Citigroup woos skeptical investors with new profitability targets

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A Citibank sign is seen outside a bank in New York March 4, 2009. REUTERS/Lucas Jackson

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NEW YORK, March 2 (Reuters) – Citigroup Inc (CN) is targeting a medium-term return on equity of 11% to 12%, improving on its recent performance, in new profitability targets set on Wednesday at its first investor day in five years.

Analysts were looking for a mid-term return on tangible equity (RoTCE) target of 12%, along with details on how to achieve it. The metric measures how much a bank uses shareholders’ money to generate profits.

Before Citigroup can meet its medium-term profitability target, it must face a 5-6% increase in spending this year excluding the impact of divestments, and it must see revenue growth accelerate.

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The bank has spent more in recent quarters to address problems identified by regulators in its control systems and costs have also risen recently due to a battle for talent on Wall Street that prompted global banks to offer benefits such as higher salaries and bonuses.

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

Investor Day on March 2 comes just over a year after Jane Fraser, 54, became chief executive of the fourth-largest US bank by assets.

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

Citigroup said its spending efficiency ratio would drop to 63% from 60% in the near term, from 65% in 2021. In the medium term, that metric is expected to be below 60%, the bank added.

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

The bank, which has said its priority is to return capital, expects to pay dividends of nearly $1 billion in the first quarter of 2022. It is looking to achieve around 12% Common Equity Tier 1 ratio.

Share buybacks during the quarter will be in line with previous guidance.

Adding to Fraser’s challenge is the Ukraine crisis and the disruption caused by the pandemic. Read more

Citigroup said Monday that its total exposure to Russia was nearly $10 billion, significantly more than previously reported. Read more

On the same day, Fraser had to switch the Investor Day event from being held in person to being held virtually after its two top executives tested positive for COVID-19. Read more

Citigroup said its medium-term outlook calls for revenue growth to accelerate and increase to a compound annual rate of 4-5%, led by gains in its business payments business, as well as wealth management. world.

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

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

Since Fraser became CEO, Citi shares had fallen 11% through Tuesday while the S&P 500 Bank Stock Index (.SPXBK) gained 7%.

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Reporting by David Henry in New York and Noor Zainab Hussain and Niket Nishant in Bangalore; Editing by Sriraj Kalluvila

Our standards: The Thomson Reuters Trust Principles.

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