Citigroup Inc.'s (C) CEO Jane Fraser Presents at Bernstein 38th Annual Strategic Decisions Conference (Transcript)

Jun. 03, 2022 1:25 PM ETCitigroup Inc. (C), CPRJ, C.PK3 Likes
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Citigroup Inc. (NYSE:C.PK) Bernstein 38th Annual Strategic Decisions Conference June 3, 2022 11:00 AM ET

Company Participants

Jane Fraser - CEO

Conference Call Participants

John McDonald - Bernstein

John McDonald

Okay. Thanks, everyone. We are very excited to have Citigroup with us. Today, we have CEO, Jane Fraser, joining us for a talk; and we have Mark Mason, CFO, who will be here afterwards to take some questions as well. Jane, thank you so much for joining us for this fireside chat. We’re happy to have you.

Jane Fraser

All right. It’s great. It’s wonderful being here in person. Thank you very much.

Question-and-Answer Session

Q - John McDonald

It certainly is. So, we’ve heard a lot this week on the macro, mostly about the United States. It sounds like you’ve been on quite the global tour.

Jane Fraser

Yes.

John McDonald

So maybe you could give us your perspective of what you’re seeing and hearing in different parts of the globe, and how that compares to what you’re thinking about the U.S.?

Jane Fraser

Yes. I’ve just been in Japan and in Singapore, I’ve been in the Middle East, I’ve been in Germany, Italy and Poland. And I would say that one size does not fit all is the general theme. We talk about the three Rs. So, it’s -- depending where in the world you are, it’s rates; it’s Russia; and it’s recession is a lot of the conversation.

Let’s maybe start off with Asia. I think you’re seeing a lot of the conversation there is around China and what’s happening there. I think what we’ve seen in China is a wider and a longer lockdown than everyone expected. But we’re certainly starting to see from our footprint on the ground there and our people on the ground, things are starting to open up a little bit more there, and wouldn’t be surprised to see action taken on fiscal stimulus, particularly with November and the Congress coming up. So, I suspect we’ll start hearing more positively about China coming through in the next sort of weeks and months ahead as it reopens again.

And then elsewhere in Asia, it’s interesting, the main discussion was really around food, less around energy there, and that’s what they were more concerned about, which I took to be a good thing. I think it’s a sense of they - they’re coming out with some of the lockdowns and there is a real sense of dynamism there.

In Europe, I would say very differently. In Europe, it’s obviously dominated by Russia in a way that it really wasn’t in Asia at all. It was much more sort of rates and recovery. In Europe, the energy side was really having an impact on a number of companies. There’s certain industries that are not even competitive right now. Because of the cost of electricity and the cost of energy, some of them are shutting down operations.

I think the big concern there is going to be the cost of heating in the winter, if it’s a cold winter. There’s some confidence, if it’s not a bad winter, they probably got enough supplies through. But if it’s a cold winter or if there’s some more droughts or the things that we saw last year that had -- has an impact on some of the more sustainable energy sources, it’s going to be a problem. And obviously, the concern about Russian gas is a tail risk that’s there.

So, Europe definitely felt more likely to be heading into a recession than you see in the U.S. That said, I think not at the same magnitude is here that your consumers still got a $1 trillion more deposits sitting in their bank accounts than they had entering COVID. Talking to other European banks and looking at our own portfolio, the credit -- no one’s really seeing it in the numbers in credit quality, standing up very well, both the consumer and the corporate and commercial portfolios in Europe, and the banks are in reasonable stead. But I think the consumer is going to be hammered with the cost of energy and inflation. And they just don’t have the same flexibility as we have here in the States. It feels like the ECB is a few months behind where the Fed has been in getting its arms around inflation, and without quite the same flexibility that the U.S. has.

So, that’s -- that would be some of the things I’d say just from the macro perspective. But tougher time in Europe, Asia is of supply chains and recovery focused and China probably going to become more of a story again soon, not without challenges.

John McDonald

Yes. So, where does that leave us here in the U.S.? What are you hearing from clients? And how does that wrap into your outlook for this year?

Jane Fraser

Yes. So, if we take different clients, I think -- the U.S. story, as we all know, is much more about rates with this is the recession. It’s certainly not our base case that it will be, but it’s not easy to avoid either. When we look at what the clients are talking to us about from a macro perspective, I think the confidence is still pretty good amongst the CEOs and the CFOs. They’ve got -- they know there’s some more supply chain challenges and they keep piling on top of each other, but they’re feeling reasonable around that. And the activity has been pretty robust as we’ve seen. I’m sure we’ll get on to Investment Banking and other things later on.

From the investors, I think what I’ve seen in the States, what we’re hearing from the investors regarding the U.S. as well, I think they feel that the Fed has actually given pretty clear guidance. We may even see some of the volatility easing for a little while because we kind of know what they’re going to do for the next few meetings. Then, I think there’ll be a bigger question as to what happens thereafter, what’s the impact? So, maybe a little bit more quieter in the markets for the next little while.

I think some of the investors have sort of got back into some of the different spaces. They felt the market got a bit oversold for a while but some of the mean jumping back in. And generally, this payback’s been acting in a very orderly manner as we think about what happened compared to 2013 with the taper tantrum. And then, the consumer clients are feeling pretty good still. They’ve got a lot of money in the wallet.

The bid I’d say, if you look longer-term, and I think this is very relevant for us as we think about what are the big shifts that are happening, it’s really around -- I always talk about this being an additional S in ESG now, which is security. It’s around resiliency. And it’s almost as if six weeks ago, all the clients we were talking to almost all around the world suddenly recognized that they’ve spent their last decade focusing on scale and labor arbitrage and efficiency and also fossil fuel, taking advantage of fossil fuel, financing being cheap. And I think there’s a dawning recognition that the decade ahead is going to have to be much more about resiliency. It’s going to be around security, food, cyber, defense, energy. It’s going to be around operational resiliency. And they’re going to have to rethink a pretty big overhaul of value chain and supply chains.

That will be inflationary by nature. It will add some costs into the system. Ultimately, it should save costs because when there are problems, they -- the system is resilient to deal with them. But that is a dominant theme from CEOs, CFOs and the heads of the big investment funds that we’ve been talking to is how to cope with that as the big shift that’s happened.

John McDonald

Yes. That’s interesting. Okay. Let’s talk about Citigroup.

Jane Fraser

Yes.

John McDonald

So, maybe just to set the table a bit, if we do get into a trickier environment based on historical performance, people worry that Citigroup is kind of a risk-off stock. So, what would you point to that might suggest it could be more defensive this time, hold up better? What changes would you point to?

Jane Fraser

Yes. Look, we’ve all been through quite a stress test over the last few years. I’m feeling very good about our capital position. I feel extremely good about the quality of our liquidity. I feel good about our balance sheet quality. I look at our earnings capability and the mix that we’re shifting to. And when you’re worried about is there going to be a recession further down the road, first of all, it’s very manageable. I think it’s one that -- we’ve got the full toolkit ready. We’re really prepared for all sorts of outcomes, be it geopolitical or be it macroeconomic-driven or in nature. And I think we’re very well positioned indeed.

And I’d point to a few things. If we look at where some of the challenges might be, 82% of our corporate lending is investment-grade. When I look at our exposures in emerging markets, they’re not that significant because most of the business that we’re doing in the emerging markets are really cash management and the transaction services businesses, which is more fee and annuity-like in nature rather than lending-led. And it’s also for the multinationals and the subsidiaries of multinational companies around the emerging market. So, I think that gives us an inherent resiliency when you do see different crises or the like that come through.

And the same on our consumer front. I look at the consumer portfolio we’ve got, it’s very prime in nature. And the divestitures that we have around the world on retail bank will also help reduce down some of that volatility and risk. So, you never want to be complacent, but we’re very well prepared. The toolkit is ready. And right now, we are just running, as Mark will talk about later, multiple different scenarios all the time and making sure that we’re ready for many different eventualities.

John McDonald

Okay. And before we dive into kind of some of your longer-term goals, just maybe is there anything to say about the current quarter in terms of the capital markets activity? You touched on it a little bit earlier on the investment bank side of things. Obviously, your pipelines and activity was difficult and shut down a bit in the first quarter. Any kind of updates so far in second quarter?

Jane Fraser

Yes. Look, we’ll obviously -- we’ll be heading towards second quarter results before long. So, there’ll be a lot more clarity and the discussion then. What I’d say on the market side, we’ve benefited both first quarter, and we see this continuing on that really a lot of the activity in markets has been from the corporate side, particularly when you look at G10 rates and FX. And so, that’s been an area that’s really benefited us. And we’ve seen that continue on this quarter. It’s been highly active there. And that’s a base that is a very strong part of our ongoing markets activities.

John McDonald

So good volatility?

Jane Fraser

It’s very good volatility, and it’s one where we’re in there helping clients manage FX, manage volatility that’s out there. And there’s a large differentials on the FX market. And as I say, that’s continued into the second quarter.

On the equity side, the derivatives pieces have continued to be good. And some of the areas where we’ve seen more stress are actually ones that we haven’t been as active in, which is sort of will be in the high-yield market. So I think on the market side, it’s been healthy.

And then, on the banking front, it’s -- obviously, the wallet was extraordinary last year. We saw a lot of different transactions that have been pushed rather than pulled. I’d say, we probably have a little less confidence about how active the second half of the year will be just when you’d expect -- you could see some more things coming back. So, we’re a bit more in a wait-and-see mode to see what happens there.

But otherwise, you’re seeing the businesses you’d expect to benefit from improving rates also growing nicely. And we’ve also had the benefit of the strategy we put in place. We -- the fee growth continues. Other elements have been continuing on in some of the areas we’ve been investing. We’ve been delivering results in terms of growth from that. And good to see the consumer starting to borrow some more money again.

John McDonald

Good. So, let’s talk about your goal of improving Citi’s returns. You had an Investor Day in March. You laid out a financial target of 11% to 12% return on tangible common equity. And just the reference point on that was in 2021, you kind of did an adjusted 9%.

Jane Fraser

Yes.

John McDonald

So, how did you decide on 11% to 12% as the ambition to shoot for?

Jane Fraser

Yes. I wouldn’t say it was the ambition.

John McDonald

The goal.

Jane Fraser

I think our ambition is greater than that for the long-term. We sort of look -- we looked at and -- we looked at it as we looked at our strategy and felt we have a lot of confidence behind the strategy and what it’s looking at building for our future. And that’s to have a stronger business mix, so a stronger focus around we took businesses with good returns, growing our fee revenues and businesses where we also see that we can either retain a leadership position or that we can strengthen the position that we’re in today.

At the same time, we have investments to make, and we also have a consent order that we’re addressing. And so, when we look at it from the expense perspective, we want to make sure that we will be delivering to our investors, that we’re realistic about time frames, that we’re giving a good amount of flexibility for ourselves, so that our investors can see the strategy, see the progress we’re making on it, understand how that’s delivering the financial outcomes. And we decided that 11% to 12% over a three- to five-year period was something that we had a high degree of confidence about delivering. And then, in the longer-term, we certainly intend to deliver more than that.

John McDonald

And I guess, the idea would be that -- the road map looks kind of revenue-driven, right? In other words, you’ve got some investments you’re going to make. So, it’s not an expense driver to go from 9% and to get into that 11% to 12% range. And obviously, we might have some credit normalization that the industry has. So, I guess, what are some of the revenue drivers that you feel good about? Are they relying on the environment, or are they reliant on some of your business drivers?

Jane Fraser

I feel very good about the revenue growth because it’s diversified. It’s not hanging its hat on one or two different pieces and particularly on the macro side. So, rates is about 20% to 25% of the revenue growth that we’re expecting. Then, we’ve got another 20% to 25% from the consumer lending recovery, which was really hit so hard in the cycle, and we’re starting to see really good signs around that. I’m always slower than you would like, but I’m feeling good on that front.

Then, we have the remainder split pretty evenly between areas where we’ve been investing for growth. So, transaction services is really a jewel in the crown for Citi. That’s one where we’ve got good wallet share, and we can dive into that in a minute or two, but we see the opportunity to grow wallet share plus is very good growth in that business anyway from new client acquisition in mid-market as well as from many of the large companies still run there. Wealth management, another area that are one of those unstoppable trends, but we’ve got some tremendous assets. We’ve been bringing together. We see good growth.

And finally, just opportunities to just continue to get some steady share growth in banking, in markets and our consumer franchises and making sure we’re doing that in a focused way that’s very much capital-optimizing rather than just revenue for revenue’s sake.

John McDonald

And I know some investors have said, "Hey, can’t you do this any quicker?" earlier. How did you decide on that? You called it a medium term, and I said 3 to 5 years is kind of what you just mentioned.

Jane Fraser

Look, look at the world we’re in now. I mean, it feels like an eternity from Investor Day. Some days you go well. How much has changed? And the bit I like about it, I wouldn’t change a thing of what I stood up and Mark and the whole team of us stood up there on Investor Day and said was the strategy. We deliberately made sure and took the time that it would be one that would work in all different environments and be sustainable.

So, from that perspective, we want to make sure we’ve got a lot to execute. The proof is going to be in the pudding. We are very determined to make sure that we execute well. There may be some factors that are outside of our control from a macro, geopolitical or other piece that could slow some things down. So, we wanted to make sure that we weren’t going to under-deliver but that we were going to be credible with everyone around what we thought we would be able to do and when and give some flexibility so that things beyond our control wouldn’t disrupt what we deliver.

John McDonald

Sure. Fair enough. And then, we’ll just touch before we talk about the business is about capital levels. Now, it does sound like there’s a lot of moving parts to your capital ratio equation this year, both in the environment and also with all your business divestitures. So, just remind us, I think you’re starting at 11.4% on the CET1. You’re going to build a little bit this year. How do the divestitures? And is there anything that can play in -- and yes, is there any room for buybacks along the way?

Jane Fraser

Yes. So, we’re going -- we’re at 11.4% at the end of the quarter. We need to be at 12% at the end of the year. We have a G-SIB score that means we have to increase up the 12% CET1 ratio while still maintaining all the buffers and other pieces that are there. Mark laid out, and I won’t -- I don’t need to go over and recapitulate all of that, what that path looks like in the last earnings. And it’s a combination. It’s -- and if I look at it, I would say, first of all, -- given where our stock is trading, we love buybacks. We think there’s an extraordinary opportunity there.

However, when I’m looking at the environment, we have a few headwinds that are there. So, with the rates environment, AOCI has been one that the whole industry has had to tackle last quarter. And we -- there could be another one and some more challenges there. Obviously, the benefit of a rates improvement, an increase, is that we get all of that back and more. So, it’s a timing issue of when does that get back to shareholders.

And then, we’ve got earnings that we feel good about. I looked at -- I looked back to the COVID era. We were able to maintain our capital well above regulatory -- very, very highly above our regulatory minimums. At the same time, it’s taking a $10 billion build in our credit costs and with strong earnings power. So, we feel good about our earnings power.

And on the divestitures, we just announced Australia’s got closed. It’s nice to get the first one under the belt. That gave another $1.5 billion of capital into the kitty for the year. And we don’t control the timing of when the divestitures close, but we’re assuming by the end of the first quarter next year, we’ll have had a lot of big chunky ones. And we’re very focused on making sure those ones that deliver the repair capital back to us, and ultimately our shareholders, will be there.

So, between a recognition of we’d like to do buybacks, but we’re going to be cautious, we’re going to take it, as Mark said, quarter-by-quarter. There’s a lot of volatility and uncertainty in the market there. But I’m feeling good about the medium term and the long term on that one. Right now, it’s going to be a choppy year, I think. We’re going to be, as you would expect us to be, responsible.

John McDonald

Yes. And longer term, you are going to free up $12 billion or so of capital from the divestitures that you’ve talked about. So, that’s something we can look forward to over the next couple of years.

Jane Fraser

And some of that capital will go back -- some will go to our shareholders. Some of it will go to our shareholders through investments that they’re making, and the investments we’re making are in businesses with very high returns. And once we have a high degree of confidence around. So, it should come through that. It should also come back to our shareholders from some of the investments we’ll be making related to consent orders, but also related to driving digitization, efficiency. And I do see opportunities -- continue making our firm simpler, which should make it more efficient and improve that way.

John McDonald

Okay. Good. Well, let’s talk a little bit about the makeover and the new Citi. You came in, you studied the company. You did a dispassionate review. And you announced a pretty substantial corporate makeover. So, at the end of the day, what’s the underlying vision of what the new Citi is going to look like and what you want it to be viewed as?

Jane Fraser

I’m really -- I’m excited about the vision because it’s one where all the pieces just fit really well together. And I think that just -- it will be a simple, it will be a more focused, it will be a better connected bank that’s much better for our shareholders. And it starts at the core, which is around the core clients we serve are institutions and individuals, be those multinationals, be they’re banks, be they’re investors, with cross-border needs. And the bank has extraordinary assets to really be the preeminent partner and banking partner for them on that. And that’s really the heart of the strategy, linked into it is to be a leader in wealth management.

We’ve got -- we’re recognized in many parts of the world far more than we are in the U.S. as already being that, but I see a lot of upside and growth and tremendous synergies from wealth management with our other businesses. And then, to be a leader in our home market and really be stronger in our home market on our Personal Banking front. So, I think the strategy makes a lot of sense. It’s five different interconnected businesses. And we’re working hard on the synergies between them. They will improve our business mix. And it is a pretty significant corporate overhaul, and it gives a lot of clarity as to who we are. And I certainly hope for all of our investors and shareholders a much simpler institution just to understand, to get your arms around who is Citi, how do we add value for our client base, where are the drivers of value going to be and not the complexity that I’ve certainly heard that many of you had been frustrated by in the past.

So, I and the management team, I think we believe that this is absolutely the right path forward. And we’re getting on with it.

John McDonald

Yes. So step one was to announce the exiting of your Asia consumer businesses…

Jane Fraser

Step one was wealth management.

John McDonald

Yes. Okay. Yes.

Jane Fraser

Step one was wealth management because that’s where we saw the future would be. And then, yes, the second step...

John McDonald

So to -- just to remind people, to reorganize wealth management?

Jane Fraser

So, we basically said that we were going to focus our wealth -- our -- create a wealth management division and that that will be one that combined our offshore centered or our consumer franchises that were centered in the big offshore centers, so Singapore, Hong Kong, London, and the UAE, and that we would bring together the private bank and those consumer-affluent franchises together and put them into a single division, all operating off one platform. And that was the first step. Second step was then what we are not, which is then to say we weren’t going to be an international retail banking franchise, consumer banking franchise anymore. We would focus that on the U.S.

John McDonald

And again, just the rationale for getting out of the international consumer, why did you decide that? And what are the benefits of that? Streamlining, obviously, you’ve talked about.

Jane Fraser

Yes. Look, I came to the conclusion we were no longer going to be the best owner of those assets anymore. And that was -- and that we had other assets that we had that had far better returns and better fit together than the international consumer franchises did. And part of it was -- and you’re seeing it now, and we just quit [ph] in Asia. I just felt with the digitization that’s going on, branch-based banking and traditional retail banking is really rapidly getting unbundled, rebundled around digital architectures. That’s a lot of investment and that we were going to lack the scale in every single geography to really generate materially improved returns to shareholders. Therefore, it was better to monetize now for our shareholders and then put that money to work either in terms of returning it, returning the capital and making investments. And I’m really glad we did it. It’s a simpler bank to run.

John McDonald

Yes. So it’s a couple of year process. It’s underway. You’ve got Australia done, and we’ll see that play out?

Jane Fraser

I think you’ll see the -- you’ll see us steadily, particularly towards the end of the year because obviously, we signed Australia early. We’ve got a lot of different ones that are due to close end of the year, first quarter. Mexico will take longer because we announced that one later. And the timing has been very good as well for all of this. So, really good -- we really put an accelerator behind getting these deals signed and done as quickly as we could.

John McDonald

So, let’s talk about some of the businesses you’re keeping, so the core Citi that investors ask about. Let’s start with TTS. It’s been called an underappreciated crown jewel. Investors generally don’t understand the business too well. So maybe in the spirit of breaking it down for us, give us a sense of what’s unique about your franchise here. What exactly are you doing for clients? And how does it connect to you feed your other businesses?

Jane Fraser

So it’s -- when we talk about the Citi’s global footprint, TTS is really the heart of where the value sits. And what’s inside that is, is the ability for a company to manage their liquidity, manage their payment, all of their treasury, their working capital, their trade. So, it’s the full gamut of really how do they operate their companies on the ground in 97 countries where we’ve got local banking licenses. And so, it’s a combination of that breadth of different businesses. So, that means we’ll be making -- we’ll be doing their payroll for them on the ground. We’ll be paying all their suppliers. We’ll be collecting from customers. We’ll be managing their trade and all their supplier chains everywhere that they are.

I’ll give you an example. When I was down in Kenya visiting our African franchises, we do 60% of tax collection for the Kenyan government from companies and individuals in the country, not things that you would expect. But we’re so digital now that we’re able to penetrate into last miles as well as providing this global network.

When we’re unable to operate in a country, it’s very difficult for those clients to continue operating. And we see that in Ukraine, for example. We are still operating our bank in Ukraine, thanks to our amazing people. And that’s critical because if we weren’t, then the multinational clients who are -- all the American and Europeans that you know of wouldn’t be able to make payroll. With the Visa network for Ukraine and helping Visa operate there, which is absolutely critical for the payments, we’re helping the supply chains coming in and out of the country that are so vital now, given how disrupted everything is. And we’re helping, obviously, with the humanitarian aid that comes in.

So for me, that means -- I’m on the good U.S. governments on the phone with us as a core partner for them, and we’re beginning to talk through what would that reconstruction look like through Poland. So, I’m just trying to give you a sense of how does this network translate into being something that’s really indispensable for our clients, absolutely necessary. It’s like having a root canal to get us out. It’s very difficult. We’re often in places where nobody else is. And so, as the only international bank there, we’re seen as being safe. We’re dependable. And we’re absolutely vital for the multinationals to be up to operate, which is why we have 30% share of many multinationals business in countries.

So, for TTS, what does that translate to? So, that in money terms, $300 billion wallet business. About $100 billion of that is with corporates. We have a 10% share. I can see that growing well. Plus, we’re starting to see the mid-market companies. Many of them are born digital players. They’re starting -- they basically use us to help them operate as they start expanding into different geographies, which they do very quickly or get linked into supply chains. And that’s another very important growth opportunity for us, and it’s one where they just use the existing infrastructure platforms and capabilities.

So, it – right, it’s such a jewel in the crown because it’s absolutely vital for this breadth and depth of different capabilities. And then, you layer on top all the digital investments that we’ve done over a decade. And that then provides invaluable data, information hits our people in all those geographies on the ground as well that understand the local complexity and the global pieces. And it’s quite remarkable. And it’s a 20%-plus returning business. It was 20% plus at the bottom of the rate cycle. So, you’ve also got at the moment, it will have the benefit of rates. It’s got the benefit of organic growth. It’s got the benefit of investment. And it’s why all the fintechs want to partner with us because they can’t really compete.

John McDonald

Yes. That’s super helpful context and examples to make it tangible for us, yes.

Jane Fraser

Why is it so sticky? Because we always talk about it being sticky, but I used to run North America. I remember when there was the hurricane in Puerto Rico. Literally, none of the multinationals could open for business until we were open, and we opened the Monday morning after the Hurricane Maria on the Thursday. And that then enabled them to be able to get -- begin operating the economy again and the recovery efforts. It’s that dependent. So yes, I guess, that’s what means being a significant financial institution.

John McDonald

Yes. Yes. And I do think it’s underappreciated by investors, and it sounds like it’s become a bigger part of the Company as you can scale it up.

Jane Fraser

Yes, it is. And we’ve raised it up. So, if we think about that restructuring, we talked about putting wealth together. We brought what we call services because it also includes custody, so transaction service custody, up into their own reporting units; put fresh leadership and injected real performance intensity into it, giving them an important investment that are needed. And yes, very, very happy with the results so far. But don’t tell them that because we’re wanting them just keep going, keep going.

John McDonald

Right. So, that’s a great story on TTS. I think on wealth management, you touched on that a little bit. But I think here, the investor reaction is, boy, it seems like everybody wants to grow wealth management. So, I think the question you’re probably going to do -- you too. What is it that’s different? What assets are you leveraging? And what gives you some confidence you can have success growing where everyone wants to grow?

Jane Fraser

You go to -- so I think there’s a couple of pieces. There are two places in world that will create a lot of -- well, three now with the Middle East. But if you look at Asia is creating extraordinary wealth. When we talk about an unstoppable trend, a lot of it’s China, but a lot of it’s also China related into entrepreneurs and other businesses throughout the region in the Indo-Pacific region. And no matter what U.S. and Chinese geopolitics will be, that’s just -- that continues.

And we’re the third-largest wealth manager already in Asia. What I particularly like about our capabilities are how strong they are for a family office. And I think it’s -- an example I gave of it is the heads of markets or the former heads of markets and nearly all of our competitors are on our Private Bank platform. And they’re on it because of the caliber and the capabilities that we’re able to give on the content from our research platforms from the institutional side, from the -- the breadth and depth of product capabilities that we have, the risk management, the balance sheets we have, the brand name we have. The commercial bank, which has already been in operation in many geographies for decades is also providing there where the new wealth is being created as well as in the larger corporates as well as in the private asset space.

The local Asian banks just don’t have this. They don’t have that platform and capability, nor do they have it across the different geographies that we have, that globality, because they not only want it in Asia, they also want it increasingly in the Middle East. I’ve just been in UAE. It’s -- there’s a lot of money being created, but there’s a lot of -- a lot happening there, another important center for us. They want to come to London. They want to come to Europe. They want to have some money in the States, obviously. We cover all of them. So, it’s really now for us about building out talent and investing some more technology.

We’ve got the brand name. We’ve got the capabilities. And so, the investments we’ve been making, once we put all the different pieces together into a single business, is then making sure that we’re delivering on the promise that we have and growing it. And in the States, the honest answer on that one is we’re not going to be one of the -- we’re not going to be sort of the number 2, 3 player in wealth management in the foreseeable future. But we’ve got a lot of value to create and a lot of growth to create there. We have an incredible affluent customer base. Don’t ask me why, but we just didn’t put enough wealth products. And they do love Citi and our people and the relationships we have.

So, having a stronger focus on wealth, building out the digital platforms, some of the things that we’ve already put in place, that’s going to have really good growth, same with our wealth of work. So, that one, I can sit here and smile and say you’ll see. It’s -- don’t think of this as a brokerage firm. We aren’t going back to the future as a Smith Barney here and the brokerage model. This is about modern wealth management and the family offices.

And the last number I’d leave you, we’re the fifth largest private bank in the world. Our average net worth of our client is $450 million. That’s institutional-caliber wealth and capabilities that are needed, does also make you sit there and say, "John, what have you and I have been doing [indiscernible] likewise.

John McDonald

I was just thinking that. Absolutely.

Jane Fraser

Makes you very humble when you talk to these clients about your own -- about yourself as what you’ve done, spurs you want to create that value for our shareholders.

John McDonald

I think you’re doing pretty well. Okay. So I think the last one on the business mix. I know about myself.

Jane Fraser

I wasn’t fishing.

John McDonald

So, on the business mix, the last one is U.S. retail banking. I mean you’re not big. The footprint is disparate. So I think a lot of us looked and said, "Hey, why wasn’t this one on the divestiture list?" So, I’m sure you looked at it. What made you stay in U.S. retail banking? What’s different than the other areas you had?

Jane Fraser

I think we think of it in terms of Personal Banking because the industry is changing. And I think it’s been -- I hate saying that the U.S. has lagged the rest of the world because of almost every other thing, the U.S. is just so way ahead. But on this dimension, the banking -- retail banking is far behind the trends that we’ve seen in Asia, we’ve seen in Europe on digitization, probably because the retail banks are good and the branch system has been good. This change is coming. And you have to think about your whole customer relationship rather than channel and other dimensions.

So, for us, it’s looking very much about -- we don’t think of retail banking so separately from our cards businesses. And that one is very -- they’re all very rapidly morphing. And I think COVID has started that acceleration of those trends. So, for us, we see the retail bank as an important feeder. There’s more value -- I think there’s more value we can certainly create from it. It’s not going to be a national branch footprint. I think you’d all kill me in five years if we went on a national branch footprint expansion because it’s going far more digital. So, our focus has been, let’s make sure that we’re really capturing the full wallet from the customers that we have, just where the wealth component becomes very important, that we continue to drive more value from the existing footprint we have, which is in six very attractive urban markets, like New York and out in California, down in Miami and others. I see some more value that we can get from them from shore, but also as this feeder in and -- feeder into capturing more digital deposits as, yes, we do like the funding. But let’s make sure it’s around the customer relationship, not just on pricing cheaply to attract in customers.

So, our retail bank is not an asset liability management play. It’s a customer relationship and how we make sure that we’re getting sticky deposits, how do we make sure that we’re getting the full breadth of the product capabilities from them, but we’re also recognizing the future is digital.

And therefore, you’ll see from our partners in the cards businesses, it’s -- take America. We’ve got savings products in America now. We’ve got Flex Pay, we’ve got Flex Loan. We’ve got a whole range of different ways. So, their customers and our customers can think about how do I want to pay? What format do I want to pay? Do I want to use rewards? Do I want to get rewards? Do I want to buy now, pay later? How do I want to do this? And the last few years because we did have an Asian team running a lot of the product capabilities for us in the States, they brought a lot of that know-how. And as a result, I’m really happy about the product array that we’ve got.

John McDonald

Yes. So, in U.S. retail, it really is about helping you achieve your goals in card and wealth management and what you’re doing. It’s all connected.

Jane Fraser

And let’s -- I want to be very clear. There’s some more incremental value we can get from our retail banking franchise. But, it’s not the center here, yes.

John McDonald

Yes. Okay. Another area of interest is your transformation initiative and the regulatory consents that are part of it. So just to remind folks, you said both this transformation and the regulatory orders are a multiyear journey. So, just kind of talk about the investments you’re making. And how much of this transformation would you be doing anyway, even without consent orders?

Jane Fraser

I think a lot of it we would do, not all of it, but a lot of it we would do. If we think about the world that we’re heading into, we’ve got to have the scale, the agility, the real time and the customer and the client experience for a world that is a lot faster and that the volumes are just -- they’re exploding. And therefore, for that, you need an operating model and the technology platforms that will cope with the scale, the speed, and the client experience necessary. And that also requires well controlled. You want -- and that’s the same if you’re talking about transaction services, you talk about lending, you talk about any of these other areas. And it’s more factory controls than it’s the controls that have been the case typically in banking before. So, they can get embedded into the operating model.

So, we’ve been investing in this last year and a bit in a lot of the talent that we need to make sure that we’ve got technology capabilities, that we’ve got the operational capabilities and we have the risk and control organization in place, both for a digital age and to satisfy our regulators. I think the benefit is this is not -- there wasn’t customer home that hasn’t been fraud. This is much more about investments that at the end of the day will deliver efficiencies for our shareholders. It will make the bank more robust and stronger. So, -- at that when Mark and I talk about the arc of the investments that come with this, I can sit here with a lot of confidence that there’s a real arc to it: a, because we’ll simplify the bank from the strategic actions that we’ve taken, and that will enable us to begin at some point next year, really simplifying the management structures. But we’ll also be able to deliver more and more of the investments we’re making, will also deliver greater efficiencies at the end of it. Whereas if it had been other areas that the consent order have been in, you don’t have efficiencies at the back end of it. But we will have some areas where the cost is higher.

John McDonald

And that arc is part of the three- to five-year RoTCE walk?

Jane Fraser

Yes. And a lot of it will be -- a lot of it’s what then as we look at the longer term, you look at it and say, yes, and that gets you to the higher than the 11% to 12% because let’s be very clear, the 11%, 12% is not something I’m sitting there going woohoo about. But I’m focused on, as is the whole team, let’s go step by step, get there, get there with the right business mix, get there with the right investments in our infrastructure and technology and risk and controls. And then, we can -- at that point, we can start accelerating further.

John McDonald

And building credibility around the deliverability of what you’re shooting for?

Jane Fraser

Yes.

John McDonald

Yes. So, on that note, I know you faced some skepticism that Citi has attempted turnarounds in the past before you were CEO, obviously. So, the question is, what’s really different this time? Why now? Why is it going to work this time?

Jane Fraser

So, one of my Board members, Peter Henry said to me, "You’ve got to have two things as CEO, big ears and thick skin. And it’s pretty thick. But, it meant really going and listening and listening hard. We listen to -- we talk to investors, we talk to our people, we talk to our clients. We got a lot of input in, and we also did our own assessment, what has held us back. And that -- there were a number of different dimensions to it. Some of it was business mix. Some of it has been around underinvestment in areas of our operations, not all. We wouldn’t be able to move $4 trillion a day for the multinational companies if you hadn’t got pretty strong operations already.

And part of it’s also in our culture and part of it’s -- and the culture, not having enough performance intensity. So, you hear us talk a lot about accountability. I also don’t think we were as aligned with the shareholders as we could have been. We’re refocusing on that. And then, those are the different pieces. And the firms -- was complex. And so, that piece of making it simpler, simpler business mix, simpler management structure, more modern and efficient organization. And that we put in for me, I think, probably the most important changes, culturally, what are we doing to drive a firm that’s fully aligned with our main stakeholders, so our regulators and our shareholders that we’re also very much client-friendly and being aligned with them, mindful of our people but driving accountability for -- and more performance intensity into the organization for delivery and just being really transparent about it. We’ve laid out a set of different metrics, exactly the same metrics around our strategy that I use and Mark uses when we do the management meetings and go through the operating results.

So, as we report them to you every quarter, and some of them take a -- have got a longer cycle to them. They’re the same ones we’re using. We put those into the scorecards. We’ve aligned the compensation far more around the share price and around RoTCE. And I hope we’re making us a much easier to understand, transparent organization that you’ll really see how we’re delivering this. Very clear, the proof is in the pudding. We have to deliver. We’ve got to earn our credibility back. And I think we’ve had a good year of progress on a number of fronts. And we’re just putting one foot in front of the other and delivering against the strategy and delivering against what we need to do.

John McDonald

Sure. And amidst all those things, you’ve also brought in some fresh talent to get a new perspective. There’s been some criticism in the insular culture historically, right? So I think that’s another thing, too, that it should help as well. Has that been part of your strategy to do that?

Jane Fraser

Yes. We’ve got -- what we wanted to do is we wanted to have a combination of who are change agents with real depth of subject matter expertise from within the company along with those who are coming from the outside, either in areas that are newer, data being an example, which are new skill sets; or where there are other institutions that have got greater strength than us, and we want to make sure that we’re bringing that fresh perspective in so that we’re really focused on delivering excellence and that people are very dispassionate about what excellence is because my experience is turkeys don’t always vote for Thanksgiving. So, you need to make sure that you’ve got that dispassionate view everywhere.

And we’ve really brought people in from across the board. And you’re always a bit nervous at the beginning when you’re saying, "Well, are we going to bring in the caliber of talent?" I’m really excited by both, the change agents that we’ve put in place within the firm as well as the ones that we bought from outside, technology and data, human resources, finance as well as some phenomenal bankers who we’ve been bringing in from the front line, great wealth advisors. We have not found it challenging to attract really great talent in. And we’re very clear to them, this is a collective journey. This is a team effort. This is us all working together to transform a bank and deliver on its potential. And there’s momentum and excitement behind that. Everyone is pretty realistic. This is multiyear, but the caliber of talent we’ve got coming in is really strong. And they’re working well together with the talent we’ve put in from the change agents within the firm to drive this forward.

John McDonald

Great. Well, we really appreciate hearing the story today, Jane. Thanks so much for joining us.

Jane Fraser

Thank you very much indeed.

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