we have done two main things already. One is we put - we've eliminated the regions and I've just put a single international head reporting to me. So that makes it much simpler for me. I have one international head, and then he will help us manage the geographies collectively. The second piece is we've really narrowed the mandate of geography to delivering to our clients and covering our clients in their countries and secondly, the legal entity management. And otherwise before, we had a huge amount of management on shadow P&Ls and different - a lot of very heavy committee structure. That was necessary because the business was still very local as a retail bank, a local credit card business, a local onshore wealth business. They've gone. It's just serving multinational, the subsidiaries are multinationals and in some markets, the investors and the wealth clients in some markets. And that's a much simpler business to manage. So we could get rid of the regional there, and we just jumped straight down to the clusters that we have today, but they too have less of a mandate than they had before, a much more focused one. And the bit that I'm excited about it is not just, yes, this makes it much simpler to manage but it also helps us really focus on the global network. Now our geographies and our banking organizations sitting together on the same management structure, collectively accountable for serving and delivering against our core client base. And they're in one team to do it, it just makes it much easier. Does that give you a feel what else, Mark?

Jane Fraser:

And around the other piece that I think is also just an important point. Globalization is changing it. We're seeing these lanes all changing, food, trade, financial flows, et cetera. By actually having a single international organization and then the different clusters, North and South Asia, Europe, U.K., LATAM, Middle East, Africa. The connection points between them are really changing at the moment. And so this makes us much more agile in our delivery of the global network because I think it's much more in line with how the world is operating today.

Saul Martinez:

Hi, there. So I wanted to continue on the threat of normalization of credit losses? And you guys have - I guess your guidance is implying that branded cards and retail services get back to more normalized levels by year-end, which is a decent sized uptick over the levels you had in the third quarter. So I kind of want to know what's driving that view? But more importantly, I guess what does that imply going forward? And does it imply that we get to more - something more like above-trend losses? Because I would think we still have some seasoning to go in the late 2021 and 2022 vintages. And not only that, we're talking about this in an environment where we still have pretty extraordinary labor market. So if you could just give us a little bit more color on just your expectations on credit losses and whether there's maybe a little bit more risk than we're thinking in terms of losses trending to something that is a bit higher than what we normally - what are more normalized levels?

Jane Fraser:

And our portfolio [technical difficulty] old Citi. It's very different in terms of our consumer credit exposure. And I think what you're hearing from us is, this is - this should all be very manageable. We're not there's no alarm bells going off at Citi around this. We're being prudent. We're being conservative around pieces and responsible on it. But there's no alarm bell ringing. And I think there may be a bit of a disconnect from some of the questions out there versus how we're feeling. We're just not seeing the data that is overly concerning. It's manageable. This is all very manageable, and we're being prudent about it as you'd expect us to be.

Mike Mayo:

Hi. Thanks for the follow-up. From your initial answer, Jane, I hear you with the restructuring, deconstructing city to global lines, delayering of management and decluttering reporting, and when you add it all together, we'll get some numbers in January. But as it relates to your return targets and efficiency targets for 2025 and 2026, consensus is about one-third below what you target. And frankly, I have not spoken to one investor who thinks you're going to get those targets and maybe you would want to revise those lower in some way or maybe to be determined? Or what's your degree of conviction of getting to those targets or at least getting above your cost of capital? Thank you.

Mark Mason:

As you said, building credibility and being transparent, right?

Mark Mason:

So we're going to keep delivering on the proof points, and we're going to be transparent about how and when and how we're going to achieve it so.

Gerard Cassidy:

Thank you. Mark, you mentioned in the credit section that the delinquencies are rising and as a percentage of loans, they're still very low. I was just curious on the corporate loans in North America, there was an uptick. Again, I know relative to the portfolio, it's not that big. But anything in particular you can share with us in that area?

Operator:

And there are no further questions in the queue. I will turn the call over to Jen Landis for closing remarks.

Operator:

This concludes the Citi third quarter 2023 earnings call. You may now disconnect.

Jen Landis:

Thank you, operator. Good morning and thank you all for joining us. I'd like to remind you that today's presentation, which is available for download on our website citigroup.com, may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And with that, I will turn it over to Jane.

Mark Mason:

Thanks, Jane. And good morning, everyone. I'm going to start with the firm wide financial results focusing on year-over-year comparisons for the second quarter unless I indicate otherwise and spend a little more time on expenses and capital. Then I will turn to the results of each segment. On Slide 4, we show financial results for the full firm. In the second quarter we reported net income of approximately $2.9 billion and an EPS of $1.33 and an ROTCE of 6.4% on $19.4 billion of revenues. Embedded in these results are after tax divestiture related impacts of approximately $92 million. Excluding these items, EPS was $1.37 with an ROTCE of 6.6%. In the quarter, total revenues decreased by 1%, both on a reported basis and excluding divestiture related impacts as strength across services, US Personal Banking and revenue from the investment portfolio was more than offset by declines in markets, investment banking and wealth, as well as the revenue reduction from the closed exits and wind downs. Our results include expenses of $13.6 billion, up 9%, both on a reported basis and excluding divestiture related costs. Cost of credit was approximately $1.8 billion, primarily driven by the continued normalization in cards net credit losses and ACL builds, largely related to growth in card balances. Our effective tax rate this quarter was 27%, primarily driven by the geographic mix of our pretax earnings in the quarter. Excluding current quarter divestiture related impacts our effective tax rate was 26%. At the end of the quarter, we had over $20 billion in total reserves, with a reserve to funded loans ratio of approximately 2.7% and through the first half of 2023 we reported an ROTCE of 8.7%. On Slide 5, we show the quarter-over-quarter and year-over-year expense variance for the second quarter. Expenses were up 9%, driven by a number of factors, including investment in risk and controls, business-led and enterprise-led investments, volume growth and macro factors, including inflation, as well as severance. And all of this was partially offset by productivity savings and expense reductions from the exits and wind downs. Severance in the quarter was approximately $200 million and $450 million year-to-date, as we took further actions across investment banking, markets and the functions. We're investing in the execution of our transformation and continue to see a shift in our investments from third-party consulting to technology and full-time employees. And as we said last quarter, our transformation and technology investments span across the following themes

Glenn Schorr:

Hi. Thanks very much. So I'm very curious on the whole revenue to RWA topic, especially with some of the changes coming in. So maybe you could give a little more color on -- let's say for instance, the further reduction in the subscription credit facility. I think I read somewhere that was like an $80 billion book down to $20 billion. You can correct that if that's wrong. But just usually those things are big important clients that have relationship lending things attached to them. So I'm curious on how you balance the capital benefit -- the clear capital benefit versus the client impact and how you think about that? Are there other blocks of business that are in motion right now? Thanks.

Glenn Schorr:

I appreciate that, Mark. Maybe just a quick follow-up. On NII, I had asked this last quarter too. And your first half annualized ex market is running about $1.5 billion ahead of the guide. Is that just unpredictable nature of all the moving parts trying to be conservative or anything else in the back half that you're thinking about?

Operator:

And our next question comes from Jim Mitchell with Seaport Global Securities.

Mark Mason:

Thank you. Let me take that. I'd say a couple of things. So one, I'd reiterate the expense guidance that we've given for the full year. So that's the roughly $54 billion ex divestitures or the impact of divestitures, ex any impact from FDIC special assessment. Two, as we think about bending the curve, I look into 2024 and we're looking to bring the absolute expense dollars down from Q3 to Q4. So that bending of the curve will occur. It will occur despite having Mexico still part of the franchise. And we obviously still having Mexico impacts the magnitude of the bend, but it will bend Q3 to Q4. And then beyond that and through the medium term, we will see the curve continue to bend. Again, Mexico impacts the magnitude of the band, but we're very, very focused on bringing our costs down and bending that curve. And you've heard us reference the aspects or the elements of our business that help contribute to that, not the least of which are the exits, one of which is Mexico, and you referenced the timing there, but also the benefits from the investments that we've been making in transformation and risk and controls and shifting from manual processes to technology enabled ones. And then the final one is around simplifying our organization. And you heard in Jane's prepared remarks, as we continue to make progress on these exits it opens up the opportunity for us to lean more heavily into that simplification. So we are focused on not only the guidance, but the bending of the curve as you point out, and looking forward to delivering that and taking actions to ensure we do.

Mark Mason:

Again, it's going to be a combination of continuing to bend the curve and bring our expenses down. Obviously, we've given you guidance on operating efficiency of less than 60%, which will be some of that top line growth, but it's the combination of the two.

Betsy Graseck:

Hi, good morning.

Jane Fraser:

Hi, Betsy

Mark Mason:

Yes. So you're right, we hit 13.3% this quarter, down a tad bit from the 13.4% last quarter. Effective October 1, the 4.3% SCB comes into play. And so, that would equate to assuming the 100 basis point management buffer at 12.3% regulatory requirement and a 13.3% kind of target that we would manage to. I'd highlight a couple of things that I'm sure are obvious to you, Betsy. One is, this is the stress capital buffer for the 12 month period starting October 1. And two is, the strategy that we've described and talked about and have started to execute against is intentionally designed to help morph the business towards a more steady, predictable, consistent stream of revenues, fee revenue growth, as well as bring our expenses down over time, and exit these markets, and those things should contribute to reducing our stress capital buffer over time and improving our returns. But the answer to your question very directly is, yes, the 13.3% would reflect where we'd be targeting as of October 1 for now.

Jane Fraser:

I think consistent with what we've been talking about. There's a lot of uncertainty out there about the new capital requirements, both in terms of the nature of them and the timing of implementation. I think the industry is expecting to get more clarity about that with the comment period that will be coming up. Plus it's a fairly uncertain macroeconomic environment at the moment. So both Mark and I feel it's prudent to continue making that assessment until some of this uncertainty is clarified as to what precisely will do. You should take confidence that we're at the levels, including the management buffer that we expect to be for the rest of the year. We've proven a good case of being able to build capital. That's for sure over the last two years. And you take comfort as well. We increased the dividend. We had $2 billion of capital returned last quarter. So our intentions are clear to return capital where we can, but also to be prudent in how we do so, given environment and current regulatory uncertainty.

Mike Mayo:

Hi. One negative question, one positive question. So on the negative side, you talked about bending the cost curve, but I think second quarter year-over-year it's bending the wrong way. And six quarters from now, you're saying it should bend the other way. So what are we not seeing in the financials that gives you such confidence? Because it seems based on this quarter's results, a little bit more of a trustee story. And on the positive side, TPS continued double digit growth, you continue to invest more in that business. How are you monetizing greater money motion among your multinational and other clients? Thanks.

Mark Mason:

The only thing I’ll add on the expense side, and then you may want to touch on the TTS. But the only add on the expense side is the -- we are taking repositioning charges, Mike. I mean, we're not sitting still as we go through this uncertain period of time where wallets across certain parts of the industry are under significant pressure. And in taking those repositioning charges, there are going to be expense reductions that ultimately play out over the next 12-month period. So that's the other factor in addition to what Jane mentioned in the way of exits and benefits from the transformation that will play into the cost base over the next 12 months.

Operator:

And our next question comes from Erika Najarian with UPS -- UBS.

Mark Mason:

Yes, sure. Look, no need to apologize for asking the question again. It's an important -- it's an important topic. I'd say a couple of things. So one is that, we can certainly look back in time, but I would highlight that we're here because we needed to have invested more in our franchise. And so undoubtedly there's going to be an increase in our expense base that reflects the underinvestment from the past and ensuring up safety and soundness and actually moving towards a more automated operational -- more modernized operations and infrastructure. So there's certainly going to be that. With that said, with those investments come efficiencies. So with the move from manual to automation over time, those types of investments will yield benefits in our cost structure. And that's part of what is going to bend the curve over that medium-term period. The other thing that I'd highlight is, obviously, with the legacy franchises, there's $7 billion of expense associated with those, and that will come down. But that -- but because of the Mexico transaction, we're going to be stuck with that a little bit longer given the IPO process. It doesn't put a big dent in our ability to bring stranded cost down and by the way, it does come with top line revenues and historically has been accretive to our profitability and returns. And so I highlight -- I'm not going to give you kind of new guidance on where our expenses will end up. But what I will point you to is not only the $54 billion this year, roughly $54 billion this year, not only the bending of the curve in the third and fourth quarter or the third to the fourth quarter next year. But we've given guidance on top line growth revenue of 5%, call it, CAGR through that medium-term period, and we've given you kind of operating efficiency targets that we've said as well, and we intend to deliver on those things that reflect the bending of that curve through all of those drivers that we've mentioned. So I hope that helps, Erika. I appreciate the focus on both capital and expenses. We are equally focused on it and know just how important it is to achieving those targets. We're not only kind of doing the things that we've highlighted in that strategy articulation, but we're also being responsive to the current environment that we're in. We think that aids in our ability to deliver the targets and the bending of the curve, and we know there's an additional opportunity that Jane has referenced to the simplification of the organization as we make -- what I would argue is considerable progress on the exits towards the end of this year. And all of those things will be important to ensuring we get to that lower cost base, which we will do.

Operator:

And our next question -- go ahead.

Mark Mason:

Sorry, your question was around expenses or the revenue?

Mark Mason:

Yes.

Mark Mason:

Got it. Jane, do you want to start or?

Mark Mason:

Yes. So I'd say a couple of things. So one, Erika, is obviously, with that revenue CAGR will be volume-related expenses that play out. But we're also focused, obviously, on the non-volume related expenses and not giving you a precise number because the magnitude of that band, right, is a factor, right? So obviously, Mexico, for example, as I mentioned earlier, impacts the magnitude of the bend, right? And we're going to and have, in fact, when you look at our expense base even for the quarter, we've spent money in Mexico to drive that top line 22% revenue growth, 10% ex-FX. And so, there are going to be nuances in the running of the business in a way that ensures we're maximizing shareholder value that impacts the magnitude of the bending of that expense curve. Investments that I got to continue to make in TTS in order to maintain that number one position in that competitive advantage that we have. And so, those things will impact that magnitude of the bend. We've been, I think, very transparent as we get into each year, giving you concrete numbers. What I'm telling you is the curve will bend. And as we get closer to 2024, we'll give you more direction on the magnitude for that year and beyond.

Steven Chubak:

Hi. Good afternoon. I wanted to ask a question on capital. Just given the recent increase in your SCB, I was hoping to better understand why the 11.5% to 12% remains the appropriate long-term objective in your mind? And as we prepare for Basel III end game, think through the capital benefit from future asset sales, can you speak to whether that will translate into operational risk capital relief specifically as it's less clear whether those benefits will accrete even as those asset sales are consummated?

Mark Mason:

Sure. And again, I think that if you look at the transactions that we've closed to date, they've generated or freed up about $4.6 billion of capital the two that remain to be closed and the balance of the year will generate another $1.2 billion or so. That will be important to our capital base. I think that we obviously have to see the proposal as it comes out and the NPR. And we have to -- we'll have a window to respond to that. We're hopeful that the regulators hear our response and views on it as it comes out. There's clear -- there's clearly going to be a reference to increases in RWA and operational risk implications potentially as part of that. I do think that exiting without having seen the proposal, and without obviously knowing how those rules might evolve. I do believe that the exiting of these 14 markets does play towards not only reducing our SCB in stress scenarios or as it comes out of stress analysis and tests, but also should play through helping to reduce risk-weighted assets and potentially operational risk as well. But we have to see what the proposal looks like and go through that. And I think what's important here is that, whenever it comes out, whatever it looks like, as we dissect it and go through it, we'll figure out how to manage through it, right, whether that be through exiting certain products, seeking price adjustments as it relates to customers, clients and the markets or continuing to optimize RWAs as we have been doing very proactively, we'll figure out how to manage.

Steven Chubak:

Thanks for that perspective, Jane, very well said. Just one quick follow-up for me. PBWM fee income trends, given the lower partner payments, I mean, clearly, the wealth fee trends were -- would suggest that they were quite subdued in the quarter. And I just wanted to understand your outlook over the near to medium term, what drove some of the weakness this quarter? Is it something that you expect will likely persist, especially given some of the market tailwinds that we've been seeing would have expected to see a little bit more resiliency in wealth fee income in particular?

Operator:

And our next question comes from Ebrahim Poonawala with Bank of America.

Mark Mason:

Sorry, just the last part of your question, I'm sorry, if we do see what?

Mark Mason:

Got it. Thank you. Look, our current reserves, as you know, as we think about CESL, we've got three different scenarios. We've got a base case in upside, a downside. Our current reserves are based on the mix of those three macroeconomic scenarios. It reflects about a 5.1% unemployment rate on a weighted basis over the eight quarters, and it's roughly flat to what it was last quarter. What that means is, obviously, our downside scenario has unemployment that's much higher than that, closer to 7% or call it 6.8% or so. But that's kind of how we've thought about unemployment. As we think about the reserves each quarter, obviously, we take a look at the macroeconomic factors and how they're evolving. Our base case today assumes a mild recession and reserves in the future will consider how are weighting towards downside, upside and baseline may more subject to our outlook and volumes. Those are the two factors that influence whether we're increasing reserves or not. I would point out though that in addition to unemployment and because unemployment has been as stubborn as it has been, if you will, we also look at debt service coverage ratio as an important factor as we think about our consumers, as we think about their balance sheet, as we think about the risk that they may or may not be facing. So unemployment is an important factor. But we've flexed our thinking in light of the environment and in light of how behaviors have been shifting, and that's an important factor in how we think about our reserves as well. I feel very good about the level of our reserves. You heard us mention earlier, we've got $20 billion of reserves, we're well reserved across the portfolio, but those are all important elements to it.

Mark Mason:

Yes. Again, the thing I'd point out and Jane, feel free to chime in here, is that what we talked about was getting to our medium-term returns, 11% to 12% and the medium term is 25% to 26%, right? So it's not just 25%, just to be clear. And we do continue to feel very confident around our ability to do that. You heard us mention the levers that we think will contribute to that. Obviously, capital is important and how that evolves and we continue to kind of work to optimize the balance sheet while serving our clients effectively and importantly, growing the strong businesses that we have that are high returning as well.

Matt O'Connor:

Hi. [Technical Difficulty] credit card in the back half of the year. And just wondering, you've got the normalized loss rates on Slide 22. Are you still thinking you'll hit those, I think, exiting this year or early next year. And then, I think at one point you said they might go a little bit above that before they kind of come back to a normal level? And is that still the case?

Jane Fraser:

And as Mark said, I think we feel good about our positioning as a prime, but also a strong credit proposition that we have. We're seeing stronger demand for the credit-led products such as value cards, bulk on installment loans, as well as the service-led engagement for the more prime customers. And so, that's also going to be a valuable factor driving growth and profitability as well.

Jane Fraser:

Yes, I think well, also the normalized state back in 2019 is also pretty good. So you're not hearing any alarm bells ringing from Mark or myself at all here on the US consumer. I think we see the US consumer as resilient. We've talked about them being cautious but they're not recessionary. And we are seeing more pressure on the lower FICOs. We don't have a large number of that in our portfolio, but that is where we're seeing more of the normalization happening on the payment rates, for example, on other behaviors in there. So it's quite localized, but I don't think we should be overly concerned here about the health of the US consumer. And as Mark said, we're in a very unusual environment, higher inflation, these rate levels and a strong labor market. And under those conditions, it's the debt service ratio, as he said, that is, we think, is a more useful leading indicator that we keep a close eye on.

Jane Fraser:

Yes.

Gerard Cassidy:

Hi, Jane. Hi, Mark.

Gerard Cassidy:

Mark, can you share this in your financial supplement, obviously, you give us good details on your credit picture and we're talking about credit right now. The nonaccrual loans have been flat as a pancake for the last 12 months for you folks and the industry as well. And this is in light of the Fed funds rates, as we all know, have been up over 500 basis points. Can you guys share with us what's -- why we haven't seen more -- this is mostly corporate, of course, but everybody has been hanging in there very well in view of the fact that rates have gone up so much. What are your customers telling you or are you seeing that has enabled them to remain very healthy in light of a 500 basis point increase in interest rates?

Gerard Cassidy:

And then as a follow-up, when you think about what we've seen with the Fed's tightening over the last 12 months, banks like your own have positioned the balance sheet accordingly and I know the Bank Analysts Association of Boston, Michael did a good job explaining how you guys manage the balance sheet. And how -- when you look at it going forward, do you think changes are coming because the Fed if they end -- the Fed funds rate increase as we get to a terminal rate, how are you guys positioned the balance sheet, do you think going forward?

Operator:

And our next question comes from Vivek Juneja with JPMorgan. I'm sorry, we have Mike Mayo with Wells Fargo.

Mark Mason:

Well, Mike, I love you, but I'm not going to play that game. What I will say is that, we clearly have work that we're doing as it relates to the exits, but we're making very good progress on that, not just on the closing of the exits but also on putting a dent in the stranded costs associated with those exits that we have closed. And so, as Jane mentioned in her prepared remarks, by the time we get to the end of the year, ex Mexico, we would have made a considerable amount of progress on there, and that creates an opportunity to do more around the simplification of the organization. And so that simplification is obviously in an earlier inning, call it, the exits in a later inning. I think that the transformation spend investments and those things. Look, we are squarely into execution, as you've heard us mention before. And as I've mentioned, the expense base around that is going to continue to morph from spend that we've made around third-party consultants and that helped in the crafting of the plan towards technology, towards people that are critically involved in the execution of it and then a downward trajectory towards the benefits we get from that technology and reduced operational expense. And so it's a multiyear journey. We've talked about that. We've got a number of years to continue to execute against it. But what's important is we know what we have to do, both in how we're investing that money and as it relates to being disciplined about our cost structure and bending the curve. And again, that's what we're going to do.

Mark Mason:

Yes. I mean, again, we've got -- I think the number I shared was somewhere around 13,000 people or so that are broadly working on the efforts here. We haven't gotten into specific costs. You know it's in the total number. But what I would say again is that, we're clear on what we've got to deliver and execute against and we're managing that cost very tightly. We're constantly looking at opportunities to deliver on those transformation deliverables, more efficiently, leveraging more technology, leveraging AI in some instances. And so, we're not just taking those execution plans as they were crafted and delivering against them. But we're looking for efficiencies and even the execution plans as they're constructed today. And that's important for us to keep doing.

Kenneth Usdin:

Hi. I know this is going along here. Just a quick one, just, Mark, on the -- just wanted to get your sense on the sentiment around client activity in both the markets group and what the pipelines are looking like in investment banking and the feel for that? Thanks.

Operator:

And our next question comes from Charles Peabody with [indiscernible].

Mark Mason:

Thanks for the question, and thanks for the acknowledgment that we do manage our markets revenues in total. So I appreciate that. What I would say in terms of the markets NII is, you've captured it right, which is, the dynamic that's playing out between first quarter and second quarter is in fact a dividend season. And again, given the globality of our franchise, the dividend is not just a dividend in any one region, but dividend in multiple regions playing out over the course of the first and second quarter. I can't speak to the peers at this particular stage. But what I would say is that, you know that our book SKUs more so than peers to corporates, and that's important. And we obviously have a very, very strong FIC business more broadly as well. So dividend season, major driver here in that increase.

Mark Mason:

Charles, I really appreciate the attempt there. But I'm not going to give any further guidance on the breakout of the NII. I will reiterate the ex-markets NII increase, by the way, to plus 46% but thanks for the question. I appreciate that.

Jane Fraser:

Hi, Vivek.

Jane Fraser:

I think we're going to see exactly what the framework is that comes out and then the implementation time frame for it and then look at making adjustments to plan, also hoping that the comment period is taken seriously and the different considerations I talked about earlier are taken into effect. Then we'll work through water adjustments we make, pricing capital reallocation, et cetera, the playbook that you would expect the same one that we've done with [indiscernible] and we've done with a number of other pieces. And we would also hope to see our SCB in a different place for the same reasons we talked about earlier Vivek because there's a lot of volatility in that SCB dependent on the scenario that comes out every year. And I would say, given the shifts we're making in the business model, we'd expect to see that one come down.

Vivek Juneja:

But I'm presuming you want to go sooner rather than later because the market is going to expect that rather than take a full three years or whatever the Fed might give you.

Vivek Juneja:

Completely unrelated, if I may. Noninterest-bearing deposits, what are you seeing given you're very heavily corporate driven. When I look at your point-to-point because you don't give a full average balance sheet, it's only interest-bearing related. But the noninterest-bearing is only available on a peer end. If I look at that, there was a big drop in the US this quarter. Anything unusual? Is that accelerating? What are you seeing amongst your clients, people still waking up? And what have you factored into your NII guidance for that?

Operator:

Thank you. This does conclude Citi's second quarter 2023 earnings review call. You may now disconnect at any time.

Jen Landis:

Thank you, operator. Good morning and thank you all for joining us. I’d like to remind you that today’s presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings. With that, I will turn it over to Jane.

Mark Mason:

Thanks, Jane and good morning everyone. I am going to start with the firm-wide financial results, focusing on year-over-year comparisons for the first quarter, unless I indicate otherwise; and spend a little more time on expenses, our balance sheet and capital; then I will turn to the results of each segment. On Slide 4, we show financial results for the full firm. In the first quarter, we reported net income of approximately $4.6 billion and an EPS of $2.19 and an ROTCE of nearly 11% on $21.4 billion of revenues. Embedded in these results are pretax divestiture-related impacts of approximately $950 million, largely driven by the gain on sale of the India Consumer business. Excluding these items, EPS was $1.86, with an ROTCE of over 9%. In the quarter, total revenues increased by 12% on a reported basis and increased 6%, excluding divestiture-related impacts, as strength across Services, Fixed Income and U.S. Personal Banking was partially offset by declines in Investment Banking, Equity Markets and Wealth as well as the revenue reduction from the closed exit and wind down. Our results include expenses of $13.3 billion, an increase of 1% versus the prior year. Excluding divestiture-related costs in the prior year, expenses increased 5%, largely driven by the transformation, other risk and control investments and inflation, partially offset by productivity savings and the expense reductions from the exit and wind downs. Cost of credit was approximately $2 billion, primarily driven by the continued normalization in car net credit losses and ACL and other provision build of approximately $700 million, largely related to a deterioration in macroeconomic assumptions and growth in card revolving balance. At the end of the quarter, we had nearly $20 billion in total reserves with a reserve to funded loan ratio of approximately 2.7%. On Slide 5, we show an expense walk for the first quarter with the key underlying drivers. Transformation investments drove 1% of the growth, largely in the data, finance and risk and control programs. And 4% of the increase is driven by structural, largely in the form of compensation and benefits, including the full year impact of the people we hired last year as well as those we hired in the first quarter. Embedded in the structural bucket are a few key items. First, other risk and control investments that are enterprise-wide and in the businesses, which make up about 2% of the total expense increase. Second, the impact of additional front and back-office hires. Third, inflation and severance costs. All of this was partially offset by productivity savings as well as the benefit from foreign exchange translation and the expense reduction from the exits. And across the firm, technology-related expenses grew 12%. We recognize these investments have driven a significant increase in expenses, but they are crucial to modernize the firm, address the consent orders and position Citi for success in the years to come. Now turning to Slide 6, I’d like to spend a few minutes giving you some tangible examples of what we’re investing in and the benefits we’ll see over time. In many cases, these investments will simplify our processes and platforms. For example, we are retiring and consolidating 20 cash equities platforms to 1 single modern platform, eliminating costs over time. And we have consolidated 11 platforms to 1 global sanction-screening platform, reducing false alerts, improving the client experience and eliminating costs. We’re also modernizing our infrastructure and the security of our data and information by enhancing cybersecurity through the use of AI and improving the security of our infrastructure and devices, leading to fewer operating losses. And we are leveraging industry-leading cloud-based solutions to modernize and streamline the connectivity between our front-office systems and the general ledger, eliminating manual processes and operating costs over time. We’re driving the strategy by investing in the client experience, both in terms of our technology interface and innovative new products. We launched our cloud-based instant payments platform for e-commerce clients in TTS. We’re also deploying CitiDirect Commercial Banking, our mobile and digital interface for commercial clients, so they too can open accounts and access all products and services across ICG in the same way our large corporate clients do. And finally, we’re investing in data to create advanced decision-making, client-targeting and risk management capabilities, which has allowed us to enhance our returns through greater RWA efficiency. And we expect many of these investments to generate efficiencies that will allow us to self-fund future investments over time. On Slide 7, we show net interest income, deposits and loans, where I’ll speak to sequential variant. In the first quarter, net interest income increased by approximately $80 million, largely driven by interest-earning balances in cards. Average loans were up slightly as growth in PBWM was largely offset by a decline in ICG. Average deposits were also up slightly, driven by growth in both PBWM and ICG, and our net interest margin increased 2 basis points. On Slide 8, we show key consumer and corporate credit metrics. We’re well reserved for the current environment with nearly $20 billion of reserves. Our reserves to funded loan ratio, was approximately 2.7%. And within that U.S. cards is 8.1%. In PBWM, 44% of our lending exposures are in U.S. cards. And of that exposure, nearly 80% is to customers with FICO scores of 680 or higher. And NCL rates, while reflecting some typical seasonality this quarter, are still below pre-COVID levels and are normalizing in line with our expectations. The remaining 56% of our PBWM lending exposure is largely in wealth and predominantly mortgages and margin lending. In our ICG portfolio, of our total exposure, approximately 85% is investment grade. Of the international exposure, approximately 90% is investment grade or exposure to multinational clients or their subsidiary. And corporate non-accrual loans remain low at about 40 basis points of total loans. As you can see on the page, we break out our commercial real estate lending exposures across ICG and PBWM, which totaled $66 billion, of which 90% is investment grade. So while the macro and geopolitical environment remains uncertain, we feel very good about our asset quality, exposures and reserve levels, and we continuously review and stress the portfolio under a range of scenarios. On Slide 9, we show our summary balance sheet and key capital and liquidity metrics. We’ve added a few additional metrics to the page to provide additional transparency into how we manage the balance sheet. We maintain a very strong $2.5 trillion balance sheet, which is funded in part by a well-diversified $1.3 trillion deposit base across regions, industries, customers and account types, which is deployed into high-quality diversified assets. Our balance sheet is a reflection of our strategy and well-diversified business model. We leverage our unique assets and capabilities to serve corporates, financial institutions, investors and individuals with global needs. First, the majority of our deposits, $819 billion are institutional and span 90 countries. And the majority of these institutional deposits tend to be interest rate sensitive. So when rates go up, we reprice the deposits accordingly, but that reprice takes into account the overall client relationship as well as the level of rates. But despite this interest rate sensitivity, these deposits tend to be stable as they are tied to the operational services that we provide. And these institutional deposits are complemented by $437 billion of U.S. retail consumer and global wealth deposits, as you can see on the bottom right side of the page. These deposits are well diversified across the Private Bank, Citigold, Retail and Wealth at Work as well as across regions and products, with 75% of U.S. Citigold clients and approximately 50% of ultra-high net worth clients having been with Citi for more than 10 years. Our wealth deposits tend to also be interest rate sensitive, but this usually results in our customers moving to higher-yielding deposits and investment products. Now turning to the asset side. At a high level, you can think of our deposits being largely deployed in 3 asset buckets

Glenn Schorr:

Hi, thank you. Simple one. I appreciate the many, many moving parts, but your first quarter NII and revenue production was great. And if you just annualize it, you’re handily ahead of your full year guide. So I’m just curious on how you’re thinking about maintaining the guide but running ahead of schedule.

Glenn Schorr:

Well, I appreciate that. Maybe if I could follow-up on your comments and the previous ones on TTS and Securities Services. I tried to learn from all my mistakes, I make a lot of them. But in ‘08, we thought housing prices couldn’t go down much, and then they went down a lot, and we all adapt. The same thing in March, thought deposits couldn’t leave a bank so quickly, but they did. So Mark Slide 25 and 26 people should look at because they are great, and they show the stability of your deposit franchise. But I’m curious if history can change at all, meaning right now, those are cash and operating deposits that clients keep with you and they need you, and you’re fully integrated. But do you have client concentrations we should know about? Or how – are you thinking about any big changes that can happen in terms of client behavior relative to the past in terms of what they keep at any given bank? I know that’s a tough one.

Mark Mason:

I think that’s exactly right, Jane. And Glenn, I’m glad you pointed out, Pages 25 and 26, which clearly lay out that diversification, but also the scale and stability of those deposits over an extended period of time. The only thing I’d add additional to that would be, obviously, we’re in an environment where there is quantitative tightening that’s occurring. That’s going to have a broad industry impact as we’ve started to see already. But we’re also in an environment where rates are increasing. We will see how that plays out through the balance of the year. That has an impact on betas, but we shouldn’t mistake price sensitivity or interest rate sensitivity with the stickiness of the deposits. And so we’ve obviously talked about betas increasing, particularly in our TTS portfolio, more so in the U.S. It obviously will continue to increase outside of the U.S., but we will work the relationship that we have with those clients and the breadth of services that we bring to influence and impact pricing. And more importantly, because of the operating nature of them, we do see them as very stable.

Mike Mayo:

Hi, Jane, I challenged you a couple of earnings calls ago about the complexity created by being in so many countries. You said, TTS was your crown jewel. And here, it’s up almost one-third year-over-year. So, so far, so good under since your Investor Day. Can you talk about some of the fee growth? I mean we kind of understand the NII growth, but the fee growth is double digits also. So I guess that’s money in motion. And I think you described this as the world’s largest wholesale global payment system. What’s happening to give you double-digit top line growth there?

Mike Mayo:

Okay. And then as it relates to rates, generally, like what is it, like over 90% of your rate sensitivity is outside the U.S. And so shouldn’t you be benefiting more than you originally thought, given some of these rate hikes? And I guess, Mark, are you just sandbagging a little bit? I get the uncertainties in IB backlog pushout. And no, I mean, we want you to have a reasonable bar to jump over. And I’m just wondering if you set the bar high enough for yourself for this year.

Operator:

Thank you. Our next question will come from Betsy Graseck with Morgan Stanley. Your line is open.

Mark Mason:

Good morning.

Jane Fraser:

Betsy, so we’re obviously delighted that Andy is joining as our new Global Head of Wealth around my table. He’s a tremendous leader with a great track record driving growth. He got deep product and digital expertise, proven people leader, and we will certainly be taking full advantage of his expertise and experience in the U.S. We’re not shifting our strategy in Wealth. Its mandate is consistent with the strategy we laid out at Investment Day. And that’s the day we see a lot of potential of growth in Asia as we fill in the coverage across the full wealth spectrum there. We will be scaling up in the U.S. by building out the investment offering and cross-selling into our existing and new clients across the country. We see tremendous potential of growth in our Private Bank and the family office franchise or really around the world. And there is a lot of synergies to be realized as we point out in the different KPIs and drivers, between the other four core businesses in terms of referrals and other business that we’re able to generate across the franchise. So the core of the strategy will not be changing with him coming on Board. Mark, what else would you add in?

Operator:

Thank you. Our next question will come from Erika Najarian with UBS. Your line is open.

Jane Fraser:

We see plenty of potential for organic growth potential. And I think that’s really where we’re going to be focusing, Erika, because I look at the Private Bank and the family office. There is so much wealth creation, supplemented by our commercial banking relationship with a lot of the enterprises and the owners of those enterprises who are really generating the new industry champions in country after country, and we’re extremely well positioned to capture that. I don’t see an inorganic play that would actually help us on it. We also benefit because we don’t have our own proprietary products and a sales force pushing those proprietary products were open architecture. And therefore, we’re a very desirable partner for many of our key partners on the institutional side of the business to be able to provide very interesting value propositions, investment opportunities and the like to our clients around the world. And finally, we can see certainly areas in interesting digital plays, different partnerships, areas like that, that are of interest. So I’ll never say never in the longer run. I’m sure if something very attractive comes up, we will be very interested in looking at it. But it’s not something right now that I think makes sense, given where we’re focused. And no consent to actually almost independent of the consent orders. I think where – what we’re looking at doing right now is getting this organic play right, and then we will see from there.

Jane Fraser:

Yes.

Jane Fraser:

And I think the other bit I’d also just point to is I think one of the things we do benefit from is that we aren’t constrained by being dominated by a brokerage model in a particular way of doing Wealth. So part of the mandate for Andy and the ones that we’ve been working on to date is really looking at what is modern Wealth Management and making sure that we are really well positioned that way, because I do think that will be more of the way of the future.

Jim Mitchell:

Hey, good morning. Maybe just a question on capital. I appreciate the fact that the potential sale of the Mexico franchise would be a negative impact, but you’re sitting at a pretty comfortable cushion now above your target. Obviously, expected future retained earnings growth should be more than an offset. So how do we think about – how are you thinking about the timing of restarting buybacks with your stock as cheap as it is?

Jane Fraser:

I think we will have more clarity fairly soon around a number of the factors. So we will be able to give you better clarity on timing before too long.

Mark Mason:

So in terms of the reserve – again remember, we have a couple of different scenarios that we run when we calculate the CECL reserves. Our current reserves are based on those three macroeconomic scenarios. It reflects a 5.1%-or-so unemployment rate on a weighted basis over eight quarters. So that’s relatively flat versus last quarter. The other point worth mentioning is that in this particular calculation for the quarter, we did skew a little bit more towards the downside in terms of the probability weighting than last quarter, again, in light of the macro environment and the combination of that as well as well as some normalization in the portfolio, including an increase in revolver activity contributed to the increase in reserves we saw. But to answer your question, unemployment at about 5.5 for be weighted – sorry, 5.1 for the weighted basis over the eight quarters.

Steven Chubak:

Hi, good morning.

Jane Fraser:

Good morning.

Mark Mason:

Why don’t I start and then, Jane, feel free to jump in. Look, we had a – we saw a better performance in the quarter in markets then when I talked at the conference earlier in the quarter. And really, that played through in our Fixed Income business, which was up about 4% year-over-year, driven largely by strength in rates. And we saw rate volatility in the back end of the quarter, and we were well positioned to take advantage of that and serve clients, and that aided getting us to the down four in aggregate across markets. What we talked about for the full year is kind of relatively flat performance. And I still think that based on what we see today and subject to how the macro continues to evolve, that we will be able to deliver on that. But as you know, volatility, in many instances, plays to the favor of markets businesses. And so there is a bit of an unknown as to how that evolves, but I feel confident in the guidance that we’ve given thus far on that. Jane, did you want...

Mark Mason:

Thanks. I think that’s exactly right in terms of the corporate client base there. Look, in Investment Banking, obviously, the wallets down – were down meaningfully last year. We saw some performance – good performance in debt capital markets this quarter, up 66% versus the prior quarter, particularly as we saw activity in investment-grade names, which is an area of strength for us for sure. And I think there was a bit of momentum behind a bit more clarity on the direction of rates. And so we will see how that continues to evolve and play out. The other thing I would add is that we continue to have very good dialogue with clients as they manage through the environment and try to anticipate what the balance of the year looks like. And at some point, it’s clear that clients are going to need to get back into the markets. But that trajectory is going to largely depend on the geopolitical and macro environment and how we all manage and navigate that uncertainty. So, very engaged, healthy pipeline, but subject to how the environment continues to evolve.

Mark Mason:

I think there are a couple of things to kind of keep in mind in terms of PBWM fees. And I think part of it is that PBWM is a combination of both the cards business as well as the wealth business. And a good amount of the pressure that we have seen in fees, and that is still subject to how the environment evolves, is in the wealth space, because we continue to see fee pressure on investment activity and revenues there. And we will have to see how the market valuations move on some of the assets that we manage on behalf of clients and what momentum it drives in terms of more investment activity. So, I think that’s a big part of the drag in fees, the upside that we have seen in fees and in banking and cards, again, I think will be subject to how activity and volume evolves across our cards business. We do expect revolving levels to continue, but purchase sales, while they are up year-over-year, when we look at kind of the latter months of the quarter. They have been under – the growth has been slowing and it’s been quite concentrated in travel and entertainment. So, we will have to see how some of that volume activity evolves, and that will be a factor to keep in mind.

Ebrahim Poonawala:

Hey. Good afternoon. Just a couple of quick questions. One, in terms of the Banamex sale, I think Jane, you mentioned that maybe we might hear something relatively soon and you still are pursuing the dual-track process. One, if you do decide to go the IPO route, does that change the accounting dynamics, Mark, with regards to taking that hit early on if – given just the time it might take to go through the an IPO? And the outlook for the Mexican economy, the banks continues to be robust. Does that – is that impacting or influencing how you are thinking about the value that you should get from this transaction?

Mark Mason:

Yes. And just to put some numbers to that. For the quarter, Mexico was up 16% revenue year-over-year, quarter-over-quarter up 5%, cards growth, deposit growth, so performing well, I would say. And in terms of the latter part of your question, Jane is exactly right. Everything we are doing is positioning us for both a private sale and/or an IPO, and we will choose the path that’s best for shareholders. And IPO would take longer. It would likely take longer as we would want a set of full audited financials, etcetera. I would say that in terms of what the implications would be from an accounting point of view, CTA accounting is different for an IPO, so we would not recognize that CTA through the P&L. In an IPO, we wouldn’t have at signing that impact that is different from that closing. And so that would not be an issue. The impact would be a matter of how much we IPO-ed at that time. So, love see a lot of moving pieces there. We would need to figure out if we ended up down that path. But hopefully, that gives you some sense of the scenarios there. But I would end with just one final point that Jane has made already, which is that the outcome that we choose will be the best outcome for our shareholders, our clients and employees.

Operator:

Thank you. Our next question will come from Matt O’Connor with Deutsche Bank. Your line is open.

Mark Mason:

Thanks Matt. To answer your question very directly, yes, it is still the case. We are going to bend the curve, as I have mentioned in – towards the end of 2024. It does mean an absolute dollar reduction in expenses.

Mark Mason:

Yes. Look, again, look, the expense base is a key area of focus for us, right. We recognize that expenses have been growing. They have been growing because we have been investing in the franchise, both transformation-wise, as well as business-led growth to support the competitive advantages that we have in many of our franchises. But we are managing that very actively and very deliberately. And that means that we are looking to ensure that we are spending the money in the right way and the right places and that we are going to yield the benefits that we expect from that over time. And that was all factored into the targets that we set at our Investor Day for the medium-term. And what that requires is that we start bending the curve in ‘24, as I have stated, and that we end in that medium-term at a place where we have an operating efficiency of about 60%, and we are positioned to have returns that are in that 11% to 12% RoTCE point of view. There are a couple of factors that are going to contribute to lowering that expense base. One, the divestitures that we have been talking about, right. The second is both the benefits from the transformation and other investments that I have just referenced. And the third is further organizational and management simplification efforts that we have underway that are enabled by the idea that we are exiting 14 consumer countries. And so those three factors, if you will, become very important and to ensure that we get to that lower cost structure and that we are able to deliver on the broader commitments that we are making with regards to returns.

Gerard Cassidy:

Thank you. Hey Jane. Hey Mark.

Gerard Cassidy:

A couple of questions. Jane, maybe starting with you first, or Mark, both of you can answer it. In view of what the – the disruptions we have seen in the banking system in the month of March with what went on with the regional banks here in the U.S. and obviously, the large investment bank over in Switzerland, do you guys see changes coming, or what changes do you see coming in terms of regulatory, whether it’s more capital, more liquidity? And it may not be directed at a company like yours because you are a global SIFI already, and it might be more regional orientated in the United States. And then as part of this question, Jane, can you guys give us some color on the deposit you and your peers made into First Republic? What was the thinking behind that as well?

Gerard Cassidy:

No, very insightful. Very good. Thank you. And then as a follow-up question, I noticed in your card, I think it was Slide 8, you gave us the prime – 80% of the portfolio is prime, which is FICO score is greater than 680. I don’t know if you would agree with this statement, but we are hearing that there were some FICO score inflation. As a result of the pandemic, a lot of consumers saw the FICO scores go up. And I have seen numbers as high as 70 points that may be in the high side. But can you guys – do you agree with that? And if you do, would you then expect the 700 FICO score customer at some point to behave like a 650 score customer?

Mark Mason:

Yes. I think what’s really important here, Gerard, is kind of what we are seeing in the way of the performance of the portfolio. So, again, I have heard that sentiment regarding FICO store inflation. We feel very confident in how we have assessed our customers and what it means to have 80% of our customers prime and greater than 680. And I think importantly, what we are seeing is we are seeing payment rates start to slow. We are seeing average interest-earning balances start to increase. We are seeing NCL rates increase, but particularly driven by the lower FICO score customers across the portfolio, which is where you would expect to start to see that drag occur. And the NCL rates that we are seeing are still well below what we would see in a normal cycle, right. And they are in line with what we have been forecasting for performance. So, there are no surprises that we are seeing in terms of how that curve is evolving. We would expect that it will get back to those normal levels towards the beginning of next year. It will likely play through those normal levels a bit before tapering. But my point here is that we understand our customers, the portfolio and how it reacts to the environment enough to forecast that out. And so far, that’s been performing in line with that forecast and those estimates. And importantly, we continue to stress it to make sure we are not missing anything. And importantly, we carry a sizable reserve, as you know, as part of that $20 billion.

Operator:

Thank you. Our next question will come from Vivek Juneja with JPMorgan. Your line is open.

Mark Mason:

Good morning.

Mark Mason:

Yes. So, I guess a couple of things. One, in terms of the rates that we have assumed, in the balance of the year, we have kind of assumed that rates would kind of probably – rates would flatten out after this quarter, after the second quarter and then trend down a bit towards the end of the year, down a bit to something like 450 or so, 450 or so. So, we may have one rate increase and then flat and then down to about 450. That could change. But candidly, if it changes a little bit here or there, it’s unlikely to have a meaningful impact in 2023. That’s likely to have more of an impact in 2024. So, we can debate that curve, but that’s kind of what we have thus far in our outlook. The second point I would make is around – and that’s U.S. rates. We are assuming – I don’t have specifics in front of me in terms of the rate curves around the globe, but we are assuming kind of continued rate increases there, not of significant magnitude, but some assumptions there depending on where we are talking about. The beta assumptions that we have built in are for betas to continue to increase outside of the U.S. But again, they run lower than the U.S. in general, for our multinational clients. We expect that we will see in the PBWM retail banking or with PBWM client segment space that clients are likely to move towards either higher-yielding deposit products or investment products. And so we have factored those things into how we think about the outlook. And could that change or evolve? Absolutely, but that’s kind of what’s behind what we have assumed here.

Mark Mason:

So, a couple of things I have mentioned. So, one, we did see inflows in the quarter associated with some of the sector turmoil. If you – we have looked at kind of deposit levels from, call it, March 7th, March 8th, through close to the end of March. And we certainly did see an uptick, call it, probably a little bit under $30 billion or so of inflows in that period of time with a good portion of that in our CCB, our commercial middle market client base. It’s too soon to tell kind of how betas evolve, but we do think that a good portion of those deposits will likely be sticky. I think what’s important here is that part of our strategy here is, in fact growing operating deposits with our large multinational clients and our middle market clients. And so we are going to continue to be focused on that. What’s a little bit unclear is how the rate environment continues to evolve and what that means for how betas actually evolve, right. And we will have to kind of wait and see. It’s too soon to tell as it relates to that.

Ken Usdin:

Thanks. Hey Mark. Just a follow-up on the credit. So, you mentioned, obviously, that you moved your part of your CECL adjustment a little bit towards the – in your weightings. And you had previously talked about getting towards “normalized” card losses, I think you had said by around the end of the year. So, can you just – given the changes that we are seeing ahead of us and definitely saw some normalization happen this quarter, can you just – are you still online for that getting to that 3 to 3.5 and 5, 5.5 in the respective card businesses by around year-end this year?

Ken Usdin:

Okay. Cool. And then one more just follow-up, end-of-period deposits down 3%, you mentioned the taxes. Are the taxes – fell across the business. When I look at the deposits page, there are a lot of ins and there are a lot of outs on an end-of-period basis. And just trying to get a sense of like what areas might have been impacted by that tax seasonality and where there was just some of the other pieces that you have already talked through in terms of inflows, outflows and everything else in between?

Jane Fraser:

There are no surprises in what happened.

Operator:

Thank you. Our last question will come from Mike Mayo with Wells Fargo Securities. Your line is open.

Mark Mason:

Yes, we did. Yes. That’s what I was talking about, Mike, in terms of those flows. They did come largely in the U.S. in the month of March, following March and through kind of the end of March. They were overshadowed by these normal payments that I referenced. And we did – and we still see good activity kind of even as we came through March and in the early parts of April.

Mike Mayo:

And if you define deposits this way, I mean, if I am oversimplifying correct me, but look, you have 5,000 multinationals. You really target for payments, capital markets and banking. Those companies have a lot of deposits, a lot of services. That’s the stickiest. That’s where you said 80% of your clients in TTS have been with you for over 15 years. What are the deposits for those 5,000 multinationals? And I know I am asking the slice and dice in a little bit different way, but even just a general sense. Because the reason I am asking this is because I think there is a disconnect between selling percent of uninsured deposits as a measure of stickiness. And I don’t think that’s valid. And you showed higher deposits, even though you have a big percentage of uninsured deposits or maybe that doesn’t matter as much as some front pages of newspapers are suggesting. So, if you could address that.

Jane Fraser:

Yes. I often say it takes the root canal to extract us from the operations of our clients just because of exactly what we are talking about here. And that’s also we see it even with the mid-market clients that are a growing portion here as well because we are helping them expand internationally, and that stickiness comes through. And the LCR of 120% is a very high-quality LCR ratio.

Jen Landis:

Thank you everyone for joining us today. If you have any follow-up questions, please reach out to IR. Thank you.

Jen Landis:

Thank you, operator. Good morning and thank you all for joining us. I’d like to remind you that today’s presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings. With that, I will turn it over to Jane.

Mark Mason:

Thanks, Jane and good morning, everyone. We have a lot to cover on today’s call. I am going to start with the fourth quarter and full year financial results, focusing on year-over-year comparisons, unless I indicate otherwise. I will also discuss our progress against our medium-term KPI targets and end with our guidance for 2023. On Slide 6, we show financial results for the full firm. In the fourth quarter, we reported net income of approximately $2.5 billion and an EPS of $1.16 and an ROTCE of 5.8% on $18 billion of revenue. Embedded in these results are pre-tax divestiture-related impacts of approximately $192 million, largely driven by gains on divestitures. Excluding these items, EPS was $1.10 with an ROTCE of approximately 5.5%. In the quarter, total revenues increased by 6% or 5% excluding divestiture-related impacts, as strength across services, market and U.S. Personal Banking was partially offset by declines in investment banking, wealth and the revenue reduction from the closed exit. Our results include expenses of $13 billion, a decrease of 4% versus the prior year. Excluding divestiture-related costs from both the fourth quarter of this year and last year, expenses increased by 5%, largely driven by investments in our transformation, business-led investments and higher volume-related expenses partially offset by productivity savings and the expense reduction from the exit. Cost of credit was approximately $1.8 billion, primarily driven by the continued normalization in card net credit losses, particularly in retail services and an ACL build of $645 million, largely related to growth in cards and some deterioration in macroeconomic assumptions. And on a full year basis, we delivered $14.8 billion of net income and an ROTCE [Technical Difficulty]. Now turning to the full year revenue walk on Slide 7. In 2022, we reported revenue of approximately $75 billion, up 3%, excluding the impact of divestitures and in line with our guidance of low single-digit growth. Treasury and Trade Solution revenues were up 32%, driven by continued benefit from rates as well as business actions such as managing deposit repricing, deepening with existing clients and winning new clients across all segments. Higher wins have accelerated due to the investments that we have been making in market leading product capabilities. These products include the first 24/7 U.S. dollar clearing capability in the industry, the 7-day cash suite product that we launched earlier this year, and instant payment, which is live in 33 markets, reaching over 60 countries. So while the rate environment drove about half of the growth this year, business action and investments drove the remaining half. In Security Services, revenues grew 15% as net interest income grew 59%, driven by higher interest rates across currency, partially offset by a 1% decrease in non-interest revenue due to the impact of market valuation. For the full year, we onboarded approximately $1.2 trillion of assets under custody and administration from significant client wins and we continue to feel very good about the pipeline of new deals. In markets, we grew revenue 7%, mainly driven by strength in rates and FX as we continue to serve our corporate and investor clients while optimizing capital. This was partially offset by the pressures in equity markets, primarily reflecting reduced client activity in equity derivatives. On the flipside, banking revenues, excluding gains and losses on loan hedges, were down 39%, driven by investment banking as heightened macro uncertainty and volatility continued to impact client activity. In cards, we grew revenues 8% as we continue to see benefits from the investments that we made in 2022 along with the rebound in consumer borrowing levels. And in wealth, revenues were down 2%, largely driven by market valuations in China lockdown. Excluding Asia, revenues were up 3%. Corporate Other also benefited from higher NII in part as the shorter duration of our investment portfolio allowed us to benefit from higher short-term rates. And as you can see on the slide, in legacy franchises, excluding divestiture-related impacts, revenues decreased by about $1.3 billion as we closed 5 of the exit markets and continue to wind down Russia and Korea consumer. Going forward, we would expect legacy franchises to continue to be an offset to overall revenue growth as we close and wind down the remaining exit market. On Slide 8, we show an expense walk for the full year with the key underlying drivers. In 2022, excluding divestiture-related impacts, expenses were up roughly 8% in line with our guidance. Transformation grew 2%, with about two-thirds of the increase related to risk, control, data and finance program and approximately 25% of the investments in those programs are related to technology. About 1% of the expense increase was driven by business-led investments, which include improving and adding scalability to our TTS and Security Services platform, enhancing client experiences across all businesses and developing new product capabilities. We also continue to invest in front office talent, albeit at a more measured pace, given the environment. And volume-related expenses were up 1%, largely driven by market and cards. The remainder of the growth was driven by structural expenses, which include an increase to risk and control investments to support the front office as well as macro impacts like inflation. These expenses were partially offset by productivity savings as well as the benefit from foreign exchange translation and the expense reduction from the exit market. Across the firm, technology-related expenses increased by 13% this year. On Slide 9, we show our 2022 results versus the medium-term KPI targets that we laid out at Investor Day, which we will continue to show you as we make progress along the way. Macro factors and market conditions, including those driven by monetary tightening at levels we didn’t anticipate at Investor Day, impacted some KPIs positively and others negatively. However, we were able to offset some of the impacts as we executed against our strategy. In TTS, we continue to see healthy underlying drivers that indicate consistently strong activity from both new and existing clients as we rollout new product offerings and invest in the client experience, which is a key part of our strategy. Client wins are up approximately 20% across all segments. And these again include marquee transactions where we are serving as the client’s primary operating bank. For the third quarter year-to-date, we estimate that we gained about 70 basis points of share and maintained our number one position with large institutional clients. In addition, we have onboarded over 8,700 suppliers this year, helping our clients manage their supply chain to address the evolving global landscape. And in Security Services, we onboarded new client assets, which offset some of the decline in market valuation. And we estimate that we have gained about 50 basis points of share in Security Services through the third quarter of this year, including in our home market. In markets, we strengthened our leadership position in fixed income by gaining share while making progress towards our revenue to RWA card. In cards, loan growth exceeded our expectations in both branded cards and retail services. Card spend volumes were up 14%, end-of-period loans up 13% and most importantly, interest-earning balances up 14%. That said, in areas like investment banking, we lost share this year, but maintained our market position. And in wealth, while we have brought on new advisors and new client assets, given the impact of market valuation, this didn’t translate into growth in client assets or top line growth at this point. So in summary, we made good progress against our medium-term KPI targets despite the significant changes in the macroeconomic backdrop since Investor Day. This highlights that our diversified business model is adaptable to many environments and we have the right strategy to achieve our return targets over the medium-term. Now turning back to the fourth quarter on Slide 10, we show net interest income, deposits and loans. In the fourth quarter, net interest income increased by approximately $710 million on a sequential basis, largely driven by services, cards and markets. Average loans were down as growth in cards was more than offset by declines in ICG and legacy franchise. Excluding foreign exchange translation, loans were flat. And average deposits were down by approximately 1%, largely driven by declines in legacy franchises and the impact of foreign exchange translation. Excluding foreign exchange translation, deposits were up 2%. Sequentially, average deposits were up driven by growth in ICG and PBWM and our net interest margin increased by 8 basis points. On Slide 11, we show key consumer and corporate credit mix. We are well reserved for the current environment with over $19 billion of reserves. Our reserves to funded loan ratio, is approximately 2.6%. And within that, PBWM and U.S. card is 3.8% and 7.6% respectively, both just above Day 1 CECL level. And we feel very good about the high quality nature of our portfolio. In PBWM, 45% of our lending exposures are in U.S. cards. And of that, branded cards makes up 66% and retail services makes up 34%. Additionally, just over 80% of our total card exposure is to prime customers. And NCL rates continue to be well below pre-COVID levels. In our ICT portfolio, of our total exposure, over 80% is investment grade. Of the international exposure, approximately 90% is investment grade or exposure to multinational clients or their subsidiaries. And corporate non-accrual loans remain low and are in line with pre-pandemic levels at about 39 basis points of total loans. That said we continuously analyze our portfolios and concentration under a range of scenarios. So while the macro and geopolitical environment remains uncertain, we feel very good about our asset quality, exposures and reserve levels. On Slide 12, we show our summary balance sheet and key capital and liquidity metrics. We maintain a very strong balance sheet. Of our $2.4 trillion balance sheet, about a quarter or just under $600 billion consists of H3LA and we maintained [Technical Difficulty]. And our tangible book value per share was $81.65, up 3% from a year ago. On Slide 13, we show a sequential CET1 wall to provide more detail on the drivers this quarter and our targets over the next few quarters. Walking from the end of the third quarter, first, we generated $2.3 billion of net income to common, which added 19 basis points. Second, we returned $1 billion in the form of common dividend, which drove a reduction of about 9 basis points. Third, the impact on AOCI through our AFS investment portfolio drove an 8 basis point increase. And finally, the remaining 56 basis point increase was largely driven by the closing of exits, RWA optimization and market moves towards the end of the quarter. We ended the quarter with a 13% CET1 capital ratio, approximately 70 basis points higher than the last quarter. As you can see, we hit our 13% CET1 target, which includes 100 basis point internal management book. That will allow us to absorb any temporary impacts related to the Mexico consumer exit at signing while continuing to have ample capacity to serve our clients. And as it relates to buybacks this quarter, we will remain on pause and continue to make that decision quarter-by-quarter. On Slide 14, we show the results for our Institutional Clients Group for the fourth quarter. Revenues increased by 3% this quarter, with TTS up 36% on continued strength in NII; Security Services revenues up 22%; Markets revenue, up 18% on strength in fixed income, partially offset by a decline in equity; and Investment Banking revenues down 58%, which is in the range of the overall decline in industry volume. Expenses increased 6%, driven by transformation, business-led investments, specifically in services and volume-related expenses partially offset by FX translation and productivity savings. Cost of credit was $56 million, driven by net credit losses of $104 million, partially offset by an ACL release. This resulted in net income of approximately $1.9 billion, down 18%, driven by higher cost of credit and higher expenses. ICG delivered a 7.9% ROTCE for the quarter. And average loans were down slightly, largely driven by the impact of foreign exchange translation and our continued capital optimization efforts. Excluding FX, loans were up 1%. Average deposits were roughly flat. Excluding the impact of foreign exchange translation, deposits were up 3%, and sequentially, deposits were up 4%. As for the full year, ICT grew revenues by 3% to $41 billion and delivered approximately $10.7 billion of net income, with an ROTCE of 11.1%. Now turning to Slide 15, we show the results of our Personal Banking and Wealth Management business. Revenues were up 5% as net interest income growth was partially offset by a decline in non-interest revenue driven by lower investment product revenue in wealth and higher partner payments in retail services. Expenses were up 7%, driven by investments in transformation and other risk and control initiatives. Cost of credit was $1.7 billion, which included a reserve build driven by card volume growth and a deterioration in macroeconomic assumptions. NCLs were up, reflecting ongoing normalization particularly in retail services. Average loans increased 6%, while average deposits decreased 1%, largely reflecting clients putting cash to work in fixed income investments on our platform. And PBWM delivered an ROTCE of 1.4%, driven by the ACL build this quarter and higher expenses. For the full year, PBWM delivered an ROTCE of 10.2% on $24.2 billion in revenue. On Slide 16, we show results for legacy franchise. Revenues decreased 6%, primarily driven by the closing of five exit markets as well as the impact of the wind down. Expenses decreased 38%, largely driven by the absence of divestiture-related impact last year related to Korea. On Slide 17, we show results for Corporate/Other for the fourth quarter. Revenues increased largely driven by higher net revenue from the investment portfolio. Expenses were down driven by lower consulting expenses. On Slide 19, we summarize our guidance for 2023. As Jane mentioned earlier, 2023 is a continuation of Phase 1. We will continue to execute and invest, laying the foundation for the future with an eye towards driving long-term shareholder value. With that as a backdrop, we expect revenue to be in the range of $78 billion to $79 billion, excluding any potential 2023 divestiture-related impacts, expenses to be roughly $54 billion, also excluding 2023 divestiture-related impact. Net credit losses in cards are expected to continue to normalize. And as we said earlier, we met our 13% CET1 target, and we will continue to evaluate the target as we go through the next DFAST cycle and close additional exit and announce others. On Slide 20, on the right side of the page, we show our revenue for 2021 and 2022 and our expectations for 2023, excluding the impact of divestitures. In 2023, we expect the revenue growth I just mentioned to be driven by NII and NIR. In TTS, we expect revenues to grow but at a slower pace, driven by interest rates and business actions. And for Security Services, we expect a bit of a tailwind from increased market valuation and onboarding of additional client assets. We also assumed somewhat of a normalization in wealth as lockdowns in China and market valuations start to rebound. And we expect investment banking to begin to rebound as the macroeconomic backdrop becomes more conducive to client activity. As for market, we expect it to be relatively flat given the level of activity we saw in 2022. Now turning to the NII guidance for 2023, we expect both ICG and PBWM to contribute to NII growth as we grow volumes, particularly in cards, and we continue to get the benefit of U.S. and non-U.S. rate hikes in our services business. As a reminder, the guidance for revenue includes the reduction of revenue from the exit and legacy franchises that we closed in 2022, and we expect to close this year in 2023. Turning to Slide 21. In 2023, the increase in expenses that I just mentioned reflects a number of decisions that we’ve made to further our transformation and execute on our strategy. And the main drivers are, first, transformation as we continue to invest in data, risk and control and technology to enhance our infrastructure and ultimately make our company more efficient. Second, business-led investments as we execute against our strategy. Third, volume-related expenses in line with our revenue expectations. And fourth, elevated levels of inflation mainly impacting compensation expense, partially offset by productivity savings and expense benefits from the exit. And we are investing in technology across the firm with total technology-related expenses increasing by 5%. While we recognize this is a significant increase in expenses. These are investments that we have to make and I am certain that these investments will make us a better, more efficient company in the future. And finally, let’s talk a little bit about the medium-term targets. At Investor Day, we said the medium term was 3 to 5 years. That time frame represented 2024 to 2026. So while a lot has changed in the macro environment since Investor Day, our strategy has not, and we are on a path to the 11% to 12% ROTCE target in the medium term. We continue to expect top line revenue growth, material expense reduction and capital levels largely consistent with our medium-term CET1 target range to contribute to the achievement of our 11% to 12% ROTCE target. So let me walk you through where we stand today. From a revenue perspective, rates have moved much higher and at a faster pace across the globe, which accelerated NII growth. And that, coupled with the execution of our strategy, has allowed certain businesses to accelerate. At the same time, other businesses such as wealth and investment banking have slowed. Despite this, consistent with Investor Day, we expect a 4% to 5% revenue CAGR in the medium term, including the ongoing reduction of revenue from the closing of the exit. From an expense perspective, as we showed at Investor Day, expenses will need to normalize over the medium term. And we now expect to bend the curve on expenses towards the end of 2024. The three main drivers of the necessary expense reduction will be benefits from the exit, which will be included in legacy franchise the benefits from our investments in transformation and control and the simplification of the organizational structure. First, let me remind you, at this point, the ongoing expenses in legacy franchises are approximately $7 billion. Of the $7 billion, roughly $4 billion is transferred to the buyer upon closing or through a transition services agreement that typically lasts about a year. The remaining $3 billion relates to potentially stranded costs and wind down, which takes time to eliminate. Second, as our investment in transformation and control initiatives mature, we expect to realize efficiency as those programs transition from manually intensive processes, the technology-enabled one. And finally, we remain focused on simplifying the organization, and we expect to generate further opportunities for expense reduction in the future. From a credit perspective, we still expect net credit losses to continue to normalize and any future ACL build or releases will be a function of macro assumption and volume. So to wrap up, while the world has changed significantly and the components have shifted, we remain on our path to achieve the 11% to 12% ROTCE in the medium term. And Jane, the rest of the firm and I, are prepared to continue to show proof points along the way and demonstrate our progress. With that, Jane and I will be happy to take your questions.

Glenn Schorr:

Thanks so much, and definitely appreciate all these outlooks. They are very helpful. So my question on the outlook is if you take a look at the current medium-sized return on tangible and getting to your target, I heard many comments about the path to getting there is on track. Is it the expense spend at the end of ‘24, that is the material step up from here to there, if you will, and/or is credit like a really big determinant in the process? So I’m trying to bridge the gap just in numbers from today’s return on tangible targets. Thanks.

Glenn Schorr:

I appreciate that. Thank you. Just one quick follow-up on poly, not my norm, but I normally try to respect this type of process. But Mark, we consider your super important part of this transformation. there has been news out there that you talking to one of my other companies, but would you be able to make any comments? You mentioned just some moment staying on – sorry to put you on the spot, but I think a lot of people care.

Jane Fraser:

Together.

Operator:

Thank you. Our next question will come from John McDonald with Autonomous Research. Your line is now open.

Mark Mason:

Sure. So let me make a comment first on the NII. Just keep in mind with that number that I’ve given on the page is both the growth that occurs in some of our important services businesses, and that really comes from both the annualization of rate increases that we saw in the back half of the year, but also expected continue increases, particularly outside of the U.S. And given the makeup of our franchise, we will – that will contribute to the NII growth. And then keep in mind that we’re growing over the legacy franchise reductions in NII that we would see in 2023. So underneath that is some real momentum in the NII, notwithstanding a slower pace, the fact that it would be a slower pace than what we saw in 2022. From an NIR point of view, I did mention that we do expect to see some normalization in market valuation. And that would play out both in banking, normalizing certainly relative to what we saw this year with while it’s down 50% to 60% as well as some normalization in wealth and those would hit the NIR line, as you point out.

Mark Mason:

I’m not going to kind of get into ‘24 guidance. We will kind of get through ‘23, and I’m confident about our ability to get to that roughly 54 number that I put out for ‘23. I’m equally confident that we will bend this curve, and we will bring it down to the levels that it needs to be in order for us to get to the ROTCE target, but I’m not going to kind of get into, John, the specifics of 24 except to say that by the end of ‘24, we will see that curve bending.

Erika Najarian:

Hi, good morning.

Erika Najarian:

My first question is – again, thank you for all the clarification on the slide. Great job, Jane and Mark, obviously. But as we think about what it means to bend the curve, I think, your investors are appreciative that you are accelerating the investments relative to your transformation. As we think about when Citi can hit that medium-term ROTCE, how should we think about what’s bending the curve really means? And I’m not looking for guidance necessarily, but as we think about going past that hump, what’s the better way of measuring – should we – is it an efficiency ratio? I think you mentioned something like is it the 60% to 63% efficiency ratio against that 4% to 5% revenue CAGR that you think you’ll be able to hit by 2025? Can we think of it that way?

Jane Fraser:

And I would say you can get some confidence around the past on many of these by the urgency with which we’re executing the divestitures, for example, on getting those transactions closed. And we’ve also tried to provide you as much clarity as possible about the timing of when these will be closing and the speed of the wind-downs that we’re executing. So that will help. As Mark said, it’s three big structural drivers of what will be in that curve.

Mark Mason:

That’s okay,

Jane Fraser:

So we’re in active dialogue at the moment. So I’m obviously not going to comment in great detail here. We do continue to pursue a dual path as you’d expect, because both are very viable options here. And when we are in a position to give you clarity but we will do so. I think we’ve been fairly clear about the timing. We are also separating out the two franchises, our institutional franchise from the consumer franchise that we’re selling because we see the institutional franchise is a very important part of the global network. As you can imagine, in today’s environment, Mexico is key for many of our corporate clients around the world for their supply chains. And we play a very important role there. That is a lot of work in that separation. I’m extremely pleased with the progress that we’re making in that underlying work. But we are pursuing the dual tracks and when we have something to announce, we will be delighted to do so.

Mike Mayo:

Hi. I’m still trying to get over at this revenue and expense guidance. So you’re implying you’ll have at a minimum flat operating leverage or positive operating leverage for 2023? Am I reading that correctly? So on the one hand you are not bending the cost curve until late 2024. On the other hand, you’re guiding for positive operating leverage in 2023. Am I reading that correctly?

Mike Mayo:

Okay. And then a second follow-up – or a follow-up, and then I’ll requeue for my other question. Your CET1 ratio is 13% now. And I think that’s two quarters earlier than consensus had expected. You said it was up 70 basis points. So doesn’t that allow you to repurchase stock now? Or I understand that if you go ahead and sell Banamex, that could have a temporary negative capital hit. So I’m just thinking like don’t sell Banamex, don’t have that temporary capital hit, start buying back stock at a fraction of your tangible book value. So what’s wrong with my logic or what part of that can you comment on?

Operator:

Thank you. Our next question will come from Ebrahim Poonawala with Bank of America. Your line is now open.

Mark Mason:

Yes. So look, as we pointed out, we’ve built a significant amount of capital over the course of the year. We are ahead of the target we set for the middle of the year, middle of the year. We do have some exits that will have a temporary impact on that CET1 ratio. And we do obviously have a DFAST that’s in front of us that we will have to see what the outcome is of that work. I think, look, the Basel end game and final views and decisions on that are still outstanding. And I think we will have to take those into consideration when they become available. That is an industry dynamic that will play out however it plays out. And similar to SACR, we will get after it in a very significant way to make sure that we’re able to handle whatever headwinds or tailwinds may come along with that. But it really is difficult at this point to opine on exactly what that means for the industry in light of the fact that there aren’t final rules out just yet.

Mark Mason:

The only thing I’d point out is what we’ve described – what I’ve described, what Jane described is the medium term is ‘24 through 2026. And – we’ve given you guidance for ‘23. We intend to get to those return targets in the medium term. I haven’t given you specific guidance on any of those individual years, and we will kind of take that year by year. And so just factor in. I think what’s important is you’ve got a view on ‘23, and I think we’ve given you additional clarity on how we intend to get to that medium term, and I think that’s important.

Betsy Graseck:

Hi, good morning.

Jane Fraser:

Hi, Betsy.

Jane Fraser:

Great question, Betsy. And Mark and I are both smiling here because I think the answer is all of the above. So if we break it down, where do we see the various elements of upside? There is an important recovery that’s going to occur in Asia. And you can see from our results last year, and across the board with other competitors with an Asian bent, that was materially impacted by COVID in China and the lockdowns and a slower pulling out of COVID in that market compared broadly in Asia compared to the U.S. So we see some exciting growth opportunities there from the pure fundamentals in Asia across the board. Absolutely you are right in the U.S., we start from a smaller scale there. We’ve been bringing the different parts of that business together. The wealth of work franchises, one that’s had particularly pleasing growth in it. And we’ve also been seeing some good growth as we pulled a comprehensive offering together for our customers. The biggest upside there is the investment product. And I think we’ve got a strong balance sheet franchise as it were, particularly the deposits, some of the margin lending and the like mortgages, but this is really about the investment offering in the state. Then finally, I’d say there is also tremendous opportunity in the synergies, and we’ve been showing you this in terms of linkages between our commercial bank, our banking franchise, the referrals up from the U.S. Personal Banking. We’ve had about 60,000 referrals this year in the U.S. alone. From that, market also provides important results and even TTS. So the client referrals, there are business synergies between them common platforms. So we really see an opportunity for these multidimensional growth drivers in wealth over and above the recovery in the investment space that everybody in the market should be able to benefit from. And we will continue investing in – appropriately in building out that front line as well. So, this is a very important part of our strategy. We are excited about it. It’s the key pillar of the shift in business mix as we go forward as well, looking at the medium-term. And we are looking forward to the next phase of growth and focus here.

Jane Fraser:

I think look, in this current environment, as we have said – Mark and I have both said since the – really, the middle of last year, this is something that we are pacing, but we are continuing to invest behind you. And you can see that growth in our client advisors. And remember that net growth in client advisors, it includes the divestiture we made in Uruguay, for example. So, it’s pretty strong. We don’t have a huge amount that we need to invest because we have many pieces of the platform in place and it’s more been a story of integrating them, and then making sure that we are putting the right digital and other investments behind it, but it’s not such a large one in order to achieve the upside in the business. And we will pace that as appropriate with market conditions. Mark, anything to add?

Jane Fraser:

And I would just add, it was a couple of years ago that we put – we announced the strategy and started executing on it. So, we have the benefit of the historic investments that we are seeing the drivers playing out well. And as I say, well, we should be well positioned when the market turns here.

Matt O’Connor:

Hi. I just want to follow-up on the comments about markets to be relatively flat in ‘23. Obviously, a very good 4Q. And I know I was concerned about some of the RWA management and FICC in the recent quarters. And I think going back not to be an issue as you think about leadership and revenue. But as you think about ‘23, like the wallets have been strong in recent years. And to your point, your leadership was strong this year. How confident are you in kind of that flat market? And maybe what’s driving that view? Thank you.

Jane Fraser:

We have also seen some depression of areas of strength in this business as well. So, equity derivatives, for example, the real strength, this was an equity derivative year. So, there is some and the corporate world with the volatility that’s out there from a macro geopolitical environment is another real strength of ours. And for better or for worse, we are expecting that strength to continue, certainly things so far.

Operator:

Thank you. Our next question will come from Jim Mitchell with Seaport Global. Your line is now open.

Mark Mason:

Good afternoon.

Mark Mason:

Similar dynamics you say in ‘23 or you are talking about fourth quarter. I am not sure I followed.

Mark Mason:

Yes. So, I think – I mean I think I would point to a couple of things on the NII side, just as it relates to us. One, importantly, that I mentioned in and you point out is when you think about our mix of deposits, we have got about 65% or so are in ICG and the balance, 35% in our PBWM business. We certainly skew to U.S. dollar, but we have got a 30% or so that is a non-U.S. dollar. And when I think about the potential or the forward curves and how rates will likely move next year, we will get the benefit of further rate increases on the non-U.S. side, right. And so if I think about our international presence, the betas tend to not be as high as they are here in the U.S. with our Corporate Clients segment. And so I think there are some re-pricing opportunities that we will continue to actively manage as we did here in the U.S. And so I do think it’s that international footprint, the globality of our franchise that plays to our strength in 2023. The other thing that is apparent to us as we forecast this out is the continued growth from a volume point of view. And that volume growth, you have seen the momentum already pick up on the card side with significant growth in interest-earning balances. And we would expect that to continue, particularly as we see NCLs normalize and as we see payment rates start to temper. And so I think those things will be two major contributors. Mix is obviously a factor. As you point out, we will be growing over some of the drag or reduction from legacy, but is that active management of the client engagement that we have across both portfolios, that I think will be important factors to us delivering the growth that I talked about.

Mark Mason:

Sorry, finish your question. I am sorry.

Mark Mason:

I think the thing you have got to pick up is really the legacy franchise and the NII. A large part of the legacy franchise revenues are NII revenues when you look at the mix of the products and the clients that we cover there. And so I think that’s the important element here that we haven’t quantified to a dollar amount, but that is explaining why it seems like muted growth relative to what you would have seen in the fourth quarter. Obviously, there is other factors, but that’s important.

Unidentified Analyst:

I am Mark Hernandez [ph].

Jane Fraser:

Hi. Go ahead.

Jane Fraser:

Yes. Let me jump in and then I will hand it on to Mark. But I think we are expecting under the current trajectory to see the loss rates to reach the pre-COVID levels more at the year-end, early ‘24 level. If you think of branded cards, if I was to quantify sort of 20% of the way there now, CRS, we are about 40% of the way there now. Obviously, we have the benefit in CRS of sharing of the loss sharing with our partners that helps us. But I hope that gives you a sense around it. Probably the most important driver that we have been worried about it was very certain with what was happening with payment rates. And I think we have got much more clarity as they started that normalization path. So, that’s driving a fair amount of more certainty around what the direction is happening there. Frankly, the big question more what’s happening with spending than it is with the normalization right now. It’s a bigger uncertainty. But Mark, any other observations?

Jane Fraser:

Also this is such an unusual market in the sense that you have got such strong labor market driven by frankly, supply shortage over as much as demand. And we have also got the consumers with still very high savings that they are dipping into, and we are seeing a bit more of the movements happening at the bottom end of all of this. But this is not going to be like a normal recession. It’s why you are ticking here as that others will be about the manageability and the mildness of that likely if we do have one.

Mark Mason:

I think a couple of things. So one, our base case scenario, if you think about what we just talked about includes kind of a mild recession in it, just and as we forecasted it, the downside would be something a bit more severe than that. I would say we are reserved for approximately a 5% unemployment rate, just kind of overall when you look at – when you average across the different scenarios that we have.

Ken Usdin:

Hi. Thanks. Just two quick questions here. First one, just on card, the card NIM has been kind of flattish. And I know that obviously, it has to do with just how you internally allocate the funding towards it. But can you just kind of talk us through what’s happening either with rewards or either incremental rates on some of the new relationships? And should we see the card NIM expand from here?

Jane Fraser:

Yes. I mean we have a fabulous cards franchise. And when we look at strong track record in the digital, the other innovations that are driving growth, driving the profitability, driving the returns both in our proprietary products as well as our partners, and we are really seeing all of those drivers performing very, very strongly at the moment. From custom cash, it was 28% of new accounts acquisition. So, an important new product refresh that’s driving things 80% of customers engaging digitally. Innovations like America is just a fantastic partner of us, really taking that to the next level. And you can see that with the growth in spend in the category. So, I think there is a lot of reasons to be pretty excited about the growth in the return and the margins and the other trajectories here, and as I say, a prime portfolio, which is always a good thing.

Jane Fraser:

Well, sure. I mean 2 years ago, I asked MacDonald to put the wealth business together from the various components that we had around the firm. And now as we move to the next phase, but as we have said, strategically important business. I thought it was the right time to change the leadership also because Jim is going to play an important role moving forward, supporting Paco with the ICG strategy that we laid out at Investor Day. He has got a lot of relationships with investors, family offices, private equity, sovereign wealth funds. And he is going to be helping drive those along with other investors to make sure we bring the firm’s full capabilities to these clients. So, I felt the time was right to make the move. And we will be, as indicated, strictly moving to go out and have a look for our next leader of that business. And in the meantime, business as usual as we grow and follow the strategy that we have, and we are looking forward to the market turning, as I am sure everyone is and feel that we are well positioned to do so.

Sheng Wang:

Hi. Good afternoon. This is actually Sheng Wang filling in for Steven. Just on the topic of credit, one of your peers noted this morning that they would expect to see an incremental $6 billion or so of reserves if they assume 6% unemployment under CECL. Can you – just wondering if you could provide some similar sensitivity to reserve levels and how should we think about the provision trajectory versus the 4Q base based on your macro outlook and potential growth math headwinds?

Jane Fraser:

I would also just jump in one of the areas that sometimes gets mis-put about the firm, is on the corporate credit side. When we look at our corporate client portfolio don’t equate where we take credit risk with the global footprint. When I look internationally, 90% of our international exposure with multinational firms and their subsidiaries, and these are – this is investment grade. So, I think that’s another area where as we look at the quality of the corporate loan portfolio, as you saw with Russia and others, we will be conservative in the reserving we take. But I think important to understand the nature of where we take that corporate credit risk.

Mark Mason:

Well, it kind of depends on what the drivers are of a different environment, right. Because you could have – I don’t anticipate this, but you could have continued pressure in investment banking, but you could also have continued volatility in rates or currencies and that could mean more upside than flat for the markets business. So, there are a lot of puts and takes that one can scenario out. I think what’s really important is that we have a diversified portfolio of businesses that have strategic connectivity to them. And so what that allows for is that as the environment shifts in some way that we may not have predicted that we were often able to still drive significant performance as we did this year. And so without calling exactly how it vary from what’s here, that’s what gives us the confidence to – around the guidance and really to remain steadfast on the strategy that we have talked about and really push execution, and that’s exactly what we are doing.

Mark Mason:

It’s a great point, Jane, because it may not always show up in the top line, which is why we put those KPIs out there. There are often indicators of some of the upside that’s on the come as the market evolves.

Jane Fraser:

Hello. Hey Mike.