Citigroup Targets Are Easy to Question

(Bloomberg Opinion) -- Citigroup Inc. executives appear optimistic about the momentum they see across the firm’s businesses, from branded credit cards to M&A and treasury services. Whether the modest revenue expansion they expect for this year will enable the U.S. bank to get closer to its financial targets is another question.

The bank's new CFO, 
Mark Mason, presented his first set of earnings on Monday, and the numbers were better than analysts expected. A lower tax rate and a surprise jump in bond trading were partly behind the beat. Still, the firm remains distant from hitting its medium-term objectives for efficiency and profitability, and the trajectory for both is unclear.

Citigroup Targets Are Easy to Question

Across the firm, Mason said he expects some revenue growth, while expenses should remain “flattish” for 2019. Chief Executive Officer Michael Corbat pointed out that if growth rates were to slow, the bank can manage costs to protect the bottom line. But asked by analysts where this leaves the bank’s guidance on efficiency, the response wasn’t entirely straightforward. 

Mason said Citigroup’s “low 50’s” efficiency goal is achievable (the bank targets 53 percent for 2020) and it will pull whatever levers necessary to get there. Corbat, on the other hand, said he couldn’t commit to efficiency at all costs. If the choice was making a critical investment versus hitting efficiency targets, he said, “our shareholders have been very clear certainly to me and to Mark that they would want us to make that investment.”

A decline in expenses helped drive an improvement in the efficiency ratio to 57 percent in the first quarter from 58 percent at the end of 2018, while its measure of return on equity inched up to 11.9 percent. That’s still a ways off from the bank’s 13.5 percent target.

Mason said he expects revenue growth in the consumer businesses in the U.S. and Asia, while the expansion in Mexico will remain muted. The bank will need to keep extracting more business from existing clients and win new customers not least because it won’t be able to count on its securities business. (Investment banking revenue will probably fall year on year in the second quarter,  Mason said; he doesn't expect to see the typical decline in trading revenue from quarter to quarter. Trading fell 5 percent in the first quarter from last year.)

Taking advantage of the cards customer base to cross-sell other consumer services and products hasn’t been straightforward. Frustration with the strategy was partly behind James Forese’s decision to retire from Citigroup, Bloomberg News reported last week. Forese, who was named Citigroup president in 2013 and led the institutional client group, is one of eight of Citigroup’s 14 executive officers to have left or announced they’re leaving as of February 2018. Departees include John Gerspach, the longtime CFO; Bill Mills and Jim Cowles, who ran the bank’s North America and its Europe, Middle East and Africa businesses, respectively.

Corbat sounded an upbeat note on the recent management changes. Change at the top is healthy and gives the firm the opportunity to do things differently, he said. That a number of the executives who set the firm’s targets won’t be around to deliver them is yet another reason to question them.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

©2019 Bloomberg L.P.

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