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GLOBAL-500-2023-Citi-Group

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Modern Board 2023-Citigroup

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Fortune Modern Board 25

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F500-2023-036.-Citigroup

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<ul> 
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 	<li>In 2023, the bank’s first-quarter revenue from its Asia Wealth division grew 20%, boosted by investment gains and new regional clients.</li> 
</ul>

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Modern Boards 2022 Citigroup

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G500-2021-082-Citigroup

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G500-2020-070-Citigroup

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F500-2020-031-Citigroup

Citigroup shareholders were richly rewarded in 2019 as shares soared a stellar 53%. Those returns come as Citi has rejiggered its business, eliminating hundreds of positions in its trading division while investing more deeply in providing banking services to corporations. Long considered second-fiddle to the likes of Morgan Stanley and Goldman Sachs in the realm of investment banking, the consumer-facing giant also beefed up its roster of well-connected bankers in that space, as it vies for a top-three spot in the league tables. Under the hood, Citi reshuffled its executive team in 2019, elevating Jane Fraser to the No. 2 spot in management and the leader of its consumer banking business—and positioning her as a strong contender to be the first woman to eventually run a major Wall Street bank.

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Citigroup offers financial products and services globally to retail customers, businesses, governments, and investors through five business lines: services, markets, banking and international, wealth, and U.S. consumer cards.

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Citigroup (C): Company Profile, Stock Price, News, Rankings

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Citigroup

citigroup

Hello, and welcome to Citi's First Quarter twenty twenty five Earnings Call. Today's call will be hosted by Jen Landis, Head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time you'll be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time.

Thank you, operator. Good morning, and thank you all for joining our first quarter twenty twenty five earnings call. I'm 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.

Thank you, Jen, and a very good morning to everyone. First, I'm going to discuss our first quarter results and then talk about the environment we're operating in and how we are positioning the bank for it. This morning, we reported net income of $4,100,000,000 and earnings per share of $1.96 with an ROTCE of 9.1%. Overall, it was a strong quarter marked by continued momentum in each of our five businesses. We maintained a disciplined approach to our expenses, which declined by 5% year over year.

We delivered our third consecutive quarter of positive operating leverage for each of our five lines of business and the fourth consecutive quarter for the firm overall. We increased both our return on tangible common equity in each business and our return of capital to our shareholders. And this quarter is a further proof point of how the consistent execution of our strategy is improving our performance. Services recorded its highest first quarter revenue in a decade. TCS continues to demonstrate momentum in the key underlying drivers across US dollar clearing and cross border activity.

Security services gained share and grew its assets under custody and administration to 26,000,000,000,000. Markets had a good quarter with revenue up 12%. The three most significant fixed income businesses, rates, spread products, and FX each contributed to an overall 8% increase over last year. And in a good macro quarter for equities, we were up 23% as we continued with our long term strategy to augment our high derivative share with a larger prime business. Banking was up 12% as we continue to gain share in investment banking across most industry sectors.

Most notably, m and a revenue nearly doubled. We're seeing the benefits of our talent investments, as you can see by the leading role we played in some of the year's biggest transactions, such as advising Altair on the Siemens acquisition and on the recently announced intracellular transaction by J and J. Turning to wealth, all three businesses contributed to overall growth of 24 and fee revenue drove non interest revenue growth of 16%. We remain focused on capturing assets our clients have of us as demonstrated by the roughly 11% organic growth in client investment assets. Andy and his new team are making excellent progress executing our strategy with the business delivering record revenue this quarter and improved efficiency and returns.

USPB was up 2% driven mainly by increased loan balances and spending in branded cards. The high credit quality of our cards portfolio reflects the focus we've put on prime consumers, and our portfolio continued to perform in line with our expectations. Overall, USPB's return increased to nearly 13%. During the quarter, we returned $2,800,000,000 in capital to our shareholders, including 1,750,000,000.00 of buybacks as part of our $20,000,000,000 plan, which is about 250,000,000 more than we had originally guided. Now that's our highest quarterly amount since 2022 and demonstrates our commitment to returning capital.

We ended the quarter with a CET1 ratio of 13.4%, and our tangible book value per share crossed $90 Turning to our strategic priorities. Our transformation investments continue to modernize our infrastructure, simplify our processes, and reduce manual touch points. During the quarter, we retired legacy applications and automated reconciliations, to name but a few accomplishments. We are also integrating directly into our business operations to improve the client experience. The latest example is Agent Assist, our first generative AI tool for customer service in US personal banking.

It is designed to help our team resolve inquiries faster and is now being piloted in credit cards. From quarter to quarter, we are building on our track record of progress, and I am confident in our ability to continue delivering despite the uncertainty of the moment. In terms of the macro environment, I am not going to try to predict the unpredictable. While our corporate and consumer clients are resilient and in good financial health, the world is in a wait and see mode and is facing a more negative macro outlook than anyone had anticipated at the beginning of the year. And we know that prolonged uncertainty generally hurts confidence.

The changes underway globally will go beyond trade and tariffs. In The US, for example, regulation and tax policy are all likely to look different in a year's time. And these changes will not only have economic impact, but geopolitical and cultural ones as well. We appreciate the administration taking a fresh look at regulations across all industries to unlock growth. We welcome the changes being discussed in our own industry to place more focus on material financial risk and to make it easier for banks to contribute to economic growth and to improve client service.

When all is said and done and these long standing trade imbalances and other structural shifts are behind us, The US will still be the world's leading economy, and the dollar will remain the reserve currency. The deep knowledge and breadth of capabilities that we have from decades on the ground in so many local markets are real points of distinction when serving our clients. From reconfiguring their supply chain to addressing their hedging and funding approaches to advising on their strategic agendas. I am very confident that we have built a strategy based on a diversified business mix that will perform in a wide variety of macro scenarios and is differentiating in times like these. With capital strength, plentiful liquidity, and strong reserve, we can navigate through any environment from a position of strength.

In periods of stress, we have shown that we are a port during the storm for our clients, the global markets, and the economy, and this time is no different. We are ready to lean in. As I look forward to the rest of the year, we shall remain disciplined about returning capital and managing our expenses whilst protecting necessary investments in our businesses as well as our transformation, and we shall not allow the uncertainty to distract us from executing our strategy and improving our returns. Now, over to Mark, and then we will be happy to take your questions.

Thanks, Jane, and good morning, everyone. I'm going to start with the firm wide financial results focusing on year over year comparisons unless I indicate otherwise, and then review the performance of our businesses in greater detail. On Slide six, we show financial results for the full firm. This quarter, we reported net income of $4,100,000,000 EPS of 1.96 and an ROTCE of 9.1% on $21,600,000,000 of revenues, generating positive operating leverage for the firm and in each of our five businesses. Total revenues were up 3% driven by growth in each of our businesses largely offset by a decline in all other.

Net interest income excluding markets was up 2% driven by USPB, wealth and services largely offset by declines in all other and banking. Non interest revenues excluding markets were down 6% as better results in banking and wealth were more than offset by declines in all other, USPB, and services, and total markets revenues were up 12%. Expenses of $13,400,000,000 were down five percent. Cost of credit was $2,700,000,000 primarily consisting of net credit losses in cards as well as a firm wide net ACL bill reflecting the uncertainty and deterioration in the macroeconomic outlook. Before I move on, I would like to note that certain card transaction processing fees paid primarily to Networks were previously presented in operating expenses and are now presented as a contra revenue and non interest revenue primarily impacting USPB.

This change does not impact net income and prior periods have been aligned. We provided additional detail in the appendix of the presentation on Slide 22. On Slide seven, we show the expense trend over the past five quarters. As we've said in the past, we are very focused on bringing down our expense base. At the same time, the transformation remains our number one priority and we will continue to make the investments needed specifically as it relates to data and regulatory reporting.

Having said that, the drivers of our expense reduction going forward remain consistent with those that we have referenced in the past: savings related to stranded cost reduction, productivity from our prior investments, and our organizational simplification, all of which allow us to self fund our investments in transformation. As we look at this quarter, expenses declined by 5%, which included a favorable FX impact. The decline was driven by a smaller FDIC special assessment, absence of a restructuring charge and lower compensation. Partially offset by increases in technology and communications, professional fees related to transformation, as well as advertising and marketing. And looking at the rest of the year, we remain on track to meet our full year expense target.

On Slide eight, we show key consumer and corporate credit metrics. As I mentioned, the firm's cost of credit was $2,700,000,000 primarily consisting of net credit losses in cards as well as a firm wide net ACL bill. The ACL bill reflects uncertainty and deterioration in the macroeconomic outlook, including a further skew to the downside scenario in our CECL framework. Our reserves now incorporate an eight quarter weighted average unemployment rate of 5.1%, which includes a downside scenario average unemployment rate of 6.7%. Largely offsetting this build was a release related to lower balances in our card portfolios.

At the end of the quarter, we had $22,800,000,000 in total reserves with a reserve to funded loans ratio of 2.7%. Now turning to consumer credit on the left hand side of the page. Approximately 85% of our card portfolios are to consumers with FICO scores of six sixty or higher. NCL rates increased sequentially in both card portfolios consistent with historical seasonal patterns and we continue to see stabilization in delinquency rates across both portfolios. And our reserve to funded loan ratio in our card portfolio is 8.2% and corporate non accrual loans remain low reflecting the investment grade nature of our portfolio.

Based on the quality and mix of our portfolio, we believe we are well reserved, but as always, we continue to monitor the evolving macroeconomic outlook. Turning to Slide nine, where I will speak to sequential variances. Citi's two point six trillion dollars balance sheet increased 9%, driven by growth in trading related assets, which is typical given the seasonal increase in markets activity. We also built out our cash position as we let investment securities roll off and opportunistically issued long term debt. Loans increased 1% driven by services and markets largely offset by lower balances in cards.

Our $1,300,000,000,000 deposit base remains well diversified across regions, industries, customers, and account types and increased 2% primarily driven by services. We reported 117% average LCR and maintained $960,000,000,000 of available liquidity resources. We ended the quarter with a preliminary 13.4% CET1 capital ratio, down approximately 20 basis points as net income was more than offset by capital distributions, RWA growth and higher DTA deductions. We continue to feel very good about the strength and quality of our balance sheet and our robust capital and liquidity position us well to support our clients in a range of economic environments. Turning to the businesses on Slide 10, we show the results for services in the first quarter.

Services revenues were up 3% driven by growth in TTS. NII increased 5% driven by higher deposit spreads as well as an increase in deposits and loan balances. NIR declined 4% driven by the absence of certain episodic fees and security services as well as higher revenue share and the impact of FX across both TTS and security services. That said, we continue to see strength in underlying fee drivers across the business as you can see on the bottom right hand side of the page. Expenses declined 3% largely driven by lower deposit insurance costs, severance and legal expenses.

Average loans increased 6% driven by continued demand export agency finance as well as working capital loans. Average deposits increased 2% as we continue to see growth in operating deposits. Services generated positive operating leverage for the third consecutive quarter and delivered net income of $1,600,000,000 and continued to deliver a high ROTCE of 26.2%. On Slide 11, we show the results for Markets in the first quarter. Markets revenues were up 12% driven by growth across both fixed income and equity.

Fixed income revenues increased 8% with rates and currencies up nine percent reflecting increased client activity and monetization and spread products and other fixed income up 7% driven by higher client activity and loan growth. Equities revenues increased 23% primarily driven by equity derivatives on increased market volatility and higher client activity and momentum in prime services with prime balances up approximately 16%. Expenses increased 2% driven by higher volume and other revenue related expenses. Cost of credit was $2.00 $1,000,000 primarily related to spread products driven by net credit losses and a net ACL bill. Average loans increased 7% driven by financing activity and spread products.

Markets generated positive operating leverage for the fourth consecutive quarter and delivered net income of $1,800,000,000 and an ROTCE of 14.3%. On Slide 12, we show the results for banking in the first quarter. Banking revenues were up 12% driven by growth in investment banking as well as the impact of mark to market on loan hedges partially offset by a decline in corporate lending. Investment banking fees increased 14% with growth in M and A partially offset by declines in DCM and ECM. M and A was up 84% as we gained share overall and across numerous sectors.

ECM was down 3% compared to a near record first quarter last year and ECM was down 26% amid a pullback in the wallet for follow ons and convertible. Corporate lending revenues excluding mark to market on loan hedges declined 1% as increases in revenue share were more than offset by the combined impact of lower loan balances and higher recoveries in the prior year. Expenses declined 12% largely driven by lower compensation as we see the benefit of our prior actions to right size the workforce and expense base. Cost of credit was $214,000,000 consisting of an ACL build of $180,000,000 driven by changes in the macroeconomic outlook and net credit losses. Banking generated positive operating leverage for the fifth consecutive quarter and delivered net income of $543,000,000 and an ROTCE of 10.7%.

On Slide 13, we show the results for wealth in the first quarter. Wealth revenues were up 24% with growth across Citi Gold, the private bank and Wealth at Work. NII increased 30% driven by higher deposit spreads partially offset by lower deposit balances. And NIR increased 16% primarily driven by growth in investment fee revenues as we grew client investment assets by 16%. This includes net new investment assets of $16,500,000,000 in the quarter and over $56,000,000,000 in the last twelve months representing approximately 11% organic growth.

Expenses were roughly flat as the benefits of our prior actions to right size the workforce and expense base as well as lower technology expenses were offset by higher revenue related expenses and severance. End of period client balances increased 7% driven by higher net new investment asset flows and market valuation. Average loans declined 2% as we continue to be strategic in deploying the balance sheet to support growth in client investment assets. Average deposits also declined 2% driven by a shift in deposits to higher yielding investments on Citi's platform and other operating outflows, largely offset by client transfers from USPB, reflecting our ability to support clients as their wealth and investment needs evolve. Wealth had a pre tax margin of 17% and generated positive operating leverage for the fourth consecutive quarter and delivered net income of $284,000,000 and an ROTCE of 9.4%.

On Slide 14, we show the results for U. S. Personal Banking in the first quarter. U. S.

Personal Banking revenues were up two percent driven by growth in Branded Cards and Retail Banking largely offset by a decline in Retail Service. Branded cards revenues increased 9% with interest earning balance growth of 8% and we continue to see spend growth which was up 3%. Retail banking revenues increased 17% driven by the impact of higher deposit spreads. And in retail services revenues declined 11% primarily driven by higher partner payment accruals. Expenses were roughly flat due to continued productivity savings offset by higher advertising and marketing as well as legal expenses.

Cost of credit was $1,800,000,000 consisting of net credit losses partially offset by a net ACL release of $172,000,000 This included a build related to changes in the portfolio composition and macroeconomic outlook, which was more than offset by a release due to lower card balances largely in retail services. Notwithstanding this release, our cards reserve to funded loan ratio increased to 8.2% from 7.9% last quarter. Average deposits declined 11% driven by client transfers to wealth that I just mentioned. USPB generated positive operating leverage for the tenth consecutive quarter and delivered net income of $745,000,000 and an ROTCE of 12.9%. On Slide 15, we show results for all other on a managed basis, which includes corporate other and legacy franchises and excludes divestiture related items.

Revenues declined 39% with declines across both corporate other and legacy franchises. Corporate other was largely driven by lower NII as well as the impact of mark to market valuation changes on certain investments on NIR. Legacy franchises was driven by the impact of Mexican peso depreciation, expiration of TSAs in our closed exit markets and continued reduction from our wind down market. Expenses declined 17% driven by a smaller FDIC special assessment, absence of a restructuring charge, reduction from exit markets in wind down and the impact of Mexican peso depreciation. And cost of credit was $359,000,000 largely driven by net credit losses of $256,000,000 driven by consumer loans in Mexico.

On Slide 16, I'll briefly touch on our full year 2025 outlook, which we've adjusted for the impact of the card transaction processing fee presentation change that I mentioned earlier, but is otherwise unchanged. As you know, in January we provided guidance for full year revenue and expenses as well as card NCLs and that guidance was informed by a number of scenarios and assumptions. Based on what we know today and assuming markets remain open and constructive, we still expect to deliver full year revenues of approximately $83,100,000,000 to $84,100,000,000 with net interest income excluding markets up approximately 2% to 3%. And we expect full year expenses to be slightly lower than $53,400,000,000 Clearly, there remains a lot of uncertainty, but we are confident that our diversified business model and resilient strategy can withstand many environments and we remain well positioned to support our clients. So while a lot is changing around us, we remain steadfast and focused on continuing to execute on our transformation and strategy while remaining disciplined with our expenses and capital with an eye towards improving returns over time.

And with that, Jane and I would be happy to take your questions.

You may remove yourself at any time by pressing 5 again. Please note, you'll be allowed one question and one follow-up question. Again, that is star five to ask a question. And we'll pause for just a moment. Our first question will come from the line of Glenn Schorr with Evercore.

Hi. Thanks very much. So I know it's early, but I'm curious if you could help us with a refresher on Treasury and Trade Solutions and services in general. In terms of what opportunities there's risk, but also opportunities in helping clients manage through this re tariffing and redrawing of economic lines. I think about nationalization and vertical integration is bad things, but a lot of shifting, and maybe you can help clients deal with all that shifting.

But anything, any help there would be great.

Glenn, I would be delighted to do so. So our diversified business mix is very well positioned for a variety of scenarios. So you think we've got a very broad suite of products and services, and they are the ones that clients need if they're going to be repositioning for a new order in trade or broader impacts here. And think about what you've seen over the last few years where we played a very central role, the Ukraine Russia war, China, the COVID related supply chains. We saw a lot of growth from deepening with clients and acquiring new ones because they need us, because we have exactly the expertise and the products and services that multinational institutions need, and we have them in the places that they need it.

Now, the mix of those different revenues, different products and services we have could be different depending on which scenario prevails. And what I have to say at the moment, the level of engagement that we have with our clients all around the world is just off the charts, given the unique depth of our presence and the insights we have in all the markets. So if I dig down a bit more, what would the persistence of high tariffs, what would it mean? Well, would dampen economic activity here in The US and abroad. Cross border trade flows will change.

We'll be in the middle of facilitating that. So we expect to be very busy there along with the hedging and associated financing activity that goes with it because it's not just about TTS. This is about the bundle of different capabilities we bring to bear. And take some comfort. Look at what happened with the Ukraine war.

We grew a lot in that time period. Equally, most of our business is is very local. Think of what services is. It's payroll. It's supply management.

It's liquidity, it's payables, it's receivables. And we're very deeply embedded into our clients' day to day operations in every market they work in, as well as across market flows. And that's not going to change. It's not nearly as sensitive to tariffs. And I would say, I think all of us recognize the environment is very fluid right now.

So let me also just say, for clarity's sake, the firm wide level, our ROTCE targets for 2026 are still 10% to 11%. The drivers behind them are the same, but the revenue mix might be different. We'll certainly know more as things get clearer as to how that plays out. I think, actually, the other thing you mentioned about nationalization, most of our clients have been clients for decades. I mean, a number of them have been clients for over a century.

And it would not be British, under understatement to say that we are deeply embedded into them. I mean, it is extraordinary how deep we are. We've been on the ground for over a century, and we are viewed as quasi local in most of these markets. Citi is not a bunch of suitcase bankers that fly in. We're not transactional.

We're very unique in the footprint. And these factors do make us less vulnerable to the different geopolitical dynamics that are going on.

Thanks for all that, Jane. I'll cede the floor.

Our next question comes from the line of Jim Mitchell with Seaport Global. Your line is now open. Please go ahead.

Hey, good morning. Maybe, Jane, just following up on that conversation, and you talked about leading into as being a port in the storm and leading into it. So I guess in the near term, you seeing sort of demand already in terms of your balance sheet, whether it's raising liquidity and deposit flow, like sort of flight to safety deposit flows and sort of the trading aspect of it from this volatility in April? Have you sort of already seen greater demands from clients?

What I'd say about the clients at the moment, you're seeing deals still happening. We've done a number of them as we've talked about. Even over this last weekend, we were pretty busy. But I would say that most clients are pausing their plans. No one is taking bets in the market right now.

We're seeing them prep for more headwinds, so we're seeing some bolstering of already strong balance sheets. Remember, our client client base aren't the smaller companies in the mid market that are gonna get more pummeled, in this type of environment. So our clients are getting getting ready. We're seeing some accelerating of imports to stockpile inventories. We we are seeing a pausing on significant CapEx while everyone waits to get clarity on the full agenda.

And in that full agenda, remember this tax bill, this deregulation actions, you know, these are some positives that will be coming. It's a very big agenda. Clients appreciate it's going to take time. In terms of the trading side, what we're seeing is it is pretty orderly out there. There's a lot of complicated dynamics happening, but it's not being catalyzed by liquidity crisis or other things going on.

Let's not fight the war, the last war. The issue we're tackling at the moment is something different, And we're seeing clients taking the opportunity to de risk, we are, others are, so that if we have more turbulence ahead, everyone's in a stronger position for it. And that is a good thing. But it's early days, Jim. We've got to see how this unfolds.

Sure. No, I appreciate that color. And then maybe for Mark, I mean, you highlighted, at least on a period end basis, deposit growth and commercial loan growth looked pretty good on a period end basis quarter over quarter. So I guess when we think about the NII assumptions, deposit and loan growth looks good, but anything different given the strong start to the NII ex market story and seemingly some good momentum in deposit and loan growth? Do you feel good, better, worse on sort of your NII outlook for this year?

Yes, thanks, Jim. Look, I continue to feel good about the NII outlook. There's obviously uncertainty that Jane has referenced, that 2% to 3% ex markets, we've talked in the past about what the tailwinds and headwinds are. And you referenced, we saw some of that play through in the quarter in terms of deposit volumes. We saw good operating momentum in our services business in TTS in particular.

The loan growth we saw not just an average interest earning balances on the Branded Card side, but also saw a trade loan growth as well. And so those are going to be important tailwinds as I think about the balance of the quarter. You've heard me reference as well reinvestment from maturing securities in our investment portfolio into higher yielding assets including cash. And you can see that on the balance sheet that some of that started to take place as well and helping deposit spreads. And then the team has been very, very engaged as it relates to deposit repricing and managing beta through the current environment.

So the combination of those things along with the removal of the reduction of late fees are really the tailwinds that contribute to that 2% to 3% growth and then there's some headwinds. So lower rates on floating rate assets would be a tailwind. The potential of FX translation primarily in Mexico would be a tailwind. But net net I feel good about the 2% to 3% growth in NII ex markets.

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

QUESTION Hi. I just wanted to continue the discussion about, you know, on the one hand, you're reporting the storm. You've been embedded decades, and you're not a bunch of suitcase bankers, so that message landed. On the other hand, I mean, you are the bank that facilitates global trade in the middle of a global trade war. And so I think the concern is not just the possibility that revenues will notice die, but that credit will implode, or as I've heard many, many times that Citigroup is going to stub its toe, just 100 countries in the mix of it all.

What else can you say in addition to what you said to either reassure investors that the oversight is strong or that you have your arms around the situation the best that you can, again, recognizing that it's a fluid situation? Thank you.

So you've you've seen us perform extremely well over the last few years in the face of, pretty wrenching changes in the global economy. You've seen it with, let's say, the shifts in the supply chains after COVID and then between the geopolitical tensions that are going on. You saw it in pretty significant changes that were happening from, the Russia and Ukraine war. And you see us exactly as that. We we are where the clients come.

It's hedging for foreign exchange, interest rates, commodities. You see it for how they're looking at changing their financing around. And we tend to we we are the ones that are helping them reconfigure the flows. So from that point of view, we we are the active agent in a lot of this mix. And and we are a a port in the storm, as I said, Mike.

We've got very strong balance sheet capital and liquidity to deploy. We have the, the big strategic changes and organization changes behind us, and they put they're enabling us to be on the front foot. And this is a firm that is much more agile and able to respond and be much more focused on clients right now. So I feel good about this.

The only thing I'd add, Jane, you're spot on. We come in with a strong balance sheet, strong capital, strong liquidity. If you think about your point around credit, Mike, we've said repeatedly and you can see it in the numbers, we skew towards the higher investment grade larger multinationals who also come into this with strong balance sheets. We've been very disciplined about that risk framework, our risk appetite both on the corporate side as well as as it relates to our consumers. And then what we tend to see in times of stress is a flight to quality as it relates to deposits.

And so again, depending on how this evolves, we're well positioned to manage whatever the needs are of our clients, whether that be lending needs or the storing of liquidity. And we're very well reserved to manage whatever credit risk may come with that despite us being skewed towards higher quality names in both of those demographics.

Okay. The flip side of this is you did say the drivers are the same. They might be different in magnitude to take you from where you are now. You had over 9% ROTC in the quarter. You said you're on track to get to 10% to 11% next year.

Can you put a little meat on the bones, kind of a verbal waterfall chart, if you would, or maybe some numbers around org simplification, stranded costs, productivity savings, how do we get from the 9% in the first quarter to that magical double digit return target for next year?

Again, as we talked about before, it is a combination of continued momentum on the top line and this is Jane's point around how that mix may evolve, but the 3% plus that we're expecting this year and again in 2026 is an important contribution to that. You often see in our business where one business may be under pressure, the other one tends to outperform and overcompensate whether it be banking fees and how those evolve, but volatility that may come with that, that uplifts the markets business. That continued focus on top line performance will be important. You've heard me reaffirm the expense target for 2025 in terms of getting down to the 53.4%. We still have a path to getting less than 53 in 2026.

That will be important. Obviously, if revenue softens there, we will see expenses come down in tandem with that combination of volume related transaction costs, but other levers that we will look to pull in the productivity savings we expect to come from prior investments is an important aspect as well. And then we've continued to optimize the use of our balance sheet and the capital that we have. You see that we have brought our CET1 down to 13.4%, we're continuing to return capital. Those become very important aspects to getting to that target.

Now look, it's uncertain and how the world evolves is hard to forecast at this point. So could a stressed macro environment create an impact on credit and a build of reserves? Absolutely. Right? That could happen towards the end of 'twenty five.

If it does happen in 'twenty five and losses end up showing up in 'twenty six, they end up being self funded, so to speak, by the reserves that would have been established. So we sit here today and as Jane mentioned, with seeing nothing that would suggest that we shouldn't be targeting the 10 to 11. So we remain committed to that 10 to 11. There's a path with the combination of those levers that I've mentioned. And importantly, this quarter is yet another proof point that our strategy is resilient, that we've got the right team on the ground to execute against it, and that it's showing up in our numbers and it's showing up in our returns.

And I'd just remind everyone, we're a very different bank than the one we were a few years ago in terms of our business mix, our risk profile, and all the investments we've made into the business. And I think you can see us managing the bank, doing what we say we'll do, and please take some confidence in that.

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

Good morning. I guess, Mark, just wanted to on Slide nine in the capital waterfall. I guess we are all thinking about what buybacks can do in the second half of this year. So if you don't mind, one, the RWA sort of dragged to 32 basis points. Is that normal as we think about what the RWA consumption should look like?

Just talk about that in the context of getting to a 13.1% CET1 by the end of the year and how we can back into the pace of buybacks?

So I'd say a couple of things. So one, last quarter we announced a $20,000,000,000 share repurchase program and we continue to feel good about that program as you would expect. And we increased our buybacks this year or this quarter I should say to the 1.75 seeing the strength of the performance that was playing out through the quarter. And so those are both I think indications of our continued commitment to returning capital to the shareholders. We're clear on where we're trading and we're clear that that is a smart thing to do once we've funded demand from a client point of view across our businesses that's accretive to returns.

And so the RWA consumption is tied that demand that we see. We've seen good client demand across the platform that's helped to drive the top line momentum that you see in each and every one of our businesses, that's helped to drive the improved returns that you see in the quarter in each and every one of our businesses. And as we see that demand, again, accretive in returns, we'll be looking to meet that as first priority. We are targeting the 13.1 by the end of the year, but as you know, we'll get a new stress capital buffer in June on the heels of the DFAST, CCAR work that's just been submitted and we'll have to see what that tells us. That's hard to forecast as you well know.

And so based on what that tells us, we'll inform that downward trajectory, but that is what we're focused on. The combination of funding growth that's accretive to returns and returning capital to shareholders in a way that's consistent with that repurchase program.

Understood. And I guess you mentioned, I think, your prepared remarks, the reserves on the card book went up to 8.2%. Remind us, I mean, I think and the genesis of both questions is I think there's a fragility to your RoTE guidance for next year that I think makes investors nervous. And I'm just trying to get to the pieces around buybacks and then in terms of credit, like how what's baking in around the unemployment rate? What would cause you to ratchet up provisioning in the near term?

What kind of an job market deterioration do we need to see for the credit outlook to deteriorate fast and materially? Thanks.

Yeah, let me take that in a couple of different pieces. So the first thing I'd say is that as I look at our credit exposure and I look at the consumer, the consumer continues to be resilient and discerning in their spend. And in fact, we did see spend hold up in the quarter and we saw spend actually increase in our branded card portfolio up about 3%. The consumer has we've seen a shift towards essentials and away from travel and entertainment. There's certainly a general performance that's consistent with what we've expected when we look at delinquencies, we look at the loss rates that play the quarter, there are no surprises there as we think about that.

And April is performing in line with that as well.

Thank you. Yes, and April has been consistent with that. As we think about reserves, we ended the quarter at about $23,000,000,000 of reserves across the entire business. That's about a 2.7% reserve to loan ratio. When I look at the consumers, the drivers of that, as you know, when we establish, when we do our analysis on a quarterly basis, we have three scenarios that we run.

A host of other stress scenarios, but those that inform the CCAR analysis, there are three scenarios. The base case scenario, there's a downside scenario, and there's an upside scenario. And as we looked at the macroeconomic outlook and the key variables that go into those scenarios, we assumed a deterioration in that macro outlook. We increased the probability or the weighting towards the downside scenario in light of what we were seeing in the macro environment. When you look through to some of the key variables, one of the variables you referenced, unemployment, the average unemployment rate was 5.1% across those three scenarios.

The unemployment rate in the downside scenario, the average was 6.7% across those eight quarters. And so we've assumed some pretty meaningful shifts in unemployment, particularly on that downside in our analysis. That informed the increase in our ACL reserves that's referenced in the deck. And that increase was offset a bit by the sequential reduction in volumes that is somewhat seasonal. So hopefully that helps.

Feel good about those reserves based on what we know and our current view of the macroeconomic environment and we'll obviously do that on a quarterly basis as things continue to evolve.

Our next question comes from the line of John McDonald with Truist Securities. Your line is now open. Please go ahead.

Citigroup (C) Q1 2025 Earnings Call Transcript

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