CITIGROUP INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Global Macro Landscape: Global economic performance remained resilient. The US consumer and corporate sector showed positivity, while Europe struggled with manufacturing weakness. China faced concerns in consumer sentiment and the property market, but regions like India, ASEAN, Japan, the Middle East, Mexico, and Brazil were bright spots.
• Firm-Wide Performance: Net income stood at $3.2 billion, EPS at $1.51, and RoTCE at 7%. Overall revenues grew 3% excluding divestitures, with each core business achieving growth and positive operating leverage. Expenses decreased by 2% owing to efficiencies from simplification and other initiatives.
• Business-Specific Insights: Services had a record quarter, Markets witnessed growth in Equities, Banking's investment banking fees surged, Wealth saw growth in client investments, and US Personal Banking had an increase in Branded Cards revenue. Announcements included partnerships and exits, and progress on transformation initiatives such as technology simplification and cloud onboarding

Segment Performance

• Services: Registered a record quarter with revenues surging 8%. Fee growth was substantial, and it was bolstered by loan and deposit volume expansion. Treasury and Trade Solutions saw a 4% year-over-year increase, reflecting solid underlying momentum in core drivers. Security Services jumped 24%,受益于新业务授权和托管资产增加。TTS和Security Services在上半年于目标市场实现超10%的钱包份额。上周宣布成为首家完成与Mastercard Move跨境服务整合的全球银行，将实现近即时安全支付至Mastercard借记卡网络。
• Markets: Revenues inched up slightly, propelled by a better-than-expected September. Equities soared 32% with robust performance across all products. However, Fixed Income declined 6% as Rates and Currencies business didn't match last year's standout performance, though spread products and other fixed income had a 5% increase.
• Banking: Revenues rose 16% mainly due to growth in investment banking. Investment banking fees spiked 44% driven by investment-grade debt issuance and strong deal volume. Announced an innovative $25 billion private credit partnership with Apollo, enabling sourcing of new transactions without using the balance sheet.
• Wealth: Revenues grew 9%. There was a notable 24% growth in client investment assets, particularly in Asia and Citigold. Signed an agreement to exit trust administration and fiduciary services to sharpen focus.
• US Personal Banking: Revenues climbed 3%. Branded Cards' revenues increased 8% due to account acquisitions, spend, and payment rates driving higher interest-earning balances. Retail services portfolio was impacted by lower discretionary spending, but mortgage portfolio was growing as the rate environment shifted.
• All Other: Revenues dropped 18% primarily due to closures, exits, and winddowns. Expenses decreased 5%, and cost of credit was $289 million, mainly from net credit losses and ACL builds in Mexico

Guidance

• Expenses: Anticipate full-year expenses to be at the higher end of the $53.5 billion to $53.8 billion range excluding the FDIC special assessment and Civil Money Penalties. Continue to seek opportunities to absorb Civil Money Penalties.
• NII ex-markets: Expect NII ex-markets to be roughly flat sequentially in the fourth quarter and slightly down for the full year, which is better than previously guided.
• Medium-Term Outlook: Aim for $51 billion to $53 billion in expenses by 2026, dependent on revenue. Drivers include $1.5 billion in savings from restructuring, $500 million to $1 billion from expense reductions, and efficiencies from transformation investments by the end of 2026

Risks

• Regulatory Realm: Uncertainty looms over the Basel III Endgame and regulatory reporting challenges. Investment in data governance and quality is necessary to address regulatory requirements, which may impede expense reduction goals.
• Macro Economic Terrain: Global economic conditions can influence performance, like manufacturing weakness in Europe, concerns in China's property market, and potential market volatility affecting capital markets and client behavior.
• Credit Sphere: Credit costs can be affected by factors such as spend volume trends, payment rate changes, and delinquency dynamics in consumer portfolios like US Personal Banking's branded cards and retail services

Question and Answer

Q: Regarding card losses in Retail Financial Services, discuss the trajectory and reserves.

A: Mark Mason stated that Retail Services experiences declining spend volumes, decreasing payment rates, and a denominator effect pushing up loss rates. Reserve levels are healthy with a reserve-to-loan ratio of about 11.7% for the portfolio.

Q: About the partnership with Apollo, why choose Apollo and potential for more partnerships.

A: Jane Fraser said partnering with Apollo combines banking reach and expertise, enabling innovative financing solutions. Expects more partnerships in other areas in the future.

Q: On NII ex-markets, is it safe to conclude it bottomed in 2Q 2024 and about securities yields.

A: Mark Mason said 2Q NII ex-markets was affected by FX translation, seasonally lower card balances, etc. 3Q was due to volumes and spreads. Expect 4Q NII ex-markets to be flat. Securities yield had a 7 bps quarter-over-quarter decline, with tailwinds from loan volume, reinvestment of securities at higher yields, and active management of beta.

Q: On Banamex progress and IPO.

A: Jane Fraser said focus is on separating Banamex, expected to complete in 4Q 2024. Plan to IPO at the end of 2025 based on market conditions. Mark Mason mentioned the performance and contribution of Mexico consumer business.

Q: On US Personal Banking RoTCE growth drivers.

A: Mark Mason said product innovation like the refresh of Strata Premier Card and launch of Flex Pay at Costco contribute. Also, normalization of credit costs as vintages mature and inflation and rates stabilize