WEBVTT - Citigroup CFO Mark Mason Talks Bank Services Investor Day

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<v Speaker 1>Alongside.

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<v Speaker 2>Now with me, I have Citygroup Chief Financial Officer, Mark Mason.

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<v Speaker 2>It is the Bank Services Investor Day, and your CEO

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<v Speaker 2>Jane Fraser, made some news earlier saying that we are

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<v Speaker 2>no longer the financial supermarket of the past.

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<v Speaker 1>Correct, So Mark, what a City Group in the future.

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<v Speaker 3>Well, first of.

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<v Speaker 4>All, thank you for being here today. Today was a

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<v Speaker 4>very exciting day for us. We had an opportunity to

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<v Speaker 4>update over one hundred and twenty investors on the progress

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<v Speaker 4>that we've made since our Investor Day, but importantly to

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<v Speaker 4>do a deep dive on our services businesses. And to

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<v Speaker 4>your question, we want to be the pre eminent bank

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<v Speaker 4>for institutions with global needs as well as a leader

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<v Speaker 4>in global wealth and a winner in the US market

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<v Speaker 4>for our personal banking business. That's what we are today,

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<v Speaker 4>and a lot of what we talked about today again

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<v Speaker 4>was really highlighting the crown jewel of our firm, the

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<v Speaker 4>gateway to the rest of our offering for large institutional

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<v Speaker 4>client but also for middle market clients as well as

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<v Speaker 4>for investors and asset managers in both that treasury and

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<v Speaker 4>trade solutions business and our security services business.

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<v Speaker 2>It's interesting because to your point, even though security services

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<v Speaker 2>has been a crown jewel, accounting for roughly half the

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<v Speaker 2>profit recently of City Group's own entire businesses. It's been

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<v Speaker 2>hard to explain to investors exactly what it is what

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<v Speaker 2>it does.

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<v Speaker 1>Do you think City Group.

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<v Speaker 2>Stock would be trading higher if people understood the business

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<v Speaker 2>prospects for it.

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<v Speaker 4>I think the services businesses which are comprised of that

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<v Speaker 4>Treasury and Trade Solutions and the security services business contribute

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<v Speaker 4>a significant amount of value to this franchise, and I

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<v Speaker 4>hope that after today investors will realize exactly how much

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<v Speaker 4>value that is and how much upside there is to

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<v Speaker 4>that franchise, and we start to see it in the

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<v Speaker 4>stock price.

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<v Speaker 1>Today.

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<v Speaker 2>You are seeing it in the stock price if you

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<v Speaker 2>think about some of the things that have been holding

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<v Speaker 2>City Group behind. Mike Mayo of Wells Fargo big proponent

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<v Speaker 2>of Citycrep stock, but even he has been kind of

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<v Speaker 2>critical here of the wealth business, calling the returns pitiously low.

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<v Speaker 2>The question is do you have a timeline for when

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<v Speaker 2>investors can expect returns in that business and how soon

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<v Speaker 2>and how robust those returns can be.

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<v Speaker 4>You know, one of the things we talked about today

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<v Speaker 4>is timeline. We talked about the medium term twenty twenty six,

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<v Speaker 4>we talked about top line growth of four to five percent,

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<v Speaker 4>and we talked about the services businesses being a significant

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<v Speaker 4>contributor to that, both in the top line and our

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<v Speaker 4>services business is a twenty percent return on tangible common equity.

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<v Speaker 4>In the wealth space, we brought in new management there

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<v Speaker 4>and we're keenly focused on how we grow the top

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<v Speaker 4>line and how we improve margins and how we improve

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<v Speaker 4>returns there. That's going to involve everything from right sizing

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<v Speaker 4>the cost structure, to increasing the banker productivity, to driving

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<v Speaker 4>new net investment assets across that business. And we do

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<v Speaker 4>believe that inside of this window between now and twenty

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<v Speaker 4>twenty six, you'll start to see that value play through

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<v Speaker 4>our financials.

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<v Speaker 2>Now, it's interesting you mentioned new talent over at the

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<v Speaker 2>wealth business also at the investment banking businesses. When you

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<v Speaker 2>look across City Group's businesses today, are you seeing yourselves

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<v Speaker 2>bring in more and more external talent really scouring Wall

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<v Speaker 2>Street here to pick out the best out of your rivals.

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<v Speaker 4>Look, the good news is that City has been a

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<v Speaker 4>talent magnet. And when you look across Chain's leadership team,

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<v Speaker 4>we brought in Andy sig. We brought in viz Ragabond.

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<v Speaker 4>We recently hired Tim Ryan, so we brought in some

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<v Speaker 4>of the best talent on the street to bring both

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<v Speaker 4>operating chops, but also a different perspective to the institution

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<v Speaker 4>that we have into the execution of our strategy. These

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<v Speaker 4>are real operators who understand these parts of the franchise

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<v Speaker 4>and are going to bring that expertise to bear and

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<v Speaker 4>help drive that value.

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<v Speaker 2>You know, a lot of your recent communication to investors

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<v Speaker 2>kind of showed that a lot of this cost cutting

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<v Speaker 2>has been executed on already.

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<v Speaker 1>Does it give you wiggle.

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<v Speaker 2>Room now to lean in and spend in a few places,

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<v Speaker 2>to hire a little more in certain areas.

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<v Speaker 3>You know, Look, this is a multi year journey.

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<v Speaker 4>As you know, we're going through a significant transformation and

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<v Speaker 4>overhaul of our infrastructure. We're addressing the consent order remediations.

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<v Speaker 4>While we're doing that, it's not going to happen overnight.

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<v Speaker 4>We still have considerable amount of investment to make. We

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<v Speaker 4>have been talking about bending that expense curve. I have

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<v Speaker 4>given expense guidance that reflect some of the savings we

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<v Speaker 4>expect to get from the investments that we've been making

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<v Speaker 4>and speaking of investments, to your point, in order to

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<v Speaker 4>grow these parts of the franchise, they will require continued investment,

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<v Speaker 4>and as we realize savings, some of that will be

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<v Speaker 4>available for us to fund those investments to drive that

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<v Speaker 4>improved performance.

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<v Speaker 2>Speaking of new hires and speaking of performance, you said

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<v Speaker 2>today as well that the investment banking division in this

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<v Speaker 2>quarter you can see investment banking rising by fifty percent.

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<v Speaker 2>Of course, it's just been a matter of weeks since

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<v Speaker 2>a new hire from JP Morgan started to lead the

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<v Speaker 2>investment banking business. What does this mandate across the investment.

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<v Speaker 4>Bank well business brand new, But again you're talking about

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<v Speaker 4>an experienced season banker that's joined our franchise, and so

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<v Speaker 4>as you would imagine, he's coming in and he's getting

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<v Speaker 4>up to speed. He has a great appreciation for the

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<v Speaker 4>unique characteristics that city brings to banking, the globality of

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<v Speaker 4>the franchise, the breath of the clients that we serve.

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<v Speaker 4>But he's going to have to spend some time really

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<v Speaker 4>understanding where some of our weak points are, where some

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<v Speaker 4>of our advantages exist. He's going to quickly see that

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<v Speaker 4>we have invested in areas like health, in tech, and

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<v Speaker 4>that those parts of the franchise are well positioned to

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<v Speaker 4>capture the upside as the wilet rebounds. But I think

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<v Speaker 4>BUS is going to be keenly focused on how do

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<v Speaker 4>we get greater productivity, how do we gain more share

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<v Speaker 4>and how do we serve.

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<v Speaker 3>Our clients optimally.

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<v Speaker 4>The last point that I'll make, because this is unique

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<v Speaker 4>to I think City, is how do we bring the

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<v Speaker 4>breath of the franchise to bear for these clients. So

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<v Speaker 4>that's not just M and A and ECM and DCM

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<v Speaker 4>and the IPO activity, but how do we bring the

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<v Speaker 4>corporate activity as well? How do we bring the TTS

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<v Speaker 4>offering to bear for these clients?

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<v Speaker 3>How do we access the middle market clients.

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<v Speaker 4>I think this is going to bring some perspective on

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<v Speaker 4>broader client coverage and that's how you unleash the value

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<v Speaker 4>and the differentiating characteristics of City.

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<v Speaker 2>Now, one big question that remains in the investment banking

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<v Speaker 2>universe City Group massive debt underwriter.

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<v Speaker 1>Of course, how do you think about.

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<v Speaker 2>The competition you're seeing in the private credit landscape. Are

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<v Speaker 2>they friends, partners or enemies?

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<v Speaker 4>Yes, the answer is yes, right, I mean, at the

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<v Speaker 4>end of the day, it's a growing space, it's a

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<v Speaker 4>space that's hard to avoid. It's one that we're obviously

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<v Speaker 4>looking at what's the best way for us to play in.

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<v Speaker 4>I think part of that is going to be partnering

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<v Speaker 4>with those that have the prospect for being broader clients

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<v Speaker 4>with us, and part of it will be competing in

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<v Speaker 4>some aspects as well. But we're going to be smart

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<v Speaker 4>about it, We're going to be deliberate about it, and

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<v Speaker 4>we're going to ensure that whatever we're doing is consistent

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<v Speaker 4>with the broader strategy.

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<v Speaker 3>That we've said.

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<v Speaker 2>I also want to be cognizant that City Group still

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<v Speaker 2>has its own dealmaking on the table here. There's a

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<v Speaker 2>lot of questions about when you see that that fully

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<v Speaker 2>happen in Mexico for example, of course new leadership the

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<v Speaker 2>Globe is watching in Mexico as well. Does it change

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<v Speaker 2>your calculus on how you see an exit happening via

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<v Speaker 2>sale or IPO.

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<v Speaker 4>Look, the new leadership is an historic event, and so

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<v Speaker 4>we congratulate Claudio on actually being elected to president. We

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<v Speaker 4>think that's significant. It doesn't change our strategy, It doesn't

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<v Speaker 4>change our focus on the importance of the IPO. It

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<v Speaker 4>doesn't change our focus on the importance of the separation

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<v Speaker 4>which happens before the IPO, which we're keenly focused on

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<v Speaker 4>right now. We obviously, at the end of the day,

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<v Speaker 4>want to do what's in the best interest of the shareholders,

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<v Speaker 4>and we believe that getting the Mexico consumer franchise in

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<v Speaker 4>the hands of another player is in the best interests

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<v Speaker 4>of our shareholders, and we're focused on that.

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<v Speaker 2>Beyond the Mexican consumer, the US consumer, of course, is

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<v Speaker 2>the giant whale in the room. When people are thinking

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<v Speaker 2>about the US economy, investors are baking in where to

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<v Speaker 2>put their chips next.

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<v Speaker 1>How do you think about that from the perspective of city.

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<v Speaker 2>Group, given you're alluding earlier today to this higher for

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<v Speaker 2>longer rate environment and what that means.

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<v Speaker 1>For charge offs.

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<v Speaker 4>Look, I think that you know, we're all watching kind

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<v Speaker 4>of the impact of inflation and interest rates and what

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<v Speaker 4>that means for consumers. And we have seen the credit

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<v Speaker 4>environment normalized for consumers, particularly on the low end of.

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<v Speaker 3>The FICO score.

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<v Speaker 4>This case shaped type of normalization that's taking place, which

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<v Speaker 4>you have to keep in mind from a city perspective,

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<v Speaker 4>is we tend to play on the higher end of

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<v Speaker 4>that credit spectrum. So eighty five percent of our of

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<v Speaker 4>our card bases with consumers with Fyco scores of six

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<v Speaker 4>sixty or higher. Doesn't mean we don't watch it closely,

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<v Speaker 4>but it does mean that we ensure we've got appropriate

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<v Speaker 4>levels of reserves in place and that we're we're sticking

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<v Speaker 4>true to, if you will, our credit profile and risk appetite.

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<v Speaker 4>So we feel very well positioned. There will be continued normalization,

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<v Speaker 4>there will be continued increases in NCLs, but generally in

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<v Speaker 4>line with the expectations given where we've come from.

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<v Speaker 3>So to speak, do you have.

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<v Speaker 2>To change anything about the way you underwrite in the

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<v Speaker 2>future given the changing expectations around inflation and interest rates?

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<v Speaker 4>At this point, we're constantly looking at that. I think

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<v Speaker 4>we've got a very robust risk appetite. We constantly look

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<v Speaker 4>at that based on the environment that we're in. We

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<v Speaker 4>obviously run all types of stress tests and scenarios. We

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<v Speaker 4>do that not only for the existing book, but we

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<v Speaker 4>do that for how we profile the new book and

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<v Speaker 4>the clients that we want to onboard and acquire, and

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<v Speaker 4>again we feel very very good about that. We feel

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<v Speaker 4>good about our understanding of those demographics. The savings profiles

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<v Speaker 4>of our clients are spending habits, and so we feel

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<v Speaker 4>good about kind of where we're going with what.

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<v Speaker 1>About industry wide?

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<v Speaker 2>Even though you have kind of clamped down on risk

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<v Speaker 2>in City's own portfolio, you mentioned that you've kind of

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<v Speaker 2>gone upstream in terms of the people you do lend

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<v Speaker 2>to in terms of their FICO scores. What does it

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<v Speaker 2>mean for those that are more exposed to the lower

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<v Speaker 2>income consumer today, especially because corporation after corporation is starting

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<v Speaker 2>to mention those stresses in their earnings reports.

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<v Speaker 4>And otherwise, Look, I think there's still a fair amount

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<v Speaker 4>of uncertainty as to how this macro environment evolves, right,

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<v Speaker 4>so whether that the interest rates or how inflation kind

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<v Speaker 4>of stabilizes, and does that stabilize kind of fast enough

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<v Speaker 4>for us to see cuts.

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<v Speaker 3>In the near term are all unknowns.

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<v Speaker 4>But they're also factors that influence the pressure that consumers

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<v Speaker 4>are likely to see.

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<v Speaker 3>And so there's a fair amount of uncertainty there that.

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<v Speaker 4>People have to manage too. And again we're thoughtful about it.

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<v Speaker 4>I think we're managing to it very carefully.

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<v Speaker 2>Before I let you go as well, Mark, there was

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<v Speaker 2>a report today in the journal City Group is specific

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<v Speaker 2>here about concerns around your living will planning at City Group.

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<v Speaker 2>How do you address those concerns?

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<v Speaker 3>Yeah, you know, look, I saw the report.

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<v Speaker 4>I obviously can't comment on what our regulators haven't really

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<v Speaker 4>said yet or rumors that are out there.

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<v Speaker 3>What I can say is that.

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<v Speaker 4>As I mentioned earlier, we've been making significant investments across

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<v Speaker 4>the franchise, across regulatory reporting, across data and the thought

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<v Speaker 4>cross resolution and recovery planning. We're constantly looking at these processes.

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<v Speaker 4>We're looking at ways to enhance them. We're looking at

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<v Speaker 4>ways to improve our forecasting capability to ensure that our

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<v Speaker 4>playbooks are robust in case of a situation like that.

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<v Speaker 3>Importantly, we feel.

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<v Speaker 4>Very good about our capital, our liquidity. We've got a

0:11:19.640 --> 0:11:22.440
<v Speaker 4>very strong balance sheet. But these are areas we've been

0:11:22.480 --> 0:11:25.160
<v Speaker 4>investing in because we know the areas that frankly, the

0:11:25.240 --> 0:11:28.880
<v Speaker 4>industry likely needs to further enhance, and we certainly want

0:11:28.880 --> 0:11:30.199
<v Speaker 4>to enhance them for ourselves.

0:11:30.240 --> 0:11:34.679
<v Speaker 2>We're not far off also from expected new proposals.

0:11:34.080 --> 0:11:35.559
<v Speaker 1>Around the Basle three endgame.

0:11:36.679 --> 0:11:39.600
<v Speaker 2>Given there's been so much change and what's expected out

0:11:39.640 --> 0:11:41.960
<v Speaker 2>of those final rules, what do you think will be

0:11:41.960 --> 0:11:45.760
<v Speaker 2>the most different And are there certain businesses that City

0:11:45.800 --> 0:11:49.120
<v Speaker 2>Group may have to tone down on given the new rules,

0:11:49.200 --> 0:11:49.679
<v Speaker 2>that may not.

0:11:49.640 --> 0:11:50.400
<v Speaker 1>Be as profitable.

0:11:50.720 --> 0:11:50.920
<v Speaker 2>Yeah.

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<v Speaker 4>Look, the proposal is evolving as we know, and we

0:11:54.120 --> 0:11:56.959
<v Speaker 4>have no idea kind of how it evolves further and

0:11:57.120 --> 0:12:00.480
<v Speaker 4>where we end up. I think that, you know, I'm

0:12:00.520 --> 0:12:03.360
<v Speaker 4>hopeful that we see some changes in how the.

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<v Speaker 3>Proposal addresses operational risk.

0:12:07.240 --> 0:12:09.720
<v Speaker 4>There were certainly some heavy weightings as it relates to

0:12:09.760 --> 0:12:13.640
<v Speaker 4>equity exposures, they were certainly heaving waitings as it relates

0:12:13.679 --> 0:12:17.200
<v Speaker 4>to credit, and hopefully those things continue to evolve in

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<v Speaker 4>a way that is more thoughtful and more favorable to

0:12:21.160 --> 0:12:24.720
<v Speaker 4>the industry, supporting the stability of the broader markets.

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<v Speaker 2>Do you think they will be more lax in those

0:12:26.800 --> 0:12:28.240
<v Speaker 2>fronts by the end of it?

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<v Speaker 3>I hope so.

0:12:30.559 --> 0:12:32.480
<v Speaker 2>Mark, Well, we thank you very much for your time.

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<v Speaker 2>That is Mark Mason, the CFO of City Group, of course,

0:12:35.520 --> 0:12:36.200
<v Speaker 2>speaking at.

0:12:36.040 --> 0:12:38.360
<v Speaker 1>The bank's Services Investor Day

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<v Speaker 2>Speaking a little more about that crown jewel inside of

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<v Speaker 2>City Group.