Citi’s Fraser Tries to Calm Jitters Over Regulators and Returns

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(Bloomberg) — Citigroup Inc. Chief Executive Officer Jane Fraser started the day boasting that all five of the bank’s key businesses had seen revenue climb in the third quarter. Hours later, she found herself forced to deny that the bank has a secret regulatory straitjacket.

It took repeated questions by analysts for Fraser to be clear that US regulators have not placed the bank under an asset cap, one of the most-feared and prohibitive penalties that regulators can place on US lenders.

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“Let me be crystal clear: we do not have an asset cap,” Fraser said. “And we’re not expecting any.”

By then, the bank’s stock had fallen by more than 5%.

Even though her ensuing comments helped the stock pare those losses, they ultimately proved to be little relief for investors in Citigroup, which was the worst performer among peers in a major US bank index at midday on Tuesday. 

While the bank’s third-quarter revenue topped expectations, executives faced criticism from analysts as return on tangible common equity — a key measure of profitability that Fraser has vowed to improve — slipped to 7%. A rise in souring credit-card loans has weighed on profits for much of this year.

“Hard to get too excited about a 7% ROTCE,” Glenn Schorr, an analyst at Evercore ISI, said in a note to clients. At rival Bank of America Corp., which also reported third-quarter results on Tuesday, that metric was 12.8%.

While Chief Financial Officer Mark Mason expressed his frustration that the stock wasn’t reacting more favorably to the results, Fraser said she was determined to put the company on more solid footing in the years to come.

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“We knew 2024 would be a tough year,” Fraser said. “While we are not yet where we want to be, the impact of the changes we’re making is clearly evident in our momentum and our improving performance.”

Most-Feared Penalty

The questions about a potential asset cap — which can limit what acquisitions a bank can do or how much it can grow its balance sheet — came as US watchdogs recently announced that Canada’s Toronto-Dominion Bank will face a limit on its US retail banking assets after it pleaded guilty to failing to prevent money laundering by drug cartels and other criminals. 

Wells Fargo & Co. has been under an asset cap since early 2018 that restricted the bank to its size at the end of 2017. The punishment has lingered longer than Wells Fargo executives and Fed officials expected, costing the firm billions and making an asset cap the most feared punishment in banking.

Regulators have repeatedly penalized Citigroup recent years for shortcomings in its risk and controls. In July, for instance, the Federal Reserve said the bank had made insufficient progress toward resolving a pair of consent orders it had received in 2020 and slapped it with $136 million in penalties. 

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Those fines underscored that Fraser has a ways to go with her turnaround of the fourth-largest US bank by assets. 

Mason said the company would increase its investment in the processes it has for regulatory reporting in the coming months. Citigroup produces more than 11,000 regulator reports and it has work to do to ensure it’s properly capturing data that’s reflected in those reports, he said. 

“We’ve increased investments in the areas where we were behind, particularly in the data related to our regulatory processes and regulatory reporting,” Fraser said. “We’re increasing investment behind it, and we continue to make progress — material progress — on the orders in place.”

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