Speaker 1: Alongside.
Speaker 2: Now with me, I have Citygroup Chief Financial Officer, Mark Mason.
Speaker 2: It is the Bank Services Investor Day, and your CEO
Speaker 2: Jane Fraser, made some news earlier saying that we are
Speaker 2: no longer the financial supermarket of the past.
Speaker 1: Correct, So Mark, what a City Group in the future.
Speaker 3: Well, first of.
Speaker 4: All, thank you for being here today. Today was a
Speaker 4: very exciting day for us. We had an opportunity to
Speaker 4: update over one hundred and twenty investors on the progress
Speaker 4: that we've made since our Investor Day, but importantly to
Speaker 4: do a deep dive on our services businesses. And to
Speaker 4: your question, we want to be the pre eminent bank
Speaker 4: for institutions with global needs as well as a leader
Speaker 4: in global wealth and a winner in the US market
Speaker 4: for our personal banking business. That's what we are today,
Speaker 4: and a lot of what we talked about today again
Speaker 4: was really highlighting the crown jewel of our firm, the
Speaker 4: gateway to the rest of our offering for large institutional
Speaker 4: client but also for middle market clients as well as
Speaker 4: for investors and asset managers in both that treasury and
Speaker 4: trade solutions business and our security services business.
Speaker 2: It's interesting because to your point, even though security services
Speaker 2: has been a crown jewel, accounting for roughly half the
Speaker 2: profit recently of City Group's own entire businesses. It's been
Speaker 2: hard to explain to investors exactly what it is what
Speaker 2: it does.
Speaker 1: Do you think City Group.
Speaker 2: Stock would be trading higher if people understood the business
Speaker 2: prospects for it.
Speaker 4: I think the services businesses which are comprised of that
Speaker 4: Treasury and Trade Solutions and the security services business contribute
Speaker 4: a significant amount of value to this franchise, and I
Speaker 4: hope that after today investors will realize exactly how much
Speaker 4: value that is and how much upside there is to
Speaker 4: that franchise, and we start to see it in the
Speaker 4: stock price.
Speaker 1: Today.
Speaker 2: You are seeing it in the stock price if you
Speaker 2: think about some of the things that have been holding
Speaker 2: City Group behind. Mike Mayo of Wells Fargo big proponent
Speaker 2: of Citycrep stock, but even he has been kind of
Speaker 2: critical here of the wealth business, calling the returns pitiously low.
Speaker 2: The question is do you have a timeline for when
Speaker 2: investors can expect returns in that business and how soon
Speaker 2: and how robust those returns can be.
Speaker 4: You know, one of the things we talked about today
Speaker 4: is timeline. We talked about the medium term twenty twenty six,
Speaker 4: we talked about top line growth of four to five percent,
Speaker 4: and we talked about the services businesses being a significant
Speaker 4: contributor to that, both in the top line and our
Speaker 4: services business is a twenty percent return on tangible common equity.
Speaker 4: In the wealth space, we brought in new management there
Speaker 4: and we're keenly focused on how we grow the top
Speaker 4: line and how we improve margins and how we improve
Speaker 4: returns there. That's going to involve everything from right sizing
Speaker 4: the cost structure, to increasing the banker productivity, to driving
Speaker 4: new net investment assets across that business. And we do
Speaker 4: believe that inside of this window between now and twenty
Speaker 4: twenty six, you'll start to see that value play through
Speaker 4: our financials.
Speaker 2: Now, it's interesting you mentioned new talent over at the
Speaker 2: wealth business also at the investment banking businesses. When you
Speaker 2: look across City Group's businesses today, are you seeing yourselves
Speaker 2: bring in more and more external talent really scouring Wall
Speaker 2: Street here to pick out the best out of your rivals.
Speaker 4: Look, the good news is that City has been a
Speaker 4: talent magnet. And when you look across Chain's leadership team,
Speaker 4: we brought in Andy sig. We brought in viz Ragabond.
Speaker 4: We recently hired Tim Ryan, so we brought in some
Speaker 4: of the best talent on the street to bring both
Speaker 4: operating chops, but also a different perspective to the institution
Speaker 4: that we have into the execution of our strategy. These
Speaker 4: are real operators who understand these parts of the franchise
Speaker 4: and are going to bring that expertise to bear and
Speaker 4: help drive that value.
Speaker 2: You know, a lot of your recent communication to investors
Speaker 2: kind of showed that a lot of this cost cutting
Speaker 2: has been executed on already.
Speaker 1: Does it give you wiggle.
Speaker 2: Room now to lean in and spend in a few places,
Speaker 2: to hire a little more in certain areas.
Speaker 3: You know, Look, this is a multi year journey.
Speaker 4: As you know, we're going through a significant transformation and
Speaker 4: overhaul of our infrastructure. We're addressing the consent order remediations.
Speaker 4: While we're doing that, it's not going to happen overnight.
Speaker 4: We still have considerable amount of investment to make. We
Speaker 4: have been talking about bending that expense curve. I have
Speaker 4: given expense guidance that reflect some of the savings we
Speaker 4: expect to get from the investments that we've been making
Speaker 4: and speaking of investments, to your point, in order to
Speaker 4: grow these parts of the franchise, they will require continued investment,
Speaker 4: and as we realize savings, some of that will be
Speaker 4: available for us to fund those investments to drive that
Speaker 4: improved performance.
Speaker 2: Speaking of new hires and speaking of performance, you said
Speaker 2: today as well that the investment banking division in this
Speaker 2: quarter you can see investment banking rising by fifty percent.
Speaker 2: Of course, it's just been a matter of weeks since
Speaker 2: a new hire from JP Morgan started to lead the
Speaker 2: investment banking business. What does this mandate across the investment.
Speaker 4: Bank well business brand new, But again you're talking about
Speaker 4: an experienced season banker that's joined our franchise, and so
Speaker 4: as you would imagine, he's coming in and he's getting
Speaker 4: up to speed. He has a great appreciation for the
Speaker 4: unique characteristics that city brings to banking, the globality of
Speaker 4: the franchise, the breath of the clients that we serve.
Speaker 4: But he's going to have to spend some time really
Speaker 4: understanding where some of our weak points are, where some
Speaker 4: of our advantages exist. He's going to quickly see that
Speaker 4: we have invested in areas like health, in tech, and
Speaker 4: that those parts of the franchise are well positioned to
Speaker 4: capture the upside as the wilet rebounds. But I think
Speaker 4: BUS is going to be keenly focused on how do
Speaker 4: we get greater productivity, how do we gain more share
Speaker 4: and how do we serve.
Speaker 3: Our clients optimally.
Speaker 4: The last point that I'll make, because this is unique
Speaker 4: to I think City, is how do we bring the
Speaker 4: breath of the franchise to bear for these clients. So
Speaker 4: that's not just M and A and ECM and DCM
Speaker 4: and the IPO activity, but how do we bring the
Speaker 4: corporate activity as well? How do we bring the TTS
Speaker 4: offering to bear for these clients?
Speaker 3: How do we access the middle market clients.
Speaker 4: I think this is going to bring some perspective on
Speaker 4: broader client coverage and that's how you unleash the value
Speaker 4: and the differentiating characteristics of City.
Speaker 2: Now, one big question that remains in the investment banking
Speaker 2: universe City Group massive debt underwriter.
Speaker 1: Of course, how do you think about.
Speaker 2: The competition you're seeing in the private credit landscape. Are
Speaker 2: they friends, partners or enemies?
Speaker 4: Yes, the answer is yes, right, I mean, at the
Speaker 4: end of the day, it's a growing space, it's a
Speaker 4: space that's hard to avoid. It's one that we're obviously
Speaker 4: looking at what's the best way for us to play in.
Speaker 4: I think part of that is going to be partnering
Speaker 4: with those that have the prospect for being broader clients
Speaker 4: with us, and part of it will be competing in
Speaker 4: some aspects as well. But we're going to be smart
Speaker 4: about it, We're going to be deliberate about it, and
Speaker 4: we're going to ensure that whatever we're doing is consistent
Speaker 4: with the broader strategy.
Speaker 3: That we've said.
Speaker 2: I also want to be cognizant that City Group still
Speaker 2: has its own dealmaking on the table here. There's a
Speaker 2: lot of questions about when you see that that fully
Speaker 2: happen in Mexico for example, of course new leadership the
Speaker 2: Globe is watching in Mexico as well. Does it change
Speaker 2: your calculus on how you see an exit happening via
Speaker 2: sale or IPO.
Speaker 4: Look, the new leadership is an historic event, and so
Speaker 4: we congratulate Claudio on actually being elected to president. We
Speaker 4: think that's significant. It doesn't change our strategy, It doesn't
Speaker 4: change our focus on the importance of the IPO. It
Speaker 4: doesn't change our focus on the importance of the separation
Speaker 4: which happens before the IPO, which we're keenly focused on
Speaker 4: right now. We obviously, at the end of the day,
Speaker 4: want to do what's in the best interest of the shareholders,
Speaker 4: and we believe that getting the Mexico consumer franchise in
Speaker 4: the hands of another player is in the best interests
Speaker 4: of our shareholders, and we're focused on that.
Speaker 2: Beyond the Mexican consumer, the US consumer, of course, is
Speaker 2: the giant whale in the room. When people are thinking
Speaker 2: about the US economy, investors are baking in where to
Speaker 2: put their chips next.
Speaker 1: How do you think about that from the perspective of city.
Speaker 2: Group, given you're alluding earlier today to this higher for
Speaker 2: longer rate environment and what that means.
Speaker 1: For charge offs.
Speaker 4: Look, I think that you know, we're all watching kind
Speaker 4: of the impact of inflation and interest rates and what
Speaker 4: that means for consumers. And we have seen the credit
Speaker 4: environment normalized for consumers, particularly on the low end of.
Speaker 3: The FICO score.
Speaker 4: This case shaped type of normalization that's taking place, which
Speaker 4: you have to keep in mind from a city perspective,
Speaker 4: is we tend to play on the higher end of
Speaker 4: that credit spectrum. So eighty five percent of our of
Speaker 4: our card bases with consumers with Fyco scores of six
Speaker 4: sixty or higher. Doesn't mean we don't watch it closely,
Speaker 4: but it does mean that we ensure we've got appropriate
Speaker 4: levels of reserves in place and that we're we're sticking
Speaker 4: true to, if you will, our credit profile and risk appetite.
Speaker 4: So we feel very well positioned. There will be continued normalization,
Speaker 4: there will be continued increases in NCLs, but generally in
Speaker 4: line with the expectations given where we've come from.
Speaker 3: So to speak, do you have.
Speaker 2: To change anything about the way you underwrite in the
Speaker 2: future given the changing expectations around inflation and interest rates?
Speaker 4: At this point, we're constantly looking at that. I think
Speaker 4: we've got a very robust risk appetite. We constantly look
Speaker 4: at that based on the environment that we're in. We
Speaker 4: obviously run all types of stress tests and scenarios. We
Speaker 4: do that not only for the existing book, but we
Speaker 4: do that for how we profile the new book and
Speaker 4: the clients that we want to onboard and acquire, and
Speaker 4: again we feel very very good about that. We feel
Speaker 4: good about our understanding of those demographics. The savings profiles
Speaker 4: of our clients are spending habits, and so we feel
Speaker 4: good about kind of where we're going with what.
Speaker 1: About industry wide?
Speaker 2: Even though you have kind of clamped down on risk
Speaker 2: in City's own portfolio, you mentioned that you've kind of
Speaker 2: gone upstream in terms of the people you do lend
Speaker 2: to in terms of their FICO scores. What does it
Speaker 2: mean for those that are more exposed to the lower
Speaker 2: income consumer today, especially because corporation after corporation is starting
Speaker 2: to mention those stresses in their earnings reports.
Speaker 4: And otherwise, Look, I think there's still a fair amount
Speaker 4: of uncertainty as to how this macro environment evolves, right,
Speaker 4: so whether that the interest rates or how inflation kind
Speaker 4: of stabilizes, and does that stabilize kind of fast enough
Speaker 4: for us to see cuts.
Speaker 3: In the near term are all unknowns.
Speaker 4: But they're also factors that influence the pressure that consumers
Speaker 4: are likely to see.
Speaker 3: And so there's a fair amount of uncertainty there that.
Speaker 4: People have to manage too. And again we're thoughtful about it.
Speaker 4: I think we're managing to it very carefully.
Speaker 2: Before I let you go as well, Mark, there was
Speaker 2: a report today in the journal City Group is specific
Speaker 2: here about concerns around your living will planning at City Group.
Speaker 2: How do you address those concerns?
Speaker 3: Yeah, you know, look, I saw the report.
Speaker 4: I obviously can't comment on what our regulators haven't really
Speaker 4: said yet or rumors that are out there.
Speaker 3: What I can say is that.
Speaker 4: As I mentioned earlier, we've been making significant investments across
Speaker 4: the franchise, across regulatory reporting, across data and the thought
Speaker 4: cross resolution and recovery planning. We're constantly looking at these processes.
Speaker 4: We're looking at ways to enhance them. We're looking at
Speaker 4: ways to improve our forecasting capability to ensure that our
Speaker 4: playbooks are robust in case of a situation like that.
Speaker 3: Importantly, we feel.
Speaker 4: Very good about our capital, our liquidity. We've got a
Speaker 4: very strong balance sheet. But these are areas we've been
Speaker 4: investing in because we know the areas that frankly, the
Speaker 4: industry likely needs to further enhance, and we certainly want
Speaker 4: to enhance them for ourselves.
Speaker 2: We're not far off also from expected new proposals.
Speaker 1: Around the Basle three endgame.
Speaker 2: Given there's been so much change and what's expected out
Speaker 2: of those final rules, what do you think will be
Speaker 2: the most different And are there certain businesses that City
Speaker 2: Group may have to tone down on given the new rules,
Speaker 2: that may not.
Speaker 1: Be as profitable.
Speaker 2: Yeah.
Speaker 4: Look, the proposal is evolving as we know, and we
Speaker 4: have no idea kind of how it evolves further and
Speaker 4: where we end up. I think that, you know, I'm
Speaker 4: hopeful that we see some changes in how the.
Speaker 3: Proposal addresses operational risk.
Speaker 4: There were certainly some heavy weightings as it relates to
Speaker 4: equity exposures, they were certainly heaving waitings as it relates
Speaker 4: to credit, and hopefully those things continue to evolve in
Speaker 4: a way that is more thoughtful and more favorable to
Speaker 4: the industry, supporting the stability of the broader markets.
Speaker 2: Do you think they will be more lax in those
Speaker 2: fronts by the end of it?
Speaker 3: I hope so.
Speaker 2: Mark, Well, we thank you very much for your time.
Speaker 2: That is Mark Mason, the CFO of City Group, of course,
Speaker 2: speaking at.
Speaker 1: The bank's Services Investor Day
Speaker 2: Speaking a little more about that crown jewel inside of
Speaker 2: City Group.