Citigroup Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Reported net income of $3.8 billion, EPS of $1.86, and ROTCE of 8%. Excluding goodwill impairment from the Banamex transaction, adjusted EPS was $2.24 with an adjusted ROTC of 9.7%. Revenues were up 9%, with every business having record third-quarter revenue and improved returns.
• Business Segments: Services had a record quarter with revenues growing by 7%; AUCA grew 13% to nearly $30 trillion; Markets had a 15% revenue increase; Banking saw a 34% revenue jump; Wealth had an 8% revenue growth; USPB had record quarterly revenue of $5.3 billion.
• Capital Return: Returned over $6 billion to shareholders during the third quarter, including $5 billion in share repurchases (>$1 billion more than guided). Year to date, $8.75 billion of shares were repurchased under the $20 billion plan.
• Transformation and Technology: Over two-thirds of transformation programs at or close to target; invested in AI with nearly 180,000 colleagues in 83 countries using proprietary AI tools; integrated Citi token services with 24/7 clearing platform for real-time fund transfers.
• Banamex Divestiture: Agreement with Fernando Chico Pardo to purchase a 25% equity stake, progressing the deconsolidation timeline for Banamex.

Segment Performance

• Services: Revenues grew 7%, NII up 11%, NIR down 3%, total fee revenue up 6%. AUCA grew 13% to nearly $30 trillion. Generated positive operating leverage for the fifth consecutive quarter with ROTCE of 28.9% in Q3 and 26.1% year-to-date.
• Markets: Revenues up 15%, fixed income up 12%, equities up 24%. Generated positive operating leverage for the sixth consecutive quarter with ROTCE of 12.3% in Q3 and 13.5% year-to-date.
• Banking: Revenues up 34%, investment banking fees up 17%, corporate lending revenues up 39%. Generated positive operating leverage for the seventh consecutive quarter with ROTCE of 12.3% in Q3 and 10.7% year-to-date.
• Wealth: Revenues up 8%, record net new investment assets of $18.6 billion, client investment assets up 14%. Generated positive operating leverage for the sixth consecutive quarter with ROTCE of 12.1% in Q3 and 12.5% year-to-date.
• U.S. Personal Banking (USPB): Revenues up 7%, generated positive operating leverage for the twelfth consecutive quarter with ROTCE of 14.5% in Q3 and 12.9% year-to-date.
• All Other: Revenues down 16%, driven by decline in corporate other, partially offset by legacy franchise growth.

Guidance

• Revenues: Confident to exceed $84 billion in revenues for 2025; NII ex-markets expected to be up around 5.5% for the full year; NIRx markets expected to continue momentum.
• Expenses: Full-year expenses higher than previously guided, but efficiency ratio expected consistent with guidance (slightly below 64% excluding Q3 goodwill impairment).
• Capital: Targeting a CET1 capital ratio closer to 12.8% (incorporating a 2-year average SCB of 3.8% and 100 bps management buffer); continue to prioritize share repurchases under the $20 billion program.

Risks

• Regulatory Uncertainty: Uncertainty around Federal Reserve's standardized CET1 capital ratio requirements and other regulatory changes, impacting capital requirements and risk-weighted assets.
• Economic Volatility: Macro environment challenges such as pockets of valuation fuzziness, China's domestic spending slowdown, and Europe's low-growth cycle, which could affect client behavior and market conditions.
• Credit Risk: Cost of credit was $2.5 billion, primarily from net credit losses in U.S. Card and a firm-wide net ACL bill; reserves incorporate an 8-quarter weighted average unemployment rate of 5.2%.

Question and Answer

• Q: Update on consent order actions related to risk compliance controls and reg data? **A: Over two-thirds of transformation programs are at or close to target. Preventive controls for payments have been implemented, standardized controls across the firm, and significant progress made in regulatory reporting accuracy using AI and tech capabilities.
• Q: Timing and implications of Banamex 25% stake investment? **A: Requires Mexican regulatory approval (9-12 months), Fernando Chico Pardo's investment supports deconsolidation and IPO, providing credibility and support for Banamex's value.
• Q: Pace of stablecoin adoption and impact on traditional banking? **A: Client demand for tokenized deposits for real-time, low-friction payments; stablecoin seen as another option, but tokenized deposits are the focus for institutional clients; gating factor is clients' readiness for an always-on environment.
• Q: Efficiency path and ultimate end state of transformation spend? **A: Transformation spend expected to come down in 2026 with continued efficiencies, legacy costs, and productivity; balance between efficiency and investments to drive future growth and returns.
• Q: Credit reserves and consumer card book outlook? A: Corporate non-accrual loans due to idiosyncratic downgrades, but low percentage of funded loans; consumer card book within expected ranges, delinquency trends normal, with 85% of consumers having FICO scores of 660 or higher