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Citigroup woos skeptical investors with new profitability targets

© Reuters. FILE PHOTO: A Citibank sign is seen outside of a bank outlet in New York March 4, 2009. REUTERS/Lucas Jackson

By David Henry and Noor Zainab Hussain

NEW YORK (Reuters) -Citigroup Inc is aiming for a medium-term return on equity of 11% to 12%, an improvement from its recent performance, in new profitability targets set on Wednesday at its first investor day in five years.

Analysts had been looking for a medium-term return on tangible capital equity (RoTCE) goal of 12% along with details on how it can be achieved. The metric measures how well a bank uses shareholder money to produce profit.

Before Citigroup (NYSE:C) can deliver on its medium-term profitability target, it has to weather a between 5% and 6% increase in expenses this year excluding the impact of divestitures, and it has to see revenue growth accelerate.

The bank has spent more in the past few quarters to fix issues regulators identified in its controls systems and costs have also risen recently due to a battle for talent on Wall Street that has prompted global banks to offer perks like higher pay and bonuses.

In premarket trading, the bank’s shares were down about 3.5%. Investors have learned to be skeptical of Citigroup’s targets because the bank has failed to meet those it has set in the past.

The March 2 investor day comes just over a year since 54-year-old Jane Fraser became chief executive at the fourth- biggest U.S. bank by assets.

Fraser was tasked with transforming a business whose share price lagged rivals like JPMorgan Chase & Co (NYSE:JPM) and Bank of America (NYSE:BAC) during her predecessor Michael Corbat’s eight years at the helm.

Citigroup said its expense efficiency ratio will improve to 60% to 63% in the near-term, compared to 65% in 2021. For the medium-term, that metric is expected to be less than 60%, the bank added.

For the current quarter, the bank also expects a mid-single digit decline in total revenue, excluding divestiture impacts.

The bank, which said its priority was to return capital, expected to return dividends of nearly $1 billion in the first quarter of 2022. It is looking to build to about 12% of Common Equity Tier 1 ratio.

Share repurchases in the quarter will be in line with prior guidance.

The Ukraine crisis and disruptions from the pandemic are adding to Fraser’s challenge.

Citigroup said on Monday its total exposure to Russia amounted to nearly $10 billion, far higher than previously communicated.

On the same day, Fraser had to switch the investor day event from being held in-person to virtual after her two top executives tested positive for COVID-19.

Citigroup said its outlook for the medium-term includes having revenue growth accelerate and increase at a 4-5% compounded annual rate, lead by gains in its corporate payments business, as well as global wealth management.

The Wall Street bank defined “medium-term” as three to five years, adding the target assumes a healthy economic environment, overnight interest rates rising to 2%, loan growth of 6-7% annually, and revenue and deposit growth of 4-5%.

The bank said it expects cost of credit to normalize in the near term.

Since Fraser became the CEO, Citi’s shares had fallen 11% through Tuesday while the index of S&P 500 bank stocks has gained 7%.

Citigroup woos skeptical investors with new profitability targets

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