Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Crunch time is fast approaching for Jane Fraser. Since taking the helm at Citigroup in March 2021, the 56-year-old has cut jobs and ditched retail banking operations in 14 overseas markets. In September, she announced an even bigger shake-up. The restructuring is aimed at stripping away the layers of bureaucracy that have made the US’s third-largest bank by deposits so unwieldy.
Having unveiled the bank’s biggest overhaul in two decades, Fraser in 2024 will need to show her plans impress her investors. Citi offers attractive value relative to its peers. Currently, Citi’s price to tangible book value ratio — at just 0.6 times — is the lowest among the largest US banks.
This reflects Citi’s dismal return on tangible common equity. The closely watched number came in at 7.7 per cent in the most recent quarter. That is well below the 22 per cent and 15.5 per cent reported by JPMorgan and Bank of America, respectively. Nevertheless, Citi has work to do to hit its own medium-term target of achieving an 11 to 12 per cent ROTE by 2027.
Citi’s US retail banking business will play a critical role in achieving that goal. Its relatively higher funding costs could explain as much as half of the gap between last year’s core ROTE and those of its closest peers, thinks Autonomous Research. Unfortunately, US consumer retail banking is fiercely competitive and Citi’s offerings do not stand out from rivals.
Meanwhile, the cost to remediate consent orders imposed by regulators in 2020, requiring the bank to improve its risk management and internal controls, will keep expenses high. Its efficiency ratio, a measure of expenses to revenue, was 67 per cent in the third quarter, above that of both BofA and JPMorgan.
Any rebound for Citi next year starts in its services unit, offering working capital and payment facilities to its multinational corporate clients. Revenues rose 18 per cent to nearly $14bn in the first nine months of this year. Compare that with the declines recorded for markets and investment banking. Providing more details on this less promoted unit would improve investor perception of Citi’s prospects.
Read the full article here