Citi Traders Disappoint as CEO Signals Bank’s Reorganization
(Bloomberg) -- Citigroup Inc. offered investors a stark reminder of the unpredictability of trading -- posting a steeper-than-expected drop in revenue from those operations -- just as new Chief Executive Officer Jane Fraser embarks on a reorganization to showcase steadier units.
Revenue from handling fixed-income products tumbled 20% in the fourth quarter from a year earlier, worse than analysts’ estimated, and slipped 3% in equities despite predictions it would rise by that amount. The surprises came as Fraser laid out changes to the bank’s structure, giving investors a clearer view of divisions handling money for the wealthy and corporations -- where the firm aims to grow.
The reorganization reveals Fraser’s vision for the third-largest U.S. bank after months of selling pieces of the company around the world. It combines U.S. consumer and global wealth arms into one division, breaks its institutional operations into three main components and creates a new holding unit -- dubbed “legacy franchises” -- for assets and operations tagged for disposal. Analysts had been calling for some of the changes, arguing it was too hard to gauge progress within some parts of the company.
“This can help make Citi easier for our investors to understand,” Chief Executive Officer Jane Fraser told investors on a conference call. “You’ll be able to see and assess more simply the core businesses that make up Citi going forward.”
Revenue rose 1% in the quarter, just shy of analysts’ expectations. Net income amounted to $3.17 billion -- falling short of analysts’ estimates compiled by Bloomberg.
Citigroup pared earlier losses to trade down 1.2% at $66.97 at 2:55 p.m. in New York.
Costs in the quarter were elevated by one-time charges to wind down retail operations in South Korea and exit those businesses elsewhere across Asia. The bank also faced a spike in compensation costs, which it attributed to a new wave of hiring as well as higher incentive compensation payments in the final three months of the year.
“Hiring is competitive across the business,” Chief Financial Officer Mark Mason told journalists on a separate conference call on Friday. “We’ve seen some pressure in what one has to pay in order to attract talent.”
As part of its efforts to ensure executives are focused on improving shareholder returns, Citigroup introduced sweeping changes to its compensation structure, Fraser said. The lender placed more senior leaders on performance share unit plans, or PSUs, and it will more carefully consider shareholder returns in employees’ performance evaluations, she said.
“I know we need to make the bank more shareholder aligned and friendly,” Fraser said. “Our shareholders matter to us and we want to get our valuation up to one that we think realizes its full potential.”
One bright spot was investment banking, where revenue surged 43% to $1.8 billion -- with the haul from advisory more than doubling. Dealmaking has been booming across Wall Street as corporations reshape their businesses amid the pandemic.
Fraser, who took over in March, has been paring far-flung consumer operations and scrutinizing the bank’s presence in markets around the world. She’s focusing on ensuring its businesses work with each other -- with wealth units, for example, persuading entrepreneurs to bring their corporate accounts to the bank, or their deals to its investment bankers. The idea is to create a leaner company that can chart steady growth.
Citigroup announced one of its most dramatic moves this week: a plan to exit a massive consumer-banking network in Mexico. That underscored the firm’s shift away from regional retail units. Late Thursday, it said it agreed to sell retail operations in Indonesia, Malaysia, Thailand and Vietnam to United Overseas Bank Ltd. for about S$4.9 billion ($3.6 billion).
As part of the reorganization, New York-based Citigroup will merge remaining consumer operations into a personal-banking and wealth-management division, according to a separate presentation the bank posted on Friday. That will include both the U.S. retail banking and credit-card divisions, as well as private banking and wealth management arms.
The institutional clients group will be broken into three areas: a trading division, an investment and corporate-banking group and services, which includes the sprawling treasury and trade solutions business as well as securities services.
Legacy franchises will house the Asia consumer divisions already up for sale as well as the consumer, small-business and middle-market banking businesses Citigroup intends to exit in Mexico.
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