Citi's New Look
Recent News
This past Tuesday, Citibank held a special investor day highlighting their solution for a complete rebrand transformation, a focus on their fifth line of business, “Citi Services”. Fraser emphasized the bank’s commitment to turning around the bank, stating that Citi was “no longer the financial supermarket of the past” and that it was shifting gears to a more focused strategy.
Past Troubles
At its peak, Citi boasted a market capitalization of 1.06 trillion dollars as one of the preeminent leaders in global consumer and investment banking. However, the 2008 crisis sent the bank into a spiral due to its high exposure to subprime mortgages, plummeting its stock 95% and starting the bank on a path of continual troubles.
Since 2008, Citibank has paid over $12.2B dollars in various lawsuits regarding regulatory nonconformance, investment misrepresentation, and operating mistakes. They have also struggled with archaic data systems, decades old internal technology, and continual compliance oversights resulting in regulators continually urging action. Fraser noted these weaknesses and expressed the bank’s commitment to turning them around.
Jane’s Cuts
Since Jane Fraser entered the role of CEO in March 2021, she has had a focus on transforming the bank, using one of her first actions to divest over-bloated retail outposts in several foreign countries which had been causing a drag on the group ROE. The bank also has cut two of its businesses (global distressed-debt and municipals trading) to increase return to RWA as well as laid off over 13,000 employees in target of reducing its workforce by 20,000 before 2026. CFO Mark Mason also revealed during Citi’s investor day their plan to reduce expenses by $2 billion dollars over the next two years through further organization simplification. These are all a part of management’s plan to shake off old era dirt and start anew with a retargeted focus on the Services business.
What is Services?
So what is Citi Services anyway? Citi Services helps international institutions move their money across the world and is comprised of multiple segments. Liquidity Management helps companies open bank accounts around the globe, collect from customers, and pay workers. Trade Finance helps businesses get credit in different countries and establish supply chains across borders. Securities Services connects investors, intermediaries, and issuers globally as well as holds and tracks investment managers’ asset holdings.
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As a business, they support 85% of the S&P 500 and move over $5 trillion dollars a day. 27% of Citi’s revenue comes from the business and was their fastest growing segment in the past year with a CAGR of 20%. Citi has strategically placed itself in 180+ international markets to play into its strength here and is the reason why they call themselves, “the most global bank”.
Fraser has been clarifying the banks direction and cutting the fat. With other businesses such as wealth management and commercial banking declining, Citi has decided to refocus their efforts and play to their strengths in order to pursue better ROI opportunities and reposition for the future.
Future
With Citi’s newfound focus, a long-term transformation of the bank into a much more dominante competitor can be seen. Citi will have risks by putting a majority of their eggs in one basket; With growing geopolitical tension and governments moving towards economic isolation, the strategy shift could leave them stuck between a rock and a hard place. However, investors responded positively to Citi’s presentation, driving the stock up 1.4% in confidence of Citi’s new outlook for the future.
6/19/24 News Update