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Mark Mason: Look, the plan -- the Resource Review Plan, as Jane mentioned, is what we're working through now with the regulators. That will be a process for demonstrating to them that we are spending and allocating the appropriate resources to accomplishing the commitments that we have. Appropriate resources can range from people to technology to enhancing our processes and ensuring better execution. If you think about what that will entail, it will entail areas where we are delayed or behind as we identify those areas, being able to tease out the root cause of any delay and ensure that we've got proper funding allocated to get it back on track. And that's me framing out how I think about what something like this might look like. And so, what we're saying is that, if we identify issues in the quarters to come that we haven't identified already, that's the process we're going to apply to those issues. And as you've heard us say repeatedly, we're going to spend whatever is necessary to then get those things back on track, and as we've done thus far this year, we're going to look for opportunities to absorb those headwinds. I hope that's clear.
Operator: The next question is from Matt O'Connor with Deutsche Bank. Your line is now open. Please go ahead.
Matt O'Connor: Hi. Apologies if I missed it in the opening remarks, but what drove the decline in credit card revenues from 1Q to 2Q? It looks like they were down about 6% in aggregate even though average loans went up, spending went up. What was the driver of that?
Mark Mason: Credit card revenues seasonality...
Jane Fraser: Yeah. Seasonality...
Mark Mason: Seasonality playing through there.
Jane Fraser: Sequentially.
Mark Mason: Yeah, sequentially. Yeah.
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Mark Mason: Seasonality playing through there.
Jane Fraser: Sequentially.
Mark Mason: Yeah, sequentially. Yeah.
Jane Fraser: I think if you look year-over-year, you'll be able to see a pretty common trend there. The consumer is slowing in some of the -- in the spend, as Mark had referred to Matt, but -- and a lot of the spending and the growth areas we are seeing and the underlying numbers is being driven by the affluent customer.
Mark Mason: Yeah, I think there's also the dynamic on the CRS of the reward -- across the portfolio of rewards playing through from one quarter to the other. So, the combination of those things are playing through the revenue line there.
Jane Fraser: But nothing that's particularly worrying us, Matt.
Matt O'Connor: Okay. And then, just separately on -- the very early kind of part of the prepared remarks, you talked about the dividends being capped in terms of what can be upstreamed from the bank to the holding company because of the OCC thing that came out this week. Like, for all intents and purposes, like does that impact how you run the company or subsidiary or impact liquidity or capital? I understood the comment, no change to dividends or buybacks at the holding company, but is there any impact from that, that we would notice on the outside? Thank you.
Jane Fraser: Look, the -- let's be clear. This action does not impact our ability to return capital to our shareholders. The dividends that are referenced are just intercompany payments from CBNA to the parents. So, first of all, don't confuse what a dividend is here. We will -- it's not going to impact how we run the company, the subsidiary, the capital or the liquidity at all, and the dividends are not capped.
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Mark Mason: Yeah. I think the -- Jane, that's right. And I think let's not lose sight of the purpose of the orders that are there. And the purpose of the orders that are there are to ensure that we're funding and allocating the effort appropriately, right? So, the regulators want essentially the same thing we want, right, is for us to get this done, right? And so, that is the primary objective. The reference to the dividending from out of CBNA up to the parent is certainly referenced there between now and establishing that Resource Review Plan, but as Jane mentioned that does not constrain the parent from doing the things that it will need to do. And as opposed to -- it's not a cap. What it is, is that anything above the debt service of the parent or the preferred dividends and other non-discretionary obligations would require a non-objection from the OCC.
Jane Fraser: Until the resource plan is agreed...
Mark Mason: Until the resource plan...
Jane Fraser: And as you'll have seen the resource plan needs to be submitted within 30 days. And as I indicated, we're working on that one and not anticipating that to be a problem.
Operator: The next question is from Saul Martinez with HSBC. Your line is now open. Please go ahead.
Saul Martinez: Hi, good afternoon. Thanks for taking my question. Just -- I guess I just want to follow-up on the latter question. I just want to be very clear. So, the -- what you're saying is that the requirement that CBNA receive a non-objection to before dividending upstream to the parent, that does not impact how you think about your capital flexibility, how you think about -- it doesn't restrict you in any way and shouldn't impact, for example, your ability to benefit from -- for example, a Basel endgame rule that is softened or some of the benefits, Mark, that you talked about in terms of simplification. So, you don't see this impacting your ongoing level of capital flexibility and your ability to repurchase stock going forward if some of these things actually do play out?
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Mark Mason: No. No, I don't.
Saul Martinez: Okay. That's fair enough. That's clear as it can be. Good.
Mark Mason: Thank you.
Saul Martinez: Second question on, I just want to follow-up on USPB. I mean, I still -- I get the point that you're seeing normalization in losses in cards, but even if I adjust for reserve builds, your RoTCE is still single-digit. I would think even at these NCL levels, your cards business is pretty profitable. You're a scale player. I mean, you're above sort of pre-pandemic levels, but not -- I don't know if I -- it doesn't seem like it's that much higher by a dramatic amount. It would seem to imply that the retail bank is a huge drag on profitability even maybe even losing money, I don't know. But can you just talk about what you can do to sort of improve the retail bank profitability and just give any more color that you can in terms of the path to get to that high-teen RoTCE that you talked about?
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Jane Fraser: Yeah, let me let me kick-off there. And let's say, look, clearly, we're very focused on improving the returns in USPB to get us to the high-teens level over the medium term. And you've seen us generating healthy positive operating leverage this quarter. We've had a number of quarters of good revenue growth. And as Mark said, however, we're at the low point of the credit cycle. We knew this year we would see the pressure on returns from the elevated NCLs and some of the industry headwinds we've talked about. But as the NCL rates approach steady-state levels and the mitigating actions that all of us have been putting in place against the industry headwinds as those take hold, we expect the returns will improve and support the medium -- the firm-wide medium-term targets. In the retail bank, we're continuing to focus on growing share in our six core markets and we're doing that leveraging our physical and digital assets and it plays an important role in enabling the wealth continuum and the growth that we are looking at in our Wealth franchise. We are continuing to improve our operating efficiency, being very disciplined in expense management and managing carefully the branch and digital productivity of the retail bank network. But we're at the high point of the credit cycle, it's driving the low point for USPB, and as I said in my remarks, we're expecting to see those returns improve from here.
Operator: The next question is from Steven Chubak with Wolfe Research. Your line is now open. Please go ahead.
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Operator: The next question is from Steven Chubak with Wolfe Research. Your line is now open. Please go ahead.
Steven Chubak: Hi, good afternoon. So, Mark, I have a fairly technical question on DTA utilization and specifically the NOLs. The deduction is still fairly significant at $12 billion. It roughly equates to about 10% of your market cap. And the good news here, I suppose is that it should come back into capital over time, but we've seen very little utilization over the past two years despite the firm being profitable. And so, wanted to better understand is, what's constraining your ability to utilize those DTAs? And are there catalysts on the horizon that can actually help accelerate that utilization beyond organic earnings generation?
Mark Mason: Mason Yeah, thank you. So, I'm going to give you a very simple answer to a very complicated question. It really comes down to driving US income, right? And so, we are focused on not just all of the things that we've mentioned, but driving higher income in the US that allows for us to utilize the disallowed DTA. We saw some of that in the quarter, and we expect to see more of it as we move through the medium-term, but that is the major driver of that utilization. And...
Jane Fraser: And we've got our -- and we have many of our business heads very much focused around that opportunity as well. So, winning in the US is a very important leg, for example, of the strategy that this is refreshing. Similarly, we see opportunities in -- from the commercial bank, we see it in Wealth, we see it in obviously in US Personal Banking and in Services. So, we're very -- we're focused from a business strategy point of view on this not just from the financial side.
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Steven Chubak: Yeah, thank you both for that color. And maybe just a quick follow-up. Just on the retail services business, we are seeing some evidence that your competitors in this space have been more aggressive leading with price in an effort to win some new mandates. I was hoping you could just speak to what you're seeing across the competitor set and your appetite or willingness to potentially offer better economics in response to increased competition from some of your peers?
Jane Fraser: Well, I think you'll be delighted to hear that we're very focused on returns rather than just on revenues. So, when we enter into discussions with a partner who may be a new RFP for their portfolio or looking at new ones such as the one we just agreed with Dillard's, it's all about the returns and the profile of the business rather than the revenue side of things. And it's a shift probably from some of the ways in the past, but I'm very pleased with how disciplined the team is being around this and we're seeing the benefits of it.
Mark Mason: And that may be different from what you hear and see from other players in the space, but as Jane mentioned, we're keenly focused on ensuring that, yes, we have a good partnership, but that we're generating an appropriate return. That's part of achieving our medium-term targets. And as you know, since you brought up retail cards, I mean, when we think about how CECL works in the reserves you have to establish for these partnerships, we're establishing full lifetime reserves that's on the balance sheet where ultimately we end up splitting those through the partner sharing economics. So, it's another important consideration as we think about expanding and taking on these relationships and renegotiating partnerships to making sure that returns make good sense for us.
Jane Fraser: And Mark and I have no problem saying no to revenue that doesn't come at the right returns and being very disciplined around that.
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Operator: The next question is from Vivek Juneja with JPMorgan. Your line is now open. Please go ahead.
Vivek Juneja: Hi. Sorry, just a follow-up on this whole consent order stuff, Jane. What do you think this does in terms of timing? How much longer for you to sort of get this past you? Are you talking couple of years? Is it now longer by a year? Any sense of that? Any sense of helping us think through that?
Jane Fraser: Look, in terms of the consent order and the areas we've had delays, there are four areas to the consent order; it's risk management, it's data governance, it's around compliance, and it's around control. As we've said, we were falling behind in certain areas related to data and we've been investing to address the areas that we were behind. We also saw an increase in the scope related to regulatory reporting. So, we added some more bodies of work there and we are well underway. So, we are not expecting this to extend on the original expectations that we have on when we will complete the body of work for the consent order. We have a target state for the different areas of it. We have the plan to achieve those target states. We'll make the investments necessary to ensure that we do so. We'll try and get this done as quickly, but as robustly as possible. And we're doing this by making strategic fixes and investments rather than what I would call the old city way, which is a series of band-aids that remediate, but don't actually fix the underlying issue. And that way, we are delivering for our shareholders as well as our regulators and our clients because we're putting in strategic solutions that will benefit all, but I'm not expecting this to change the timeframes.
Vivek Juneja: Thank you.
Operator: The final question comes from the line of Mike Mayo with Wells Fargo. Your line is now open. Please go ahead.
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Operator: The final question comes from the line of Mike Mayo with Wells Fargo. Your line is now open. Please go ahead.
Mike Mayo: Hi. Just two clarifications. So, this is a very high-profile amendment to the consent order. And I think what I hear you saying, but if you can confirm, your risk compliance and controls are getting passing grades. It's really the data. And as it relates to the data, you're talking about, 11,000 regulatory reports, some of which have 750,000 lines of data. Is that really the scope of what you need to fix? Because people see this externally and say, hey, you're failing in terms of overall controls and resiliency, but I think I hear you saying it's really more about just the data and the regulatory reporting, which is important, but more of a slice of a broader picture. Is that correct?
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Jane Fraser: Yeah. Mike, maybe I just -- you're asking a great and it's an important question. So maybe I try and explain what we -- the data elements because it's an area that Mark and I have pointed to. So, first of all, we use data all over the firm. We use it to deliver 72 million customer statements every month. Our corporate clients, that you heard about at our Service Investor Day access account data real-time across multiple countries on CitiDirect, and we're moving $5 trillion roughly per day for those clients around the world. We trade billions of dollars in a millisecond on our trading platforms. We can see our liquidity positions real-time around the world. This can only be done if you've got pretty pristine data and highly automated ecosystems. So -- but what is the transformation doing? What it is doing is simplifying how data moves through the firm and it's about upgrading the management and governance over those flows. And we -- as I've said, we're doing a strategic overhaul of large parts of our infrastructure. So, what are we doing? We're making sure we're capturing data accurately using smart tools and automation. We will often talk about this smart system, make sure there's no errors when we book a trade. We've seen our error rate down 85% as a result of it. We're housing our upstream data in two standardized repositories. They're the golden sources, Olympus and Data Hub, which you've heard me talk about a few times. And they're a golden source now for all of the downstream data use, populating the thousands of regulatory reports Mark talked about and other areas. And what a single repository means is that the data models, the data quality rules, the controls you put in place to govern and manage that data, they all sit in one place rather than being distributed all over the firm as they have been historically. Mark has been investing in building a standardized reporting infrastructure. You've heard us talk about a single full-suite reporting ledger versus the six or so reporting ledgers that
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infrastructure. You've heard us talk about a single full-suite reporting ledger versus the six or so reporting ledgers that we've had in the past. And we're delivering all of this through consolidated systems, through the automation and streamlining of data flows. So, instead of being in multiple pipes, the flows go through single pipes. So, it's a -- sorry to get a bit plumber on you for a moment, but I think it's important to understand what it is, because it's a lot of work. It's a strategic overhaul. It's not a series of tactical fixes. Where we're behind, as we do the work on data, we identify specific issues we need to fix as we execute the plan that we have in place. There's some more areas to address and we knew back when we did the plan. So, we've -- and we've also accelerated the work on improving the accuracy of our regulatory reports and we increased the scope of this work as well. It's more comprehensive than originally planned. So, what we're doing? We're adding resources and data experts. We're learning from best practices. And we're using some great AI and other data tools that are helping to identify anomalies in data and data flows much quickly. We're also to the -- to some of the culture side, we're learning from pilots how do we accelerate broader deployment at scale across the firm in a consistent enterprise-wide manner. So, all of these things in the data side are going to enable us to leapfrog competitors, more revenue opportunities, better client service, fewer buffers, drive more efficiencies, and hope at the end of -- the end goal here is, it becomes a competitive advantage for the firm. That is the data plan. Clearly, there's a very important element of it related to the consent orders. We're behind in a few areas. We're investing. We've already begun that investment, as Mark and I have talked about, to get it done, we'll get it done.
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Mark Mason: The only thing I'll add...
Mike Mayo: Real short follow-up...
Mark Mason: Sorry. What was that, Mike?
Mike Mayo: Yeah, just to say -- real short follow-up to that. So you're doing all this great stuff, but you still fell short. Just in, like, one sentence, despite doing all this great stuff that you described, the regulators still said you didn't get it done. Why after doing all that, didn't you get that it done in the eyes of the regulators and why won't be fixed now? Just like a one-sentence explanation for that if you have it?
Jane Fraser: I always said that a transformation of this magnitude over multiple years would not be linear. We have many steps forward. We have setbacks, we adjust, we learn from them, we move forward, and we get back on track.
Mark Mason: And Mike, if I could just put one number into context, because you played back the 11,000, which was a number of global regulatory reports across the landscape here. There are probably 15 to 30 that are core US reports that are pivotal to our US regulators. And a lot of what we're discussing here is about ensuring that we're prioritizing the data that impacts those 15 to 30 reports as we work through this.
Operator: There are no further questions. I'll now turn the call over to Jenn Landis for closing remarks.
Jenn Landis: Thank you all for joining us. Please let us know if you have any follow-up questions. Thank you.
Operator: This concludes Citi's second quarter 2024 earnings call. You may now disconnect.
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Operator: Hello and welcome to Citi's First Quarter 2024 Earnings Call. Today's call will be hosted by Jenn Landis, Head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ms. Landis, you may begin.
Jennifer Landis : Thank you, operator. Good morning and thank you all for joining our First Quarter 2024 Earnings Call. I am joined today by our Chief Executive Officer, Jane Fraser and our Chief Financial Officer, Mark Mason. I'd like to remind you that today's presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials, as well as in our SEC filings. And with that, I'll turn it over to Jane.
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Jane Fraser : Thank you, Jenn, and good morning to everyone. Today, I'm going to touch on the macroeconomic environment before I update you on the progress we're making, and then I'll discuss the quarter. While global economic performance was surprisingly [desynchronized] (ph) last year, the overall story has been consistent of late, one of economic resiliency supported by tight labor markets and the consumer. Growth this year looks poised to slow in many markets, and conditions are generally disinflationary. We're already seeing some Central Banks in the emerging markets starting to cut rates. In the U.S., a soft landing is viewed as increasingly, likely. But we continue to see a tale of two Europe's, with Germany hurt by the weak demand for goods, while southern European countries such as Spain and Greece benefit from stronger demand in services. In Asia, Japan is joining in the [areas of] (ph) bright spot, and China's economy has gained some more traction, although its property market remains a concern. Amidst all these dynamics, we continue to focus on executing against our strategy and delivering the best of Citi to all our stakeholders. I said 2024 will be a pivotal year for us, as we put our business and organizational simplification largely behind us and we focus on two main priorities. The transformation and the performance of our businesses and the firm. Last month marked the end to the organizational simplification that we announced in September. The result is a cleaner, simpler management structure that fully aligns to and facilitates our strategy. We are now more client-centric. We're already seeing faster decision making and a nimbler organization at work. We have clear lines of accountability, starting with my management team. Fewer layers, increased spans of control and frankly much less bureaucracy and needless complexity. It will all help us run the company more efficiently, will enhance our clients' experience and improve our agility and ability to execute. And while reducing expenses wasn't
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will enhance our clients' experience and improve our agility and ability to execute. And while reducing expenses wasn't the primary driver of the program, more roles were ultimately impacted than the 5,000 that we discussed in January. We also took a number of other steps to sharpen our business focus and improve returns by right-placing businesses to better capture synergies, exiting certain businesses in markets that just didn't fit with our strategy, and right-sizing the workforce in wealth. As a result of all these combined steps, which include the simplification, we are eliminating approximately 7,000 positions, which will generate $1.5 billion of annualized run rate expense saves. The combination of these actions and the measures we're taking to eliminate our remaining stranded costs will drive $2 billion to $2.5 billion in cumulative annualized run rate saves in the medium-term. We are keeping a close eye on the execution of these efforts and overall resourcing to ensure we safeguard our commitment to the transformation. As you know, given its magnitude and scale, the transformation is a multi-year effort to address issues that have spanned over two decades. We've made steady progress as we retire multiple legacy platforms, streamline end-to-end processes, and strengthen our risk and control environment, all of which are necessary not only to meet the expectations of our regulators, but also to serve our clients more effectively. A transformation of this magnitude, well it's never linear. So while we've made good progress in many areas, there are a few where we are intensifying our efforts, such as automating certain regulatory processes and the data related to regulatory reporting. We're committed to getting these right and we'll look to self-fund the necessary investments to do so. Turning to the quarter, we had a good start to a pivotal year. We reported net income of approximately $3.4 billion, earnings per share of $1.58 and an RoTCE of 7.6% on over $21 billion of revenues. Our revenues were up over
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$3.4 billion, earnings per share of $1.58 and an RoTCE of 7.6% on over $21 billion of revenues. Our revenues were up over 3% year-over-year, excluding divestitures, which was primarily the $1 billion gain from the India consumer sale last year. Our expenses were slightly down quarter-over-quarter, excluding the FDIC special assessments. Services continues to perform well and generate very attractive returns. Revenue was up 8% for the quarter as both businesses won new mandates and deepened relationships with existing clients. Fees were up a pleasing 10% for services year-over-year driven by the investments we've made across our product offering platforms and client experience. In Securities Services, we took share again this quarter, and in TTS, cross-border activity continued to outpace global GDP growth and commercial card spend remained robust. We look forward to diving deeper into these two businesses at our investor presentation on services in June. Markets bounced back from a tough final quarter in ‘23. While revenues were down 7% as lower volatility impacted rates and currencies, that was off a very strong first quarter last year. We saw good client activity in equities and in spread products, where both new issuance and securitization activity were particularly robust. We fully integrated our financing and securitization capabilities within our markets business and we started to see the benefits of having a unified spread product offering for our clients. The rebound in banking gained speed during the quarter, led by near record levels of investment grade debt issuance, as improved market conditions enabled issuers to pull forward activity. And after a bit of a slow start, ECM picked up in the second half of the quarter, notably in convertibles. Our strong performance in both DCM and ECM drove investment banking revenue growth of 35% and overall banking revenue growth of 49%. While M&A revenues are still low across The Street, I was pleased that we participated in some of the significant deals announced
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M&A revenues are still low across The Street, I was pleased that we participated in some of the significant deals announced in the quarter, such as Diamondback's merger with Endeavor Energy and Catalent’s merger with Nova Holdings. We are cautiously optimistic that we could see a measured reopening of the IPO market in the second quarter in light of improved market valuation.
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.: As you've seen, Andy continues to form his team and is focused on three areas. First, rationalizing the expense base. Second, turning on the growth engine by focusing on investment revenues. And third, enhancing our platforms and capabilities to elevate the client experience. Now these won't happen overnight, but getting these things right will help us get more than our fair share of the $5 trillion of assets that our clients have away from us. And that will help us get our returns to where they need to be in this business in the medium-term. USPB had double-digit revenue growth for the sixth straight quarter. We feel good about our position and our resiliency as a prime lend-centric issuer and are seeing positive momentum across proprietary card and partner card businesses. Healthy spend growth persists in branded cards, primarily driven by our more affluent customers. Across both portfolios, increased demand for credit continues to drive strong growth in interest earning balances. And while they're only a small part of our portfolio, we are keeping an eye on the customers in the lower FICO bands. We also continue to see strong engagement in digital payment offerings, such as Citi Pay, as a point-of-sale lending product, which is easily integrated into merchants’ checkout processes. And we are driving more value from our retail branches, as well as getting the expense base right to increase returns there. Our balance sheet is strong across the board, an intentional result of our high quality assets, robust capital and liquidity positions, and rigorous risk management. During the first quarter, we returned $1.5 billion in capital to our common shareholders and that includes $500 million through share buybacks. Our CET1 ratio ticked up to a preliminary 13.5% and we grew our tangible book value per share to $86.67. We have a great franchise around the world with great clients who are served by great colleagues. I'm pleased with where we are and I'm excited about where we're going. With the organizational
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are served by great colleagues. I'm pleased with where we are and I'm excited about where we're going. With the organizational simplification behind us and a good quarter under our belt, we have started this critical year on the right foot. Now while there will be bumps in the road, no doubt, we will continue to execute with discipline and we are committed to reaching our medium-term targets. With that, I'd like to turn it over to Mark, and then we will both be delighted, as always to take your questions. Thank you.
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Mark Mason : Thanks, Jane, and good morning, everyone. I'm going to start with the firm-wide financial results focusing on our year-over-year comparisons for the first quarter, unless I indicate otherwise, and then spend a little more time on the business. On slide six, we show financial results for the full firm. In the first quarter, we reported net income of approximately $3.4 billion, EPS of $1.58, and an RoTCE of 7.6% on $21.1 billion of revenue. Total revenues were down 2% on a reported basis. Excluding divestiture-related impacts, largely consisting of the $1 billion gain from the sale of the India consumer business, in the prior year, revenues were up more than 3% driven by growth across banking, USPB, and services, partially offset by declines in markets and wealth. Expenses were $14.2 billion, up 7% on a reported basis. Excluding divestiture-related impacts and the incremental FDIC special assessment, expenses were up 5%. Cost of credit was approximately $2.4 billion, primarily driven by higher card net credit losses, which were partially offset by ACL releases in wealth, banking, and legacy franchise. At the end of the quarter, we had nearly $22 billion in total reserves with a reserve to funded loan ratio of approximately 2.8%. On Slide 7, we show the expense trend over the past five quarters. We reported expenses of $14.2 billion, which included the incremental FDIC special assessment of roughly $250 million. Also included in this number are $225 million of restructuring charges, largely related to the organizational simplification. In total, we've incurred approximately $1 billion of restructuring costs over the last two quarters. As part of these actions we expect approximately $1.5 billion of annualized run rate saves over the medium-term related to our headcount reduction of approximately 7,000. In addition to the restructuring, we took approximately $260 million of repositioning costs largely related to our efficiency efforts across the firm, including a reduction of stranded costs associated
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costs largely related to our efficiency efforts across the firm, including a reduction of stranded costs associated with the consumer divestitures. The expected savings from these actions will allow us to continue to fund additional investments in the transformation this year. And relative to the prior year, the remainder of the expense growth was largely driven by inflation and volume-related expenses, partially offset by productivity savings. In the remainder of the year, we expect a more normalized level of repositioning, which is already embedded in our guidance. Therefore, you can expect our quarterly expense trend to go down from here in-line with our $53.5 billion to $53.8 billion ex. FDIC expense guidance. On Slide 8, we show net interest income, deposits, and loans where I'll speak to sequential variances. In the first quarter, net interest income decreased by $317 million, largely driven by markets, which resulted in a 4 basis point decrease in net interest margin. Excluding markets, net interest income was relatively flat. Average loans were up $4 billion, primarily driven by loans in spread product in markets, as well as card and mortgage loans in U.S. Personal banking, partially offset by declines in service. And average deposits were up nearly $7 billion, primarily driven by services, as we continue to grow high quality operating deposits. On Slide 9, we show key consumer and corporate credit metrics. This quarter we adjusted our FICO distribution to be more aligned with the industry reporting practices and now show our FICO mix using a 660 threshold. Across branded cards and retail services, approximately 85% of our card loans are to consumers with FICO scores of 660 or higher. And we remain well-reserved with a reserve-to-funded loan ratio of 8.2% for our total card portfolio. In our corporate portfolio, the majority of our exposure is investment grade, which is reflected in our low level of non-accrual loans at 0.5% of total corporate loans. As a reminder, our loan loss reserves incorporate a
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in our low level of non-accrual loans at 0.5% of total corporate loans. As a reminder, our loan loss reserves incorporate a scenario-weighted average unemployment rate of approximately 5%, which includes a downside scenario unemployment rate of close to 7%. As such, we feel very comfortable with the nearly $22 billion of reserves we have in the current environment. Turning to Slide 10, I'd like to take a moment to highlight the strength of our balance sheet, capital and liquidity. We maintain a very strong $2.4 trillion high-quality balance sheet, which increased 1% sequentially. Despite this increase, we were able to decrease our risk-weighted assets, reflecting our continued optimization efforts and focus on capital efficiency. Our balance sheet is a reflection of our risk appetite, strategy, and diversified business model. The foundation of our funding is a $1.3 trillion deposit base, which is well diversified across regions, industries, customers, and account types. The majority of our deposits, $812 billion, are corporate and span 90 countries. Most of our corporate deposits reside in operating accounts that are crucial to how our clients fund their daily operations around the world. In most cases, we are fully integrated in our client systems and help them efficiently manage their operations through our three integrated services, payments and collections, liquidity management, and working capital solutions, all of which greatly increased the stickiness of these deposits. The majority of our remaining deposits, about $423 billion, are well diversified across the private bank, Citigold, retail, and wealth at work, as well as across regions and products. Now turning to the asset side. Over the last several years, we've maintained a strong risk appetite framework and have been very deliberate about how we deploy our deposits and other liabilities into high quality assets. This starts with our $675 billion loan portfolio, which is well diversified across consumer and corporate loans. And the duration of the
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with our $675 billion loan portfolio, which is well diversified across consumer and corporate loans. And the duration of the total portfolio is approximately 1.2 years. About one-third of our balance sheet is held in cash and high quality, short duration investment securities that contribute to our nearly $1 trillion of available liquidity resources. And for the quarter, we had an LCR of 117%. So to wrap it up, we are active and deliberate in the management of our balance sheet, which is reflected in our high-quality assets and strong capital and liquidity position. On Slide 11, we show the sequential CET1 walk to provide more detail on the drivers this quarter. First, we generated $3.1 billion of net income to common shareholders, which added 27 basis points. Second, we returned $1.5 billion in the form of common dividends and share repurchases, which drove a reduction of about 13 basis points. Third, we saw an increase in our disallowed DTA, which resulted in a 10 basis point decrease. And finally, the remaining 6 basis point benefit was largely driven by a reduction in RWA. We ended the quarter with a preliminary 13.5% CET1 capital ratio, approximately 120 basis points, or over $13 billion above our regulatory capital requirement of 12.3%. That said, our current capital requirement does not yet reflect our simplification efforts, the benefits of our transformation, or the full execution of our strategy, all of which we expect to bring down capital requirements over time. So now turning to slide 12. Before I get into the businesses, let me remind you that in the fourth quarter we implemented a revenue sharing arrangement within banking and between banking services and markets to reflect the benefits that businesses get from our relationship-based lending. The impact of revenue sharing is included in the all-other line for each business in our financial supplement. In services, revenues were up 8% this quarter, driven by continued momentum across both TTS and Securities Services. Net interest income increased
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were up 8% this quarter, driven by continued momentum across both TTS and Securities Services. Net interest income increased 6%, driven by higher deposit and trade loan spreads. Non-interest revenue increased 14%, largely driven by continued strength across underlying fee drivers. In TTS, cross-border volumes increased 9%. U.S. Dollar clearing volumes increased 3%, and commercial card spend volumes increased 5%, all of which was driven by strong corporate client activity. In Securities Services, our preliminary assets under custody and administration increased 11% benefiting from higher market valuations, as well as new client onboarding. The growth in both businesses is a direct result of our continued investment in product innovation, the client experience, and platform modernization to gain share across all client segments. TTS continues to maintain its Number One position with large corporate and FI clients, and see good momentum in the commercial client segment, and we continue to gain share in Securities Services. Expenses increased 11%, largely driven by continued investments in technology and product innovation. Cost of credit was $64 million as net credit losses remain low. Net income was approximately $1.5 billion. Average loans were up 4% primarily driven by strong demand for working capital loans in TTS. Average deposits were down 3% as the impact of quantitative tightening more than offset new client acquisitions and deepening with existing clients. However, it is worth noting that we continue to see good operating deposit inflow. And services continues to deliver a high RoTCE of 24.1% for the quarter. On slide 13, we show the results for markets for the first quarter. Markets revenues were down 7% as lower fixed income revenues more than offset growth in equities. Fixed income revenues decreased 10% driven by rates and currencies, which were down 21% on the back of lower volatility and a strong quarter in the prior year. This was partially offset by strength in spread products and other fixed
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volatility and a strong quarter in the prior year. This was partially offset by strength in spread products and other fixed income, which was up 26% driven by an increase in client activity, particularly in asset-backed lending. And we continue to see good underlying momentum in equities, with revenues up 5% driven by growth across cash trading and equity derivatives. And we continue to make progress in prime with balances up more than 10%. Expenses increased 7%, largely driven by the absence of a legal reserve release last year. Cost of credit was $200 million, primarily driven by macroeconomic assumptions related to loans and spread products that impacted reserves. Net income was approximately $1.4 billion. Average loans increased 8%, primarily driven by asset-backed lending and spread products due to an improvement in market activity. Average trading assets increased 4% sequentially, largely driven by seasonally stronger activity in the first quarter. Markets delivered an RoTCE of 10.4% for the quarter. On slide 14, we show the results for banking for the first quarter. Banking revenues increased 49% driven by growth in investment banking and corporate lending and lower losses on loan hedges. As I previously mentioned, corporate lending results include the impact of revenue sharing from investment banking, services and markets. Investment banking revenues increased 35% driven by DCM and ECM, as improved market sentiment led to an increase in issuance activity, particularly investment grade, which is running at near record levels. Advisory revenues declined given the low level of announced merger activity last year. However, in the quarter, we participated in the pickup and announced M&A across sectors, including those where we've been investing, such as technology and healthcare. Corporate lending revenues, excluding mark-to-market on loan hedges, increased 34%, largely driven by higher revenue share. We generated positive operating leverage this quarter as expenses decreased 4%, driven by actions taken to
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revenue share. We generated positive operating leverage this quarter as expenses decreased 4%, driven by actions taken to right size the expense base. Cost of credit was a benefit of $129 million, primarily driven by changes in portfolio composition. The [NPL] (ph) rate was 0.3% of average loans, and we ended the quarter with a reserve-to-funded loan ratio of 1.5%. Net income was approximately $536 million. Average loans decreased 6%, as we maintained strict discipline around capital efficiency as we optimized corporate loan balances. RoTCE was 9.9% for the quarter, reflecting a rebound in activity, reserve releases, and continued expense discipline. On slide 15, we show the results for wealth for the first quarter. Wealth revenues decreased 4%, driven by a 13% decrease in NII from lower deposit spreads and higher mortgage funding costs, partially offset by higher investment fee revenue. We're seeing good momentum in non-interest revenue, which was up 11% as we benefited from higher investment assets across regions, driven by increased client activity, as well as market valuation. Expenses were up 3% driven by technology investments focused on risk and controls, as well as platform enhancements, partially offset by the initial benefits of expense reduction as we continue to right-size the workforce. Cost of credit was a benefit of $170 million, driven by a reserve release of approximately $200 million, primarily related to a change in estimate, as we enhanced our data related to margin lending collateral. Net income was $150 million. End of period, client balances increased 6% driven by higher client investment assets. Average loans were flat as we continue to optimize capital usage. Average deposits decreased 1%, largely reflecting lower deposits in the private bank and Wealth at Work, and the continued shift of deposits to higher yielding investments on Citi's platform, which more than offset the transfer of relationships and the associated deposits from USPB. Client investment assets were up 12%, driven by
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offset the transfer of relationships and the associated deposits from USPB. Client investment assets were up 12%, driven by net new investment asset flows and the benefit of higher market valuation. RoTCE was 4.6% for the quarter. Looking ahead, we're going to improve the returns of our wealth business by executing on our three foundational priorities. As Jane mentioned, this will take time, but over the medium to longer term, we view this as a greater than 20% return business. On Slide 16, we show the results for U.S. Personal Banking for the first quarter. U.S. Personal Banking revenues increased 10% driven by NII growth of 8%, and lower partner payments. Branded Cards revenues increased 7%, driven by interest earning balance growth of 10%, as payment rates continue to moderate. And we continue to see healthy growth in spend volumes up 4%, primarily driven by our more affluent customers. Retail services revenues increased 18%, primarily driven by lower partner payments due to higher net credit losses, as well as interest earning balance growth of 9%. Retail banking revenues increased 1% driven by higher deposit spreads, loan growth, and improved mortgage margins. Expenses were roughly flat due to lower compensation costs, including repositioning, offset by higher volume related expenses. Cost of credit of approximately $2.2 billion increased 34%, largely driven by higher NCLs of $1.9 billion as card loan vintages that were originated over the last few years were delayed in their maturation due to the unprecedented levels of government stimulus during the pandemic and are now maturing. In branded cards, the NCL rate came in at 3.65%, in-line with our expectations. In retail services, the NCL rate of 6.32% was slightly above the high end of our guidance range for the full year and will likely remain above the range in the second quarter, reflecting historical seasonality patterns. However, given the persistent inflation, higher interest rates, and continued sales pressure at our partners, we now expect to be
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given the persistent inflation, higher interest rates, and continued sales pressure at our partners, we now expect to be closer to the high end of the full year NCL guidance range for retail service. This expectation, along with the continued mix shift from transactors to revolvers across both portfolios, led to an ACL build of approximately $340 million. Net income decreased to $347 million. Average deposits decreased 10% and as the transfer of relationships and the associated deposits to our wealth business more than offset the underlying growth. RoTCE for the quarter was 5.5%. We recognize that this business is facing a number of headwinds from a regulatory perspective and from higher credit costs given where we are in the credit cycle, both of which are putting pressure on returns for the quarter and for the full year 2024. However, this doesn't impact our longer-term view of the business. We feel good about our position as a prime and lend-centric issuer. We will continue to take mitigating actions to manage through the headwinds, [lap] (ph) the credit cycle, and drive more value from retail banking and retail services, while improving the overall operating efficiency of the business, all of which will ultimately result in a higher returning business over the medium-term. On Slide 17, we show results for All Other, on a Managed Basis, which includes corporate other and legacy franchises, and excludes divestiture-related items. Revenues decreased 9%, primarily driven by closed exits and wind-downs, as well as higher funding costs, partially offset by higher revenue in Mexico. And expenses increased 18%, primarily driven by the incremental FDIC special assessment and restructuring charges, partially offset by lower expenses from the wind-down and exit markets. Slide 18 shows our full year 2024 outlook and medium-term guidance, both of which remain unchanged. We have accomplished a lot over the past few years and have made substantial progress on simplifying our business and organizational structure. The year
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over the past few years and have made substantial progress on simplifying our business and organizational structure. The year is off to a good start as we are laser focused on executing the transformation and enhancing the business performance. These two priorities will not only enable us to be a more efficient, agile company, but a client-centric one that brings together the best of Citi to drive revenue growth and improve return. And we are on the path to reach our 11% to 12% return target over the medium-term. With that, Jane and I will be happy to take your questions.
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Operator: At this time, we will open the floor for questions. [Operator Instructions] Our first question will come from Mike Mayo with Wells Fargo. Your line is open. Please go ahead.
Mike Mayo: Hi. Well, you just finished your seven months of your org simplification and you said 7,000 positions go away with $1.5 billion of expense savings. So that's very concrete, but more generally after 20 years, 30 years, 40 years of matrix structure down to five lines of business, you're reporting these differently, you're talking about them differently. But the question that I think a lot of people have is, are you simply reporting these lines of business differently or are you actually running them differently? Thanks.
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Jane Fraser: Thank you, Mike, for the question. The simplification that we've just gone through, it is what we said it is. It is the most consequential set of changes, not only to the organization model that we have, but how we run the bank. It's aligned the structure with the strategy. It's simplified the bank, it's eliminated needless complexity. It's created greater transparency into the five businesses and their performance, as you can see. It's increased accountability. And very simply, it's just easier for our people to focus on our clients, but also getting things done and the execution that we have ahead of us. So maybe if I try and bring this a bit more alive. The first thing we did was we elevated the five businesses and that eliminated the ICG and PBWM layer. And we brought all the elements that the businesses needed to run end-to-end under the direct management of those five business heads, an example being operations. And -- it's enabled transparency, greater accountability, and this end-to-end and total P&L focus, so focus on the bottom-line and the returns, driving growth, expense discipline, et cetera. We also right place businesses to align with the strategy. So banking, all being under one umbrella, the investment bank, the corporate bank, commercial bank, really helping us drive synergies there. Putting finance, F&S and securitization into markets so that we have a unified spread product there, also beginning to see the benefits of that this quarter. So that's an example on the businesses, but I do want to highlight a couple of other areas around this change. So by eliminating the regional layer and putting in a far slimmer, lighter management structure in place in the geographies. That's enabled us to make sure that our countries are focused on client delivery and legal entity management. And we've eliminated the whole shadow geographic P&L. We've eliminated a large number of committees in the geographies. And this is where a lot of the functional and management roles were streamlined and
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number of committees in the geographies. And this is where a lot of the functional and management roles were streamlined and eliminated through the last seven months. And we also broke the regions into smaller, lighter clusters. And that allows us to much better capture the big changes in trade flows and financial flows, et cetera, we're seeing around the world. It's just much nimbler. The third piece, we created the client organizations. So that organization makes sure that our core capabilities and disciplines are being applied firm-wide to drive revenue synergies. And then the governance has got a lot easier. It took up a lot of time. And we've given much clearer mandates in that we've more than halved the number of committees. That's 200 committees plus that we've eliminated in the firm, either by consolidating them or eliminating them. The spans and layers, if you exclude me, 98% of the firm now operates within eight layers. That is a much, much faster decision-making. It's much quicker to get execution done. It also means that you can very quickly get closer to where the engine [room] (ph) of the firm is. We've got clearer accountabilities, we've eliminated most co-heads, we've reduced matrix reporting, we've got the producer to non-producer ratio improved. So all of this really means, as I've said, a clearer deck, so we can be laser-focused on business performance in those five businesses and the transformation. It already feels different. Around my table, I'm much closer to the businesses and the clients. It makes it much easier for Mark and I and the rest of the team to run the bank like an operator versus the head of a holding company. You don't have to go through these aggregator layers to get things done. And we're done, as we said we would be at this point, we're wrapping up the final consultation period, not an easy few months with the organization. We've had to say goodbye to some very good people. We put a lot of change through the organization. And now as we close the chapter on this, we look
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to some very good people. We put a lot of change through the organization. And now as we close the chapter on this, we look forward to being back in BAU mode, again continuing to drive improvements in simplification and processes and alike. But now the focus is going to be really getting the full benefit from all the changes we've made in business and organization and moving forward.
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Operator: Our next question is from Glenn Schorr at Evercore. Your line is open. Please go ahead.
Glenn Schorr: Thanks very much. Yes, so I think it shows how much you've helped us, see the simpler organization. I think people have totally bought into the expense story, so a lot of credit for you guys. I think where I personally and others still have questions on is, on the revenue side and getting to those 4% to 5% medium-term targets. So could you take us just conceptually where we're going to -- where you think you'll drive that growth from this baseline where we're at now? And if you want, you can totally use my second question in there and tell us what good things you're doing inside the Investment Banking line to help tease out one of the [industry] (ph)?
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Jane Fraser: It's not that one in, Glenn. So I'll kick off with some of this, pass it to Mark and then I'll come back to banking. So look, we are laser focused on the growth and improving the returns of these businesses to where they should and will be in the medium-term. And it's not just the growth story, but let me anchor it in those medium-term return targets. In services, we want to continue around the mid-20s in RoTCE. Banking should be getting to around 15%. Markets 10% to 13%. So we'd like to see at the higher end of that range. USPB getting that back to the mid-teens and then moving on to the high teens in the medium-term. And then lastly, as Andy and Mark have talked about getting wealth to a 15% to 20% return in the medium-term, but the goals to the mid-20s in the longer-term here. And we're confident that our strategy is going to drive the revenue growth of 4% to 5% CAGR in the medium-term. And that's a combination of maintaining our leadership in certain businesses, gaining shares in others. We have good client growth. Look at our win rate for example in TTS at over 80%. We've got our commercial bank also bringing in new clients in the mid-market and helping them accelerate their growth and success around the world. But Mark, let me pass it over to you.
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Mark Mason: Sure. And good morning, Glenn. And we appreciate the acknowledgement around the expenses. As you know, we've been quite focused on that and working hard to ensure that we deliver on what we say, we're going to do there. I'd point on the revenue line, I'd first point to, if you look back since Investor Day, we've in fact been able to deliver on the guidance that we've given for the medium-term, so that 4% to 5% top-line growth. And yes, it was a different rate environment, but that growth that we delivered over the past couple of years has been a mix of both revenue and underlying business strength. As you think about the guidance we talked about for this year, we talked about the NII ex-markets being down modestly. And so what that means is that the momentum and the growth that we expect is going to come from the non-interest revenue. And I think this quarter, is a good example of where and how that’s likely to play through. So the revenue topline being up 3 plus percent. But when you look through each of the businesses and if you look on each of the pages where we disclosed the revenue, you can see the underlying NIR growth in the bottom left hand corner of each of those pages that's coming through as well. So security services up 14% with growth in both TTS between cross-border clearing commercial cards, but also -- and security services, right, with the growth that we're seeing from continued momentum in assets under custody. We expect that trend to continue with existing clients and more -- and new clients, as well as how we do more with our commercial market -- commercial middle market business excuse me. So NIR growth there, the investment banking pieces, the other driver of fees, we’re seeing that while it start to rebound, we’re part of that rebound, the announced transactions were part of those in sectors that we've been investing in. We're bringing in new talent to help us realize and experience that. And even in wealth, where we're not pleased with the top-line performance this quarter,
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to help us realize and experience that. And even in wealth, where we're not pleased with the top-line performance this quarter, down 4%. When you look through that, we do have good underlying NII growth in the quarter in wealth, and that's up 11% year-over-year. And it's in the area that Andy and the team is leaning in on, which is investments, and not just in one region, but across all the regions. And then finally, the USPB piece, which is showing good NII growth as well. So the long and short of it is that the 4% growth that's implied in $80 billion to $81 billion, is going to be continued momentum, largely in fees, helping us to deliver for our clients and make continued progress towards that medium-term target.
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Jane Fraser: So let me pick up the [side] (ph). I'm sure Jenn Landis will give us the evil eye for sneaking in a second question there, Glenn, but let me pick up on banking and what's going on there. So we have a very clear strategy that we've been executing over the last couple of years, really to lay the foundation for growth in banking. North America is our key priority. It's the biggest contributor to the global IB wallet. Tech, health care, and industrials are likely to constitute over 50% of the fee wallet going forward. So we have better aligned our resources to position the franchise for this, defending areas of traditional strength in industrials and the like energy, whilst investing in high-growth sectors such as healthcare and technology with some strong talent. Financial sponsors are sitting on $3 trillion of estimated firepower, which they are incentivized to deploy. So they're likely to be between 20% to 30% of global investment banking fees. We have great relationships with this community. We have built that over years and decades. You are going to see us more active in the LevFin space, in the right situations for our key clients, and we will continue to ensure we are well-positioned to active around this important opportunity. You'll likely see us seeking to remain competitive in the private capital asset class, that can be an important source of liquidity for many clients. And the middle market will be fertile hunting ground for corporates and private equity. And our investment bank and commercial bank are going to be closely coordinated to harvest the deal flow around the world. And indeed, the new org structure that I was just talking about really enables us to drive a more joined-up, client-centric strategic coverage across corporate, commercial, and investment banking. So over and above the wallet recovery, Mark and I can be very laser focused on ensuring that we're driving revenue growth from a more holistic focus on the wallet share across flow and episodic activity. Vis Raghavan is the
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driving revenue growth from a more holistic focus on the wallet share across flow and episodic activity. Vis Raghavan is the right person to take over at this important moment for our banking franchise. The momentum that we've been generating with the foundations we've been laying, the intention here from him is to accelerate that. He will focus on increasing our performance intensity, driving productivity and discipline growth and he will keep us firmly on the path towards delivering on our commitments, fundamentally improving the operating margin, generating higher returns and that all-important fee revenue.
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Operator: Our next question is from Betsy Graseck at Morgan Stanley. Your line is open. Please go ahead.
Betsy Graseck: Hi, good morning. Or, yes -- we're almost pinging into the afternoon here.
Jane Fraser: Hi Betsy.
Mark Mason: Great to hear you, Betsy.
Betsy Graseck: I guess a couple of questions. Well, I know we talked through the institutional securities business already on moving that expense ratio a little bit. Could we dig in a little bit on the wealth side, because the expense ratio there is running a little higher, and so it would be useful just to understand the pace or speed or timeframe when we should expect to see that start to inflect?
Jane Fraser: Yes, absolutely. And some of it, just as a reminder, the actions that we've been taking on org simplification and that Andy's also been taking in the wealth business. We will work through notice periods in the coming weeks, and so you'll see the impact coming through in our headcount numbers, and in wealth and the expense base next quarter. Look, As Mark said in his opening and Andy's been talking about, this should be a sort of up to a 30% pre-tax margin business. Andy's focused on rationalizing the expense base. He's also, as Mark said, turning on the growth engine, he's enhancing our platforms and capabilities to elevate the client experience. The heart of the opportunity for us lies with our existing clients. They are an extraordinary client base, but they're under-penetrated. So [now] (ph) the operating efficiency is frankly going to be -- is going to come on the revenue side here. That said, Andy's taken a number of pretty decisive moves this quarter on the expense side. Mark, let me pass it over to you.
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Mark Mason: Yes, I mean, look, I think that the quarter expenses that you see of growth of 3% is not yet reflective of the work that Andy has been steadfast at. There is still some investment in there in technology and in the platform that's important, but I think coming out of the first quarter you'll start to see some of the reduction in expenses that's a byproduct of that work. And the work has been across the entire expense base in the wealth business. So that includes non-client-facing roles and support staff. It includes looking at the productivity of existing bankers and advisors. And those kind of reductions will start to play out in the subsequent quarters. I do want to point out, as Jane mentioned, this is a growth business for us. And so you can see on some of the metrics on page 15, the bottom left, some of those good signs of investment momentum. And I highlight that because as the expenses come down from some of those efficiencies, there will be a need for us to continue to invest and replenish low-performing or low-producing bankers and advisors with resources that actually can generate the revenues we expect and take advantage of the client opportunity that's in front of us. So long-winded way of saying, there's some operating efficiency upside for us for sure is a combination of the top-line and the expense we’re playing through the balance of the quarters in the year here.
Operator: Our next question is from Jim Mitchell at Seaport Global. Your line is open. Please go ahead.
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Operator: Our next question is from Jim Mitchell at Seaport Global. Your line is open. Please go ahead.
Jim Mitchell: Okay, good morning. Jane and Mark, I very much appreciate the comments on your growth opportunities and driving growth, but revenues are often dictated by the macro that – it’s a little bit out of your control. Can you talk a little bit about the flexibility on the expenses, you have a range in 2026 of [51 to 53] (ph), So if revenues are coming in below the targets, is it, I guess, a, fair to assume you'd be at the very low end of that range, or is it -- and I think there is some revenue growth built in there. So is there some flexibility to the downside to try to get your targets in a tougher revenue environment? Thanks.
Mark Mason: Yeah, look I mean with the top-line growth as you've heard us say, is a CAGR of 4% to 5%. We put that target out there [51 to 53] (ph) as a range of what we're working towards. We're given you a good sense of how we expect to get there with the $2 billion to $2.5 billion reduction by then. We've already signaled the $1.5 billion that's in front of us. The reality is that if there's softness in revenues, that's why we have a range. Obviously, the volume-related expenses would come down with any softness in revenue. And depending on the drivers of why that revenue is softening, we'd look at the investments that we're making across the business and make sure that those are appropriately calibrated for where we are in the cycle and what we're seeing on the top-line. With that said, we've got to continue to invest in the transformation. We're not going to compromise that. That's going to be something that we have to spend on to ensure we continue to get right. But that's kind of how the dynamic works. There's a top, we've got a mix of businesses that I think we've demonstrated resiliency around if you think about the past couple of years. And we expect for those to continue to drive some top-line momentum but we've got levers in case they don't.
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Operator: Our next question is from Ebrahim Poonawala at Bank of America. Your line is open. Please go ahead.
Ebrahim Poonawala: Thank you. I guess just one question, Mark. Around capital. So you talked about [$13 billion] over the Reg. minimum. You could easily be doing 2 times the buyback you did in one quarter, if not more. I know you don't like to talk about out quarters, but give us a sense of, at least this quarter, should we expect the pace of buybacks to increase and if you could provide additional color as we think about the rest of the year would be greatly appreciated. Thank you.
Mark Mason: Sure, look – and I've said it repeatedly, Jane has said it repeatedly given where we trade, we think buying back is smart and we'd like to do as much as we possibly can and -- as much as makes sense, in light of the uncertainty that's out there. We have run at about [$13.5 billion] (ph) this quarter. That does give us capacity above the [$13.3 billion] (ph). (Technical Difficulty) we want to make sure we can support the clients that want to do business with us, whether that be in markets or other parts of the franchise. And then there's still uncertainty out there about how the capital regulation evolves. The good news is, we are hearing kind of favorable things about how the Basel III endgame proposal could evolve, but that hasn't happened yet. It's not finalized. It's not in place yet. And so we want to see how that continues to play out. We're obviously in the midst of a CCAR process. We want to see how that evolves. And we'll continue to take the buyback decision on a quarter-by-quarter basis, but we recognize that there's an opportunity there and we'll get after it just as soon as it makes good sense for us.
Operator: Our next question is from Erika Najarian at UBS. Please unmute your line and ask your question.
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Operator: Our next question is from Erika Najarian at UBS. Please unmute your line and ask your question.
Erika Najarian: Hi. Good afternoon. Hey. So, you know, clearly the theme of this -- that's emerging on the Q&A is, you know, a healthy skepticism about the revenue targets in-line with the, in light of the expense declines, which you know, it's not really as analysts, where we're sort of a little bit [parroting] (ph) what we're hearing from long-only investors that haven't yet you know jumped into the stock. So to that end I guess I'm going to ask Ebrahim's question differently then ask a question about card late fees. How are you balancing, clearly your valuation would demand that the buybacks be ramped up from $500 million, but growing revenues at a 4% to 5% CAGR, you know, would mean potentially some capital clawback into the business. I guess, how are you balancing that, especially given that the demand for buyback is louder at Citi than any other money center peer. And could you give us a sense of what card late fees are and, you know, how that would impact the $80 billion to $81 billion for the year, if we do get an earlier implementation in October?
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Mark Mason: Yeah, thank you, Erika. On the first part of the question, I just remind you and everyone else that we're playing for the long-term here, right? So we have set some medium-term targets. Obviously, Jane has re-casted the vision and the strategy. I think we're making very good progress against that. But we're playing for the long-term. And what that means is that we have to continue to invest in the franchise. It's why I've given you a range around the expenses at least in part. It's why I've continued to stress the importance of protecting the transformation and risk and control spend. And it's why, I started the answer to Ebrahim's question by saying that we want to be sure that we can match the client demand out there where the returns to do so makes sense. And so we are having to balance kind of the use of capital and other resources against that longer-term strategic objective and utilize it where it makes sense and generates good returns against the idea of returning that to shareholders. And so this will continue to do that. It's an everyday assessment. It's an everyday discussion with the teams. Frankly, it's why things like the revenue sharing has been put in place to intensify the discussion around the clients that we're using balance sheet with and ensuring that we're driving broader revenues across the platform. And so that's kind of how we're operating in terms of making that trade-off on a regular basis, in addition to obviously the broader regulatory environment that we're in. In terms of the second part of your question around late fees, we haven't disclosed kind of the dollar amount of the late fees. What I would say is that we did and have factored that into the $80 billion to $81 billion. And the only thing I'd add to that is, it did kind of -- it's being implemented a bit earlier than what we had assumed, but again, it's inside of the range of the guidance that I've given you for top-line revenue for the year.
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Jane Fraser: And also just as a reminder, 85% of our [two-CCAR] (ph) portfolios are prime. And in CRS, where you tend to see some of the lower income households, we do have that -- the economics of the fee change will be shared with our partners in CRS. So we want our customers to pay on time with a number of mechanisms to do so. But in terms of the economics, I think we, along with the rest of the industry, will be putting in mitigating actions over time, some of which we've already begun to implement.
Operator: Our next question is from John McDonald at Autonomous Research. Your line is open. Please go ahead.
John McDonald: Thanks. Mark, I was hoping you'd give a little more color on how you're feeling about the credit card charge-offs. You maintained the outlook for the year. You mentioned the higher end on retail services. You still feel like -- you'll see a peak this year and what kind of metrics are you looking at in terms of delinquency formation and seasoning to inform that view that you might see the peak in card charge-offs this year?
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Mark Mason: Yeah, thanks, John. We have obviously continued to manage this portfolio very actively. We've seen continued top-line growth, we've seen continued average interest earnings, balance growth. We've talked about how we expect for the cost of credit to normalize, and we've seen that continue to happen. The range that we've given on branded cards, we're inside of that range. When you look at the spend across the portfolios, the spend is really happening with the affluent customers more so than anything else. And so we're watching the lower income customer profile or customers that we have. But again, as Jane mentioned, we tend to skew to the higher end to begin with. Where we're really seeing the pressure is where I mentioned in terms of retail services. And so there, the current NCLs are higher than the high end of the full year range that I've given. But if you look back, that is not inconsistent with seasonality that we've seen in the past in that portfolio where the first two quarters are higher than the back half of the year, in part because of coming out of the holiday season and how losses tend to mature or materialize through that process. And so I’d expect to not only see them be higher than the average range in Q1, but also in Q2 before coming down. And then I still expect that in 2025, you tend to see them further normalize and come down a bit off of these ranges. But look, the reality is that we continue to watch it in the factors that are out there, that are important include how unemployment evolves, what happens with inflation, what happens with interest rates and those will be important factors as to how the loss rates continue to evolve over time. I think the final point I'd make, and I mentioned it in the prepared remarks, is that we have to remember that the loss rates in both portfolios reflect multiple vintages maturing at the same time. And you'll recall, and this is an industry dynamic, you know, through the COVID and pandemic period, losses were at an all-time low, payment rates at
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this is an industry dynamic, you know, through the COVID and pandemic period, losses were at an all-time low, payment rates at all-time highs, supported by government stimulus. And now coming out of that, we're seeing the COVID vintages mature albeit at a lagged pace from what would be normal. And we're seeing the incremental acquisitions that we've done, start to mature at their normal pace. And so these loss rates are exacerbated by that impact, and that's an important factor we can't lose sight of. But the bottom-line is that we're watching it. The macro factors matter. We feel good about the quality mix that we have and we'll kind of see how things evolve from here.
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John McDonald: Okay, and on the branded side, you still expect kind of the peak this year. You're still inside of the range for the full year and expect 2025, you could move lower on the branded charge-offs?
Mark Mason: Yes, I still kind of expect that trend line of peaking and then kind of moving a bit lower in branded.
Operator: Our next question is from Ken Usdin at Jefferies. Your line is open. Please go ahead.
Ken Usdin: Great, thanks. Can I follow up on the card line of thinking and just ask you, Mark, to talk a little bit about just cost of credit? We did still see some card-related build this quarter, even with the comments you just made and seasonal softer loan growth. So just from a bigger picture perspective, how do you think -- continue to think about reserve builds from here and how that informs your outlook for cost of credit?
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Mark Mason: Yeah, sure. Look, I think that, you know, when I think about the reserve builds, I think it's the same factors that come into play. So obviously the view on the macro is important. And right now, if you think about some of the key macro factors that impact the cards portfolio, the unemployment assumption weighted is about 5%, the downside is about you know 7% kind of weighted over the period. And so feel -- how that evolves will be an important factor. How [HPI] (ph) evolves will be, you know, important consideration here for this portfolio. But also what happens with volumes becomes a factor on reserve builds and how important or how much they increase or decrease. And then the final piece is mix, and it's kind of related to that revolver point. As we see the mix evolve from transactors to revolvers, that's going to play into how much of a reserve, from a lifetime point of view, we have to continue to build. And so it's -- why I mentioned on John's question, you know, the importance of looking at, you know, the interest rates looking at what's happening with inflation, watching the lower income customer base, because all of those things combined with how we think about the scenarios and the weighting will be a factor on the reserves. But I will say, Ken, as I sit here and think about what we have in the quarter, I feel very good about the reserve levels. The 8.2% for combined kind of, you know, ACL to loan ratio feels right for the mix of this portfolio, and we'll continue to watch it.
Ken Usdin: Okay. And a separate question on TTS. That NII related to TTS has been remarkable with rising rates. This quarter, granted there was a lesser day and there could be currency stuff in there, the first quarter that it stepped back, I'm just wondering like where is that in its asset liability sensitivity, the TTS-NII, and what are your thoughts about that piece of the NII puzzle going forward? Thanks.
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Mark Mason: Sure. Yeah, I think I'd say a couple things. We do have some Argentina playing through the NII line. I will say that the best way to think about it is kind of the underlying beta activity. And we have seen, this is a corporate client, it is an institutional client, we have seen betas, particularly in the US, at kind of normalized or terminal levels and playing a bit through that. We are seeing betas outside of the U.S., continue to increase as it relates to the TTS client base. But all of that, again, is inside of the range that we've talked about. I don't expect to see kind of year-over-year growth on the NII line anywhere close to kind of what we've seen in prior years, prior quarters, just in light of kind of how the rate environments evolved and in light of kind of quantitative tightening – and tightening and the impact on deposit levels. The last point I'd make on this is, we will continue to drive and see growth as it relates to the operating deposits. And that'll be an important tailwind that kind of plays through.
Operator: Our next question is from Vivek Juneja at JP Morgan. Your line is open. Please go ahead.
Vivek Juneja: Hi, thank you. Jane, Mark, just a question maybe on Argentina. You had -- you've shown $100 million in NII, total net income benefit of $500 million after tax, so probably implying about $500 million, $600 million of non-interest income benefit. Which line item -- sorry, which segment did that come through and is that sustainable?
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Mark Mason: Yeah, look, there's a mix obviously of things that are driving that net income, including a tax impact on the heels of last year Argentina devaluation activity that's in that line. But the short answer is that you know if you think about the nature of the business that we do in Argentina, it is a big part of our institutional client relationships. And the primary activities include some of the TTS type of activities that we've talked about, so liquidity management payments, custody within the services business. And so you'd see a good portion of the activity in Argentina playing through the services business, some of it in markets as well, but again, the majority of the activity in services.
Operator: [Operator Instructions] Thanks so much. Our next question is from Scott Siefers at Piper Sandler. Your line is open. Please go ahead.
Scott Siefers: Hi, everyone. Thanks for taking the question. Mark, I think you touched on at least a component of this a couple questions ago, but maybe just broadly an update on your rate positioning. I guess I only ask because it looks like we might be starting to diverge in terms of global rate trajectories, if we potentially go, lower in Europe but higher here for a while. In the aggregate, do these kind of complicate your management or make you feel better or worse about the overall NII momentum for the company?
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Mark Mason: Yeah, let me try and take it in two pieces, I guess. So one is, if I think about how the rate implies have evolved from the three to six to now something a little bit north of one, in the context of what I expect for our performance. It doesn't have a material impact on the guidance that I've given of $80 billion to $81 billion. And in part, that's because, as I think about the timing for the planned cuts, which was generally backloaded, as well as some of the other factors that play through. So, you know, Argentina just announced a policy rate reduction yesterday or a couple of days ago. If rates are a bit higher for longer, we'll watch how the betas continue to evolve. I mentioned earlier the late fees for the cards business happened a bit sooner. Late fees are actually booked in our NII line and so those factors you know put me in a place where I feel like, there'll certainly be puts and takes around how that rate curves evolve, and therefore I'm very comfortable kind of leaving the guidance where it is. To answer your broader question in terms of kind of how we're positioned, you know, I'd point you to the 10-K that we have that's out -- and in that 10-K, we offer as we have before a number of IRE scenarios for plus or minus 100 basis points and what it means for our business. And if you look at it, you'll see that for the aggregate firm, for Citi, U.S. dollar and non-U.S. dollar, that we're asset sensitive. So as rates increase, we should see an increase in our NII performance. But if you look at the breakdown, and that's about, I think it was about a [$1.4 billion] (ph) or something in terms of the impact of that move. But if you look at the breakdown, what the breakdown will show is that for U.S. dollar, at this point, we're neutral. So if rates were to go up, rates were to go down, no material impact as it relates to our revenue. For the non-U.S. dollar, we're still quite asset sensitive, right. And so that should give you some sense for at that -- and we recognize the limitations with IRE,
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quite asset sensitive, right. And so that should give you some sense for at that -- and we recognize the limitations with IRE, it assumes, you know, a 100 basis point parallel shift across the curve, the static balance sheet, et cetera. But that should give you some sense for the implications of the rate curve moves as it relates to our book of business.
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Operator: Our next question is from Gerard Cassidy at RBC Capital Markets. Your line is open, please go ahead.
Gerard Cassidy: Hi Mark, hi Jane.
Jane Fraser: Hi, Gerard.
Mark Mason: Hi Gerard.
Gerard Cassidy: Mark, can you share with us, there's been obviously a lot of conversation around the credit card charge-offs and the credit quality there. If we could shift over to the corporate side, which obviously is very strong. We've seen spreads narrow in the markets on high-yield corporate debt, leveraged debt, et cetera. It's very robust out there, but around the global geopolitical risk, do you think the spreads would be widening. Can you guys share with us what you're seeing in the corporate side in terms of competition, are underwriting standards getting a little weaker now, as people are trying to grow their books, what are you seeing on that front?
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Mark Mason: Look, we're still seeing good demand for corporate credit. And what I'd say is that we've been very disciplined about where we want to play on the risk profile here. We've been very disciplined in terms of the investment grade, you know, large multinationals that we serve. And that hasn't shifted from an underwriting point of view. We have seen spaces like private credit pick up quite a bit. And that, I think, will continue to evolve. I think, importantly, as we think about our corporate lending activity, you'll note that, actually, we've been very disciplined about how we want to deploy balance sheet and part of that again is a byproduct of the revenue sharing that we've implemented where there's been healthy debate and discussion around the names that we want to continue to serve and whether they're positioned to take advantage of the broader platform that we have. And so I think the space will continue to evolve. I think there's been good, healthy demand, despite continued strong balance sheets. And part of that demand has been because of where rates are likely to go and continue to evolve. And I think we're well positioned to be thoughtful about that. But Jane, you may want to add a couple points to it.
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Jane Fraser: Yeah, look, around the world, the corporate client base and our commercial banking mid-market client base have very healthy balance sheets. And we're also seeing market access gradually opening up as well, which is also helpful for the quality issuers across all asset classes. We've seen both the issuers taking advantage as well as the investors. The deals are well oversubscribed. So that's also been beneficial as corporates think about their financing needs. The other piece I just pop out there as well is the recent large M&A announcements in multiple industries is a sign of rising confidence from CEOs and Boards. And active discussions are increasing as supportive capital markets create confidence as people think about larger strategic transactions. This is going to feed acquisition finance, bridge financing, and some of the higher margin capital markets and lending activity as well. So as we look forward, I think it's recognizing the shift in some of the drivers from companies just investing, refinancing, looking at where they can, diversifying their capital, raising in different quarters. But I just close by saying, I couldn't agree with you more about geopolitical risks and fragility. I think the market's too -- but it's too benign in its risk pricing on some of these factors.
Mark Mason: Important for us to take …
Operator: Our next question is from Matt O'Connor at Deutsche Bank. Your line is open. Please go ahead.
Matt O'Connor: Hi. In your prepared remarks, you talked about intensifying certain efforts regarding regulatory processes and data on Slide 4 here. And I was just wondering if you could elaborate on, you know, I guess what you're doing or trying to do differently on that front and if there's any meaningful financial impact. Thank you.
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Jane Fraser: Yeah, look, I think Matt, as we've talked about many times, the transformation is our top priority. It will be for the next few years. It is foundational for our future success, both in terms of delivering the strategy and the medium-term financial path. And we've been making significant investments behind it, as well as not only in the consent order but also making sure we've got this modern efficient infrastructure. We're currently deep into a very large body of work, upgrading our data architecture, automating manual controls and processes, consolidating fragmented tech platforms. And all of these help enhance our business performance more broadly, not just the risk and control in the medium-term. As I've said, though -- there are a few areas where we are intensifying our efforts, such as the automation of certain regulatory processes and data remediation, particularly related to regulatory reporting. We're committed to getting these right. The org changes will help us with execution and making sure that we have the impetus and everything that we need behind it, the investments that we need. We keep a close eye on execution, making sure we've got the right level of resourcing and expertise. And we'll invest what we need to do, to make sure that we address these different concerns. I can't go into much more detail in terms of our CSI, obviously, but – at [some day] (ph) this magnitude, you'd expect us to have some areas where we have good progress and others where we need to intensify efforts.
Mark Mason: Yeah -- I mean, I think that's exactly right. But you'd also expect that in this type of environment and on the heels of the regional bank stress last year that we're looking at stress scenarios, we're enhancing our CCAR processes, we're enhancing our resolution and recovery processes, all of those things just to kind of -- to make sure that we're shoring up capabilities and you'd expect that across the industry quite frankly.
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Operator: Our next question is from Saul Martinez at HSBC. Your line is open. Please go ahead.
Saul Martinez: Hi, good afternoon. I'll change tack a little bit here, but I'm curious if there's any update on the Mexican IPO, and more specifically I'm kind of curious how [set it stone] (ph) the IPO processes -- you will have a new administration and even if the candidate from same-party, she may have a less confrontational view the private sector, perhaps be more allowing a low bank -- local bank to extract value from buying a bank. And, you know, I guess if the facts on the ground were to change, would you be open to a sale potentially being back on the table? Because it does seem like this is a situation where a private market valuation could be higher and even materially higher than a public market valuation.
Jane Fraser: The guiding principle that we have and we've had all along is making sure that we make a decision here that is in the best interest of our shareholders and makes the most sense for them. We are -- we never say never, but we are very focused on the IPO path here. We believe it is the right one for our shareholders. We are well on track in the path in Mexico. We are very pleased to bring Ignacio Deschamps in as the Banamex Chairman to help guide the IPO process. We announced the management teams for the two banks earlier this quarter. We're far down the path of the technological separation of both banks and then the full legal separation in the second half of the year. Obviously, the election is coming up fairly shortly, but we're not anticipating that we would be deviating from the IPO path. That is the path that we are on at the moment. I'll never say never, but we do believe that this is the right one. But we'll keep an eye on what's happening in Mexico as we always do.
Operator: Our next question is from Chris Kotowski at Oppenheimer. Please go ahead.
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Operator: Our next question is from Chris Kotowski at Oppenheimer. Please go ahead.
Chris Kotowski: Hello and thanks. Just a quick one for Mark. Previously you had talked about quote bending the cost curve, between the third and the fourth quarter of this year. And on this call I thought I heard you say, it's basically bent that second quarter should be down and we should be sequentially lower from here. So did it just happened six months earlier or is there still some other bending that comes late this year.
Mark Mason: I'll take it. I'll take that.
Jane Fraser: Damn. I wanted that one.
Mark Mason: I'll take that. I mean I'll take the win, a downward trajectory from here through the end of the year in-line with the guidance of $53.5 billion to $53.8 billion. And so yes.
Operator: Our next question is from Steven Chubak at Wolfe Research. Your line is open. Please go ahead.
Steven Chubak: Hi, good afternoon. So Mark.
Jane Fraser: Hello, Steven.
Steven Chubak: Hi, Jane. Hi, Mark. I did want to ask on DFAST and SCB, just recognizing this will be the last opportunity before the results come out. The macro scenario Fed assumptions look quite similar to last year, but just given the significant transformation that's underway, repositioning actions which [admittedly] (ph) depressed earnings last year. I want to get a sense as to whether there are any [IDEO] (ph) factors that could result in greater SCB volatility in the coming exam and just broader thoughts on the longer-term trajectory for the SCB, just given the Org simplification efforts are underway.
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Mark Mason: Yes, Steven. The first part of your question is just impossible to answer, to be candid with you, right? We obviously have an internal base scenario we've run. We have a severely adverse scenario that we've run. We've provided a balance sheet as part of the submission, but ultimately, the regulators have to run through their models, the information that we've provided and that informs what happens with the stress capital buffer. And we don't have as much transparency to that as we'd like. And so really hard to call at this stage. The second part of your question, I think is spot on, and I kind of alluded to in my prepared remarks, in that we have the medium-term targets that we've set. And we're still in the midst of kind of the execution of our strategy, the evolution of the business mix and the business model. The mix towards more consistent, predictable, and repeatable revenue streams that would impact PPNR, the simplification which obviously plays through an expense base that will be lower, when we get to that medium term period. So all of those things, the divestitures and kind of what that means and how that might impact the G-SIB score and the like, and the freeing up of capital, which we've already freed up, you know, $6 billion or so. And so all of those things have kind of yet to have been factored in. And we believe will be beneficial to the SCB over the medium term.
Operator: Our next question is from Mike Mayo at Wells Fargo. Your line is open. Please go ahead.
Mike Mayo: Hi. A follow-up, Mark. You said, TTS, we said -- we will have growth and operational deposits. And I was just wondering what gives you such confidence that you will or is that accelerating or the same pace or what?
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Mark Mason: We have seen growth in the quarter, in operating deposits. The confidence comes from the focus that we've had with our existing clients, as well as the growth we've seen with new clients, doing more with existing and more countries, more deeply penetrating the commercial middle market space. And so we've been very thoughtfully focused on deposits that obviously give us the most value and also provide the most stickiness, as it relates to that relationship. And so yes, the confidence is rooted in what we're seeing in the way of underlying operating deposit growth, including inside this quarter.
Jane Fraser: It's also a lot of the investments that we've been making, fuel a lot of the growth we've got. We have a market leading product innovations and those continue to drive good returns, good growth. If it's Citi Token Services, Citi Payment Express, 24/7 -- all of these different elements really mean that this business is utterly invaluable and indispensable to our clients. And the stickiness of the deposits, and the operating deposits comes with that. So we feel good about that growth. And you'll hear more about this as well, Mike, in the Investor Day in mid-June, which will be, I think we hope will be very helpful to everyone, so you really get your arms around how this business operates, makes money and see why we call it a crown jewel.
Operator: Our next question is from Vivek Juneja at JPMorgan. Your line is open. Please go ahead.
Vivek Juneja: Hi, Mark. A completely different topic because I think I understood your answer to be just for my previous question to be the tax benefits, so we'll leave it at that. I don’t know, if it is different, then I need to go down that path. But the question I signed on to ask was, you talked about the percentage of revolvers increasing from transactors in the private label and the retail partner cards. What is that percentage and how does it compare with what it was pre-pandemic?
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Mark Mason: Yeah, I don't -- we haven't broken down the transactor versus revolver mix, and so I'm not going to get into that. I will say that the revolver levels are at least back to where they were pre-pandemic and leave it at that. But we are seeing kind of continued revolver activity which you'd expect kind of given the way the cycle has evolved and given payment rates have started to moderate and the stimulus has kind of unwound and so all of that is kind of consistent with expectations but obviously is a factor in reserve levels as I mentioned earlier.
Operator: Our final question is from Betsy Graseck at Morgan Stanley. Your line is open. Please go ahead.
Betsy Graseck: Hi. Thanks so much. I just wanted to make sure of one thing on the expenses. I know in the past you've talked about the fact that 1Q will be a little elevated with the restructuring, and you showed that was the $225 million in the quarter. And then when we look to 2Q, should we still be expecting a step down in 2Q? And is that step down just the elimination of the $225 million? Or is there some restructuring that we're likely to see in 2Q as well? In other words, should I just fade sequentially 2Q, 3Q, 4Q to hit your annual number? Or is there a bigger step down in 2Q that I should still be expecting here, thanks.
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Mark Mason: Sure, I think you should just fade it to answer your question very directly. But I'd also point out that, you know, in Q1, if you really look through to it, it has the $250 million of FDIC charge in it. And so when you back that out, we effectively are coming in lower than what we had guided. All right? Despite that, I'm telling you the same -- I'm making the same point, which is you can expect a downward trend from here through to the end of the year. And while there won't be additional restructuring charge, there will be the normal BAU activity around repositioning that plays through. So hopefully, that answers your question, Betsy. The guidance still holds and the downward trend is what we are managing towards as we kind of play out the balance of the year.
Operator: There are no further questions. I will turn the call over to Jenn Landis for closing remarks.
Jennifer Landis : Thank you all for joining us. If you have any follow-up questions, please call us and we look forward to talking to you. Thank you very much.
Operator: This concludes the Citi First Quarter 2024 Earnings Call. You may now disconnect.
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Operator: Hello. And welcome to Citi's first quarter 2025 earnings call. Today's call will be hosted by Jennifer Landis, head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks at which time you'll be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Miss Landis, you may begin.
Jennifer Landis: Thank you, operator. Good morning, and thank you all for joining our first quarter 2025 earnings call. I'm joined today by our Chief Executive Officer, Jane Fraser, and our Chief Financial Officer, Mark Mason. I'd like to remind you that today's presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors including those described in our earnings materials as well as in our SEC filings. And with that, I'll turn it over to Jane.
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Jane Fraser: Thank you, Jennifer. And a very good morning to everyone. First, I'm going to discuss our first quarter results and then talk about the environment we're operating in and how we are positioning the bank for it. This morning, we reported net income of $4.1 billion and earnings per share of $1.96 with an ROTCE of 9.1%. Overall, it was a strong quarter, marked by continued momentum in each of our five businesses. We maintained a disciplined approach to our expenses, which declined by 5% year over year. We delivered our third consecutive quarter of positive operating leverage for each of our five lines of business, and the fourth consecutive quarter for the firm overall. We increased both our return on tangible common equity in each business and our return of capital to our shareholders. And this quarter is a further proof point of how the consistent execution of our strategy is improving our performance. Services recorded its highest first quarter revenue in a decade. TCS continues to demonstrate momentum in the key underlying drivers, the US solar clearing cross, and grew its assets under custody and administration to $26 trillion. Markets had a good quarter with revenue up 12%. The three most significant fixed income businesses, rates, spread products, and FX, each contributed to an overall 8% increase over last year. And in a good macro quarter for equities, we were up 23% as we continued with our long-term strategy to augment our high derivative share with a larger prime business. Banking was up 12% as we continue to gain share in investment banking across most industry sectors. Most notably, M&A revenue nearly doubled. We're seeing the benefits of our talent investments, as you can see by the leading role we played in some of the year's biggest transactions, such as advising Aalpare on the Siemens acquisition, and on the recently announced intracellular transaction by J&J. Turning to wealth, all three businesses contributed to overall growth of 24%, and fee revenue drove non-interest revenue
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J&J. Turning to wealth, all three businesses contributed to overall growth of 24%, and fee revenue drove non-interest revenue growth of 16%. We remain focused on capturing assets our clients have to offer as demonstrated by the roughly 11% organic growth in client investment. Andy and his new team are making excellent progress executing our strategy, with the business delivering record revenue this quarter and improved efficiency and returns. USBB was up 2%, driven mainly by increased loan balances and spending in branded cards. The high credit quality of our cards portfolio reflects the focus we've put on prime consumers, and our portfolio continues to perform in line with our expectations. Overall, USBB's return increased to nearly 13%. During the quarter, we returned $2.8 billion in capital to our shareholders, including $1.75 billion of buybacks as part of our $20 billion plan, which is about $250 million more than we had originally guided. That's our highest quarterly amount since 2022 and demonstrates our commitment to returning capital. We ended the quarter with a CET1 ratio of 13.4%, and our tangible book value per share increased to $90. Turning to our strategic priorities, our transformation investments continue to modernize our infrastructure, simplify our processes, and reduce manual touchpoints. During the quarter, we retired legacy applications and automated reconciliations, to name but a few accomplishments. We're also integrating AI directly into our business operations to improve the client experience. The latest example is Agent Assist, our first generative AI tool for customer service in US personal banking. It is designed to help our team resolve inquiries faster and is now being piloted in credit cards. From quarter to quarter, we are building on our track record of progress, and I am confident in our ability to continue delivering despite the uncertainty of the moment. In terms of the macro environment, I am not going to try to predict the unpredictable. While our corporate and consumer
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moment. In terms of the macro environment, I am not going to try to predict the unpredictable. While our corporate and consumer clients are resilient and in good financial health, the world is in a wait-and-see mode and is facing a more negative macro outlook than anyone had anticipated at the beginning of the year. And we know that prolonged uncertainty generally hurts confidence. The changes underway globally will go beyond trade and tariffs. In the US, for example, regulation and tax policy are all likely to look different in a year's time. And these changes will not only have economic impact but geopolitical and cultural ones as well. We appreciate the administration taking a fresh look at regulations across all industries to unlock growth. We welcome the changes being discussed in our own industry to place more focus on material financial risks and to make it easier for banks to contribute to economic growth and to improve client service. When all is said and done, and these long-standing trade imbalances and other structural shifts, the US will still be the world's leading economy, and the dollar will remain the reserve currency. The deep knowledge and breadth of capabilities that we have from decades on the ground in so many local markets are real points of distinction when serving our clients. From reconfiguring their supply chains to addressing their hedging and funding approaches to advising on their strategic agenda, I am very confident that we have built a strategy based on a diversified business mix that will perform in a wide range of macro scenarios and is differentiating in times like these. With capital strength, plentiful liquidity, and strong reserves, we can navigate through any environment from a position of strength. In periods of stress, we have shown that we are a port during the storm for our clients, the global markets, and the economy. And this time is no different. We are ready to lean in. As I look forward to the rest of the year, we should remain disciplined about returning capital
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We are ready to lean in. As I look forward to the rest of the year, we should remain disciplined about returning capital and managing our expenses whilst protecting necessary investments in our businesses as well as our transformation. And we shall not allow the uncertainty to distract us from executing our strategy and improving our returns. Now over to Mark, and then we will be happy to take your questions.
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Mark Mason: Thanks, Jane. Good morning, everyone. I'm going to start with the firm-wide financial results focusing on year-over-year comparisons unless I indicate otherwise, and then review the performance of our businesses in greater detail. On slide six, we show financial results for the full firm. This quarter, we reported net income of $4.1 billion, EPS of $1.96, and an ROTCE of 9.1% on $21.6 billion of revenues, generating positive operating leverage for the firm and in each of our five businesses. Total revenues were up 3%, driven by growth in each of our businesses, largely offset by a decline in all other. Net interest income excluding markets was up 2%, driven by USPB, wealth, and services, largely offset by declines in all other and banking. Non-interest revenues excluding markets were down 6% as better results in banking and wealth were more than offset by declines in all other, USPB, and services. And total markets revenues were up 12%. Expenses of $13.4 billion were down 5%. Cost of credit was $2.7 billion, primarily consisting of net credit losses in card as well as a firm-wide net ACL build reflecting the uncertainty and deterioration in the macroeconomic outlook. Before I move on, I would like to note that certain card transaction processing fees paid primarily to networks were previously presented in operating expenses and are now presented as a contra revenue and non-interest revenue, primarily impacting USPB. This change does not impact net income, and prior periods have been aligned. We provided additional detail in the appendix of the presentation on slide twenty-two. On slide seven, we show the expense trend over the past five quarters. As we've said in the past, we are very focused on bringing down our expense base. At the same time, the transformation remains our number one priority, and we will continue to make the investments needed specifically as it relates to data and regulatory reporting. Having said that, the drivers of our expense reduction going forward remain consistent with
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to data and regulatory reporting. Having said that, the drivers of our expense reduction going forward remain consistent with those that we have referenced in the past. Savings related to stranded cost reduction, productivity from our prior investments, and our organizational simplification, all of which allow us to self-fund our investments in transformation. As we look at this quarter, expenses declined by 5%, which included a favorable FX impact. The decline was driven by a smaller FDIC special assessment, absence of a restructuring charge, and lower compensation, partially offset by increases in technology, communications, professional fees related to transformation, as well as advertising and marketing. And looking at the rest of the year, we remain on track to meet our full-year expense target. On slide eight, we show key consumer and corporate credit metrics. As I mentioned, the firm's cost of credit was $2.7 billion, primarily consisting of net credit losses in cards as well as a firm-wide net ACL build. The ACL build reflects uncertainty and deterioration in the macroeconomic outlook, including a further skew to the downside scenario in our CECL framework. Our reserves now incorporate an eight-quarter weighted average unemployment rate of 5.1%, which includes a downside scenario average unemployment rate of 6.7%. Largely offsetting this build was a release related to lower balances in our card portfolio. At the end of the quarter, we had $22.8 billion in total reserves with a reserve to funded loans ratio of 2.7%. Now turning to consumer credit on the left-hand side of the page. Approximately 85% of our card portfolios are to consumers with FICO scores of 660 or higher. NCL rates increased sequentially in both card portfolios, consistent with historical seasonal patterns, and we continue to see stabilization in delinquency rates across both portfolios. And our reserve to funded loan ratio in our card portfolio is 8.2%. And corporate non-accrual loans remain low, reflecting the investment-grade nature of
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loan ratio in our card portfolio is 8.2%. And corporate non-accrual loans remain low, reflecting the investment-grade nature of our portfolio. Based on the quality and mix of our portfolio, but as always, we continue to monitor the evolving macroeconomic outlook. Turning to slide nine, where I will speak to sequential variance. Citi's $2.6 trillion balance sheet increased 9%, driven by growth in trading-related assets, which is typical given the seasonal increase. We also built out our cash position as we let investment securities roll off and opportunistically issued long-term debt. Loans increased 1%, driven by services and markets, largely offset by lower balances in cards. Our $1.3 trillion deposit base remains well-diversified across regions, industries, customers, and account types, and increased 2%, primarily driven by services. We reported a 117% average LCR and maintained $960 billion of available liquidity resources. We ended the quarter with a preliminary 13.4% CET1 ratio, down approximately 20 basis points as net income was more than offset by capital distributions, RWA growth, and higher DTA deduction. We continue to feel very good about the strength and quality of our balance sheet, and our robust capital and liquidity position us well to support our clients in a range of economic environments. Turning to the businesses on slide ten. We show the results for services in the first quarter. Services revenues were up 3%, driven by growth in TTS. NII increased 5%, driven by higher deposit spreads as well as an increase in deposits and loan balances. NIR declined 4%, driven by the absence of certain episodic fees and security services, as well as higher revenue share and the impact of FX across both TTS and security services. That said, we continue to see strength in underlying fee drivers across the business, as you can see on the bottom right-hand side of the page. Expenses declined 3%, largely driven by lower deposit insurance costs, severance, and legal expenses. Average loans increased 6%, driven by
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3%, largely driven by lower deposit insurance costs, severance, and legal expenses. Average loans increased 6%, driven by continued demand for export agency finance as well as working capital loans. Average deposits increased 2% as we continue to see growth in operating deposits. Services generated positive operating leverage for the third consecutive quarter and delivered net income of $1.6 billion and continued to deliver a high ROTCE of 26.2%. On slide eleven, we show the results for markets in the first quarter. Markets revenues were up 12%, driven by growth across both fixed income and equity. Fixed income revenues increased 8%, with rates and currencies up 9%, reflecting increased client activity, and spread products and other fixed income up 7%, driven by higher client activity and loan growth. Equities revenues increased 23%, primarily driven by equity derivatives, on increased market volatility and higher client activity and momentum in prime services, with prime balances up approximately 16%. Expenses increased 2%, driven by higher volume and other revenue-related expenses. Cost of credit was $201 million, primarily related to spread products, driven by net credit losses and a net ACL build. Average loans increased 7%, driven by financing activity and spread products. Markets generated positive operating leverage for the fourth consecutive quarter and delivered net income of $1.8 billion and an ROTCE of 14.3%. On slide twelve, we show the results for banking in the first quarter. Banking revenues were up 12%, driven by growth in investment banking, as well as the impact of mark-to-market on loan hedges, partially offset by a decline in corporate lending. Investment banking fees increased 14%, with growth in M&A partially offset by declines in DCM and ECM. M&A was up 84% as we gained share overall and across numerous sectors. DCM was down 3% compared to our near-record first quarter last year. And ECM was down 26% amid a pullback in the wallet for follow-ons and convertibles. Corporate lending revenues
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last year. And ECM was down 26% amid a pullback in the wallet for follow-ons and convertibles. Corporate lending revenues excluding mark-to-market on loan hedges declined 1% as increases in revenue share were more than offset by the combined impact of lower loan balances and higher recoveries in the prior year. Expenses declined 12%, largely driven by lower compensation, as we see the benefit of our prior actions to rightsize the workforce and expense base. Cost of credit was $214 million, consisting of an ACL build of $180 million driven by changes in the macroeconomic outlook and net credit losses. Banking generated positive operating leverage for the fifth consecutive quarter and delivered net income of $543 million and an ROTCE of 10.7%. On slide thirteen, we show the results for wealth in the first quarter. Wealth revenues were up 24%, with growth across Citi Gold, the private bank, and Wealth at Work. NII increased 30%, driven by higher deposit spreads partially offset by lower deposit balances. And NIR increased 16%, primarily driven by growth in investment fee revenues as we grew client investment assets by 16%. This includes net new investment assets of $16.5 billion in the quarter and over $56 billion in the last twelve months, representing approximately 11% organic growth. Expenses were roughly flat as the benefits of our prior actions to rightsize the workforce and expense base, as well as lower technology expenses, were offset by higher revenue-related expenses and severance. End-of-period client balances increased 7%, driven by higher net new investment asset flows and market valuation. Average loans declined 2% as we continue to be strategic in deploying the balance sheet to support growth in client investment assets. Average deposits also declined 2%, driven by a shift in deposits to higher-yielding investments on Citi's platform and other operating outflows, largely offset by client transfers from USPB, reflecting our ability to support clients as their wealth and investment needs evolve. Wealth
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by client transfers from USPB, reflecting our ability to support clients as their wealth and investment needs evolve. Wealth had a pre-tax margin of 17% and generated positive operating leverage for the fourth consecutive quarter, and delivered net income of $284 million and an ROTCE of 9.4%. On slide fourteen, we show the results for US Personal Bank in the first quarter. US personal banking revenues were up 2%, driven by growth in branded cards and retail banking, largely offset by a decline in retail services. Branded cards revenues increased 9%, with interest-earning balance growth of 8%, and we continue to see spend growth, which was up 3%. Retail banking revenues increased 17%, driven by the impact of higher deposit spreads. And in retail services, revenues declined 11%, primarily driven by higher partner payment accruals. Expenses were roughly flat due to continued productivity savings offset by higher advertising and marketing, as well as legal expenses. Cost of credit was $1.8 billion, consisting of net credit losses partially offset by a net ACL release of $172 million. This included a build related to changes in the portfolio composition and macroeconomic outlook, which was more than offset by a release due to lower card balances largely in retail services. Notwithstanding this release, our cards reserve to funded loan ratio increased to 8.2% from 7.9% last quarter. Average deposits declined 11%, driven by client transfers to wealth that I just mentioned. USPB generated positive operating leverage for the tenth consecutive quarter, and delivered net income of $745 million and an ROTCE of 12.9%. On slide fifteen, we show results for all other on a managed basis, which includes corporate other and legacy franchises and excludes divestiture-related items. Revenues declined 39%, with declines across both corporate other and legacy franchises. Corporate other was largely driven by lower NII as well as the impact of mark-to-market valuation changes on certain investments on NIR. Legacy franchises were
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by lower NII as well as the impact of mark-to-market valuation changes on certain investments on NIR. Legacy franchises were driven by the impact of Mexican peso depreciation, expiration of TSAs in our closed exit markets, and continued reduction from our wind-down market. Expenses declined 17%, driven by a smaller FDIC special assessment, absence of a restructuring charge, reduction from exit markets and wind-down, and the impact of Mexican peso depreciation. And cost of credit was $359 million, largely driven by net credit losses of $256 million driven by consumer loans in Mexico. On slide sixteen, I'll briefly touch on our full-year 2025 outlook, which we've adjusted for the impact of the card transaction processing fee presentation change that I mentioned earlier, but is otherwise unchanged. As you know, in January, we provided guidance for full-year revenue and expenses as well as card NCLs. And that guidance was informed by a number of scenarios and assumptions. Based on what we know today, and assuming markets remain open and constructive, we still expect to deliver full-year revenues of $84.1 billion, with net interest income excluding markets up approximately 2% to 3%. And we expect full-year expenses to be slightly lower than $53.4 billion. Clearly, there remains a lot of uncertainty, but we are confident that our diversified business model and resilient strategy can withstand many environments, and we remain well-positioned to support our clients. So while a lot is changing around us, we remain steadfast and focused on continuing to execute on our transformation and strategy while remaining disciplined with our expenses and capital with an eye towards improving returns over time. And with that, Jane and I would be happy to take your questions.
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Operator: At this time, we will open the floor for questions. If you'd like to ask a question, please press star five on your telephone keypad. You may remove yourself at any time by pressing star five again. Please note you will be allowed one question and one follow-up question. Again, that is star five to ask a question. And we'll pause for just a moment. Okay. Our first question will come from the line of Glenn Schorr with Evercore. Your line is now open. Please go ahead.
Glenn Schorr: Hi. Thanks very much. I know it's early, but I'm curious if you could help us with a refresher on treasury and trade solutions and services in general in terms of what opportunities you know, there's risk, but also opportunities in helping clients manage through this re-tariffing and redrawing of economic lines. You know, I think about nationalization and vertical integration as bad things, but a lot of shifting and maybe you can help clients deal with all that shifting. But any help there would be great.
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Jane Fraser: Glenn, I would be delighted to do so. So our diversified business mix is very well positioned for a variety of scenarios. So you think we've got a very broad suite of products and services, and they are the ones that clients need if they're going to be repositioning for a new order in trade or broader impacts here. And think about what you've seen over the last few years where we played a very central role in the Ukraine-Russia war, China, the COVID-related supply chains. We saw a lot of growth from deepening with clients and acquiring new ones because they need us. Because we have exactly the expertise and the products and services that multinational institutions need, and we have them in the places that they need it. Now the mix of those different, the revenues, different products, and services we have could be different depending on which scenario prevails. And what I have to say at the moment, the level of engagement that we have with our clients all around the world is just off the charts. Given the unique depth of our presence and the insights we have in all the markets. So if I dig down a bit more, what would the persistence of high tariffs mean? Well, it would dampen economic activity here in the US and abroad. Cross-border trade flows will change. We'll be in the middle of facilitating that. So we expect to be very busy there along with the hedging and associated financing activity that goes with it because it's not just about TTS. This is about the bundle of different capabilities we bring to bear. And take some comfort. Look at what happened with the Ukraine war. We grew a lot in that time period. Equally, most of our business is very local. Think of what services is. It's payroll. It's supply management. It's liquidity. It's payables. It's receivables. And we're very deeply embedded into our clients' day-to-day operations in every market they work in as well as across market flows. And that's not going to change. It's not nearly as sensitive to tariffs. And I would say, I think all of us
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market flows. And that's not going to change. It's not nearly as sensitive to tariffs. And I would say, I think all of us recognize the environment is very fluid right now. So let me also just say for clarity's sake, at the firm level, our ROTCE targets for 2026 are still 10% to 11%. The drivers behind them are the same. But the revenue mix might be different. We'll certainly know more as things get clearer as to how that plays out. I think, actually, the other thing you mentioned about nationalization, most of our clients have been clients for decades. I mean, a number of them have been clients for over a century. And it would not be an understatement to say that we are deeply embedded into them. I mean, it is extraordinary how deep we are. We've been on the ground for over a century, and we are viewed as quasi-local in most of these markets. Citi is not a bunch of suitcase bankers that fly in. We're not transactional. We're very unique in the footprint. And these factors do make us less vulnerable to the different geopolitical dynamics that are going on.
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Glenn Schorr: Thanks for all that, Jane. I'll see you at four.
Operator: Our next question comes from the line of Jim Mitchell with Seaport Global. Your line is now open. Please go ahead.
Jim Mitchell: Hey, good morning. Maybe, Jane, just following up on that conversation, and you talked about leaning into being a port in a storm and leaning into it. So I guess in the nearer term, are you seeing sort of demand already in terms of your balance sheet, whether it's raising liquidity and deposit flow, like sort of flight to safety deposit flows and sort of the trading aspect of it in from this volatility in April, have you sort of already seen greater demands from clients?
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Jane Fraser: What I'd say about the clients at the moment, you know, you're seeing deals still happening. We've done a number of them as we've talked about. Even over this last weekend, we were pretty busy. But I would say that most clients are pausing their plans. No one is taking bets in the market right now. We're seeing them prep for more headwinds. So we're seeing some bolstering of already strong balance sheets. Remember, our client base isn't the smaller companies in the mid-market that are going to get more pummeled in this type of environment. So our clients are getting ready. We're seeing some accelerating of import to stockpiling the trees. We are seeing a pausing on significant CapEx while everyone waits to get clarity on the full agenda. And in that full agenda, remember, there's a tax bill, these deregulation actions. Now these are some positives that will be coming. It's a very big agenda. Clients appreciate it's going to take time. In terms of the trading side, what we're seeing is it is pretty orderly out there. There's a lot of complicated dynamics happening. But it's not being catalyzed by liquidity, you know, crisis or other things going on. You know, let's not fight the last war. The issue we're tackling at the moment is something different. And we're seeing clients taking the opportunity to de-risk. We are. Others are. So that if we have more turbulence ahead, everyone's in a stronger position for it, and that is a good thing. It's early days, Jim. We've got to see how this unfolds.
Jim Mitchell: Sure. No. I appreciate that color.
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Jim Mitchell: Sure. No. I appreciate that color.
Mark Mason: And then maybe for Mark, I mean, you highlighted at least on a period-end basis, deposit growth and commercial loan growth looked pretty good. On a period-end basis quarter over quarter. So I guess when we think about the NII assumptions, deposit and loan growth looks good, but you know, anything different given the strong start to the NII ex-markets story and seemingly some good momentum in deposit and loan growth. Do you feel good, better, worse on sort of your NII outlook for this year?
Mark Mason: Good. Thanks, Jim. You know, look, I continue to feel good about the NII outlook. There's obviously uncertainty that Jane has referenced, but that 2% to 3% ex-markets, we've talked in the past about what the tailwinds and headwinds are. And you referenced we saw some of that play through in the quarter in terms of deposit volumes. We saw good operating momentum in our services business. In TTS in particular. The loan growth, we saw not just in average interest-earning balances on the branded card side, but also saw trade loan growth as well. And so those are going to be important tailwinds as I think about the balance of the quarter. You've heard me reference as well reinvestment for maturing securities in our investment portfolio into higher-yielding assets including cash. And you can see that on the balance sheet that some of that started to take place as well in helping deposit spreads. And then the team has been very, very engaged as it relates to deposit repricing and managing beta through the current environment. So the combination of those things along with the removal of the reduction of late fees are really the tailwinds that contribute to that 2% to 3% growth. And then there's some headwinds, so lower rates on floor floating rate assets would be a tailwind. The potential of FX translation primarily in Mexico. But net-net, I feel good about the 2% to 3% growth in NII ex-markets.
Jim Mitchell: Okay. Great. Thanks.
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Jim Mitchell: Okay. Great. Thanks.
Operator: Our next question comes from the line of Mike Mayo with Wells Fargo. Your line is now open. Please go ahead.
Mike Mayo: Hi. I just wanted to continue the discussion about, you know, on one hand, your port in the storm, you've been embedded decades and you're not a bunch of suitcase bankers. So that message has landed. On the other hand, I mean, you are the bank that facilitates global trade in the middle of a global trade war. And so I think the concern is not just the possibility that revenues will nosedive, but that credit will implode or as I've heard many, many times that Citigroup is going to stub its toe. Just a hundred countries, in the mix of it all. What else can you say in addition to what you said to either reassure investors that the oversight is strong or that you have your arms around the situation the best that you can again, recognizing that it's a fluid situation. Thank you.
Jane Fraser: You've seen us perform extremely well over the last few years in the face of pretty wrenching changes in the global economy. You've seen it with, let's say, the shifts in the supply chains after COVID and then between the geopolitical tensions going on. You saw it in pretty significant changes that were happening from the Russia and Ukraine war. And you see us exactly as that where we are where the clients come. It's hedging for foreign exchange, interest rates, commodities. You see it for how they're looking at changing their finance. We are helping them reconfigure the flows. So from that point of view, we are the active agent in a lot of this mix. And we are a port in the storm, as I said, Mike, we've got a very strong balance sheet, capital, and liquidity to deploy. We have been the big strategic changes and organization changes behind us, and they're enabling us to be on the front foot. And this is a firm that is much more agile and able to respond and be much more focused on clients right now. So I feel good about this.
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Mark Mason: Yeah. The only thing I'd add, I mean, Jane, you're spot on. Right? We come in with a strong balance sheet. Strong capital, strong liquidity. If you think about your point around credit, Mike, we've said repeatedly and you can see it in the numbers, we skew towards the higher investment-grade larger multinationals who also come into this with strong balance sheets. We've been very disciplined about that risk framework, our risk appetite, both on the corporate side as well as it relates to our consumers. And then what we tend to see in times of stress is a flight to quality as it relates to deposits. And so again, depending on how this evolves, we're well-positioned to manage whatever the needs are of our clients, whether that be lending needs or the storing of liquidity, and we're very well reserved to manage whatever credit risk may come with that despite us being skewed towards higher quality names in both of those demographics.
Mike Mayo: Okay. The flip side of this is you did say the drivers are the same. They might be different in magnitude to take you from where you are now. You had over 9% ROTCE in the quarter. You said you're on track to get to 10% or 11% next year. Can you put a little meat on the bones, kind of a verbal waterfall chart if you would, or maybe some numbers around org simplification, stranded costs, productivity savings, do we get from the 9% in the first quarter to that magical double-digit return target for next year?
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Mark Mason: Again, as we talked about before, it is a combination of continued momentum on the top line, and this is Jane's point around how that mix may evolve. But you know, the 3% plus that we're expecting this year, and again in 2026 is an important contribution to that. You often see in our business where one business may be under pressure, the other one tends to outperform and overcompensate, whether it be banking fees and how those evolve, but volatility that may come with that that uplifts the market's business. So that continued focus on top-line performance will be important. You've heard me reaffirm the expense target for 2025 in terms of getting down to the $53.4 billion. We still have a path to getting less than $53 billion in 2026. That will be important. Obviously, if revenue softens there, we will see expenses come down in tandem with that. Combination of volume-related transaction costs, but other levers that we will look to pull in the productivity savings we expect to come from prior investments is an important aspect as well. And then we've continued to optimize the use of our balance sheet. And the capital that we have. You see that we have brought our CET1 down to 13.4%. We're continuing to return capital. Those become very important aspects to getting to that target. Now look, it's uncertain. And how the world evolves is hard to forecast at this point. Right? So could a stressed macro environment create an impact on credit and the build of reserves? Absolutely. Right? That could happen towards the end of 2025. If it does happen in 2025 and losses end up showing up in 2026, they end up being self-funded, so to speak, by the reserves that would have been established. So you know, we sit here today and as Jane mentioned, you know, with seeing nothing that would suggest that we shouldn't be targeting the 10% to 11%, so we remain committed to that 10% to 11%. There's a path with the combination of those levers that I've mentioned. And importantly, this quarter is yet another proof point that
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a path with the combination of those levers that I've mentioned. And importantly, this quarter is yet another proof point that our strategy is resilient, that we've got the right team on the ground to execute against it, and that it's showing up in our numbers, and it's showing up in our returns.
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Jane Fraser: And I just remind everyone, we're a very different bank than the one we were a few years ago in terms of our business mix, our risk profile, and all the investments we've made into the business. And I think you can see us managing the bank, doing what we say we'll do, and please take some confidence in that.
Mike Mayo: Thank you.
Operator: Our next question will come from the line of Ebrahim Poonawala with Bank of America. Your line is now open. Please go ahead.
Ebrahim Poonawala: Hey. Good morning. I guess Mark, just wanted to on slide nine in the capital waterfall, I guess we're all thinking about what buybacks can do in the second half of this year. So if you don't mind, one, the RWA sort of dragged the thirty-two basis points. Is that normal as we think about what the RWA consumption should look like? Just talk about that in the context of getting to a 13.1% CET1 by the end of the year. And how we can back into the pace of buybacks.
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Mark Mason: Yeah. So I'd say a couple of things. So one, last quarter, we announced a $20 billion share repurchase program. And we continue to feel good about that program as you would expect. And we show we increased our buybacks this quarter, I should say, to the $1.75 billion seeing the strength of the performance that was playing out through the quarter. And so those are both, I think, indications of our continued commitment to returning capital to the shareholders. We're clear on where we're trading. And we're clear that that is a smart thing to do once we've funded demand from a client point of view across our businesses that's accretive to returns. And so the RWA consumption is tied to that demand that we see. We think we've seen good client demand across the platform that's helped drive the top-line momentum that you see in each and every one of our businesses that's helped to drive the improved returns that you see in the quarter in each and every one of our businesses and accretive in returns we'll be looking to meet that as a first priority. We are targeting the 13.1% by the end of the year. But as you know, we'll get a new stress capital buffer in June on the heels of the DFAS CCAR work that's just been submitted, and we'll have to see what that tells us. That's hard to forecast. As you well know. And so based on what that tells us, we'll inform that downward trajectory but that is what we're focused on. The combination of funding growth that's accretive to returns, and returning capital to shareholders in a way that's consistent with that repurchase program.
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Ebrahim Poonawala: Understood. I guess you mentioned, I think, in your prepared remarks, the reserves on the card book went up to 8.2%. Remind us, I mean, I think in the genesis of both questions is I think there's a fragility to your ROTCE guidance for next year that I think makes investors nervous. And I'm just trying to get to the pieces around buybacks and then in terms of credit, like, how what's baking in around the unemployment rate? What would cause you to ratchet up provisioning in the near term? What kind of an empty job market deterioration do we need to see for the credit outlook to deteriorate fast and materially? Thanks.
Mark Mason: Yeah. Let me take that in a couple of different pieces. So the first thing I'd say is that, you know, as I look at our credit exposure and I look at the consumer, you know, the consumer continues to be resilient and discerning in their spend. And in fact, we did see, you know, spend hold up in the quarter and we saw a spend actually increase in our branded card portfolio up about 3%. The consumer has, you know, we've seen a shift towards essentials and away from travel and entertainment. There's certainly, you know, a general performance that's consistent with what we've expected when we look at delinquencies, when we look at the loss rates that played through the quarter, there are no surprises there as we think about that.
Jane Fraser: And they both performing in line with that as well. Thank you.
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Jane Fraser: And they both performing in line with that as well. Thank you.
Mark Mason: Yes. And April has been consistent with that. As we think about reserves, you know, we ended the quarter at about $23 billion of reserves across the entire business. That's about a 2.7% reserve to loan ratio. When I look at the drivers of that, as you know, when we establish when we do our analysis on a quarterly basis, we have three scenarios that we run, a host of other stress scenarios, but those that inform the CCAR analysis to three scenarios. The base case scenario, there's a downside scenario, and there's an upside scenario. And as we looked at the macroeconomic outlook and the key variables that go into those scenarios, we assume the deterioration in that macro outlook. And we increased the probability or the weighting towards the downside scenario in light of what we were seeing in the macro environment. When you look through to some of the key variables or one of the variables you referenced, unemployment. The average unemployment rate was 5.1% across those three scenarios. The unemployment rate in the downside scenario, the average was 6.7% across those eight quarters. And so we've assumed some pretty meaningful shifts in unemployment, particularly on that downside, you know, in our analysis. That informed the increase in our ACL reserves that's referenced in the deck. And that increase was offset a bit by the sequential reduction in volumes that is somewhat seasonal. So hopefully, that helps. I feel we feel good about those reserves based on what we know and our current view of the macroeconomic environment. And we'll obviously do that on a quarterly basis as things continue to evolve.
Ebrahim Poonawala: For walking through that. Thank you.
Operator: Our next question comes from the line of John McDonald with Truist Securities. Your line is now open. Please go ahead.
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John McDonald: Thank you. Hi, Mark. Wanted to ask you about capital optimization levers that you have to you've done made some good progress in RWA mitigation. Is there still some room to go there? And then also, could you maybe increase the pace of DTA utilization to reduce the TCE density in a way to help the ROTCE goal?
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Mark Mason: Yeah. Sure. So look, we're always looking at opportunities to further optimize the use of capital, you know, in markets we've talked about last year, a lot about the revenue to RWA as a tool that we've been using there. That's continued to increase that metric and ratio. We continue to look at are we optimizing balance sheet and getting the broader revenue streams we'd expect from our client base, you know, when we do our corporate lending work and some of that is showing up in how we've now introduced the revenue sharing as a tool to ensure we're capturing broader revenues from clients where we're when we are using balance sheet. So we're constantly working through this and identifying opportunities to ensure we're getting the highest return on that. You know, in fact, if you look at some as you look through the material we provided, you'll see that in light of the improvement we've seen across all of our businesses last year, as well as our forecast for growth this year, there, in fact, is a shift in the TCE. And so the allocated TCE has gone down for many of these businesses because they have shown good PPNR growth, good profitability. And so as we stress test it internally, the stress losses with the businesses have in fact come down. Now obviously, we have to adhere to the regulator stress test, and so that shifted from the businesses, you know, into corporate other, but it is a positive sign as we think about how the stress capital buffer might evolve and as we exit different parts of the franchise, you know, the underlying segments are already showing that improvement that would suggest lower levels of stress losses. And so that's another important point that we diligently manage even if we can't control the impact at the top of the house. Your point around DTA, we continue to focus on bringing the DTA down. As you know, that is largely driven by our ability to generate more US income which we're also very focused on. We did see a pickup this quarter, which is really just a timing difference
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more US income which we're also very focused on. We did see a pickup this quarter, which is really just a timing difference pickup. It happens in the first quarter of every year. It is tied to, you know, deferred compensation and loan loss reserves. As timing difference DTA. And as we earn more income through the balance of the year, and obviously create income tax liability, it will utilize that increase we saw or offset that increase we saw in the first quarter here. We are targeting, you know, bringing that down, you know, in 2025 and in 2026, you know, to in order to contribute to optimizing capital.
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John McDonald: Thanks, Mark. And I wanted to ask Jane about the Banamex IPO planning. Just an update on where that stands and assuming that marketing conditions create some risk to the timing. Is it fair to say that there are pros and cons from the shareholder perspective to holding on to that business longer given that it's a profitable entity?
Jane Fraser: Look. First of all, we continue to be on track with the preparation for the IPO, John. I was just down in Mexico last week, and the team's fully focused on driving Banamex business performance. I was very pleased to see improvements in not the underlying drivers of their performance when I was down there. And they're also focused on getting the work done to be able to go public things like the prepared audit financial statements, or filling the various regulatory requirements. Have we told them we want to see the business performance improving, and we want to make sure that we are doing everything in our control to be in a position to IPO by the year-end. And you know, to the second part of your question, we will always look at what we believe to be in the best interest of our shareholders. We believe that the best interest of our shareholders is to be up to IPO this business. We think that is the right thing. It fits with Citi's strategy for all the reasons we've talked about in the past. We're the best owner of the corporate franchise we have there. We are not the best owner of a domestic bank. So the timing of when we IPO will be driven by market conditions. It will be driven by the timing of regulatory approvals. So that could move that from 2025 into 2026. We will always be guided by what we think will maximize value for our shareholders.
John McDonald: Great. Thanks, Jane.
Operator: Our next question comes from the line of Ken Usdin with Autonomous Research. Your line is now open. Please go ahead.
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Operator: Our next question comes from the line of Ken Usdin with Autonomous Research. Your line is now open. Please go ahead.
Ken Usdin: Thanks. Good morning. Wanted to follow up on the points you made about consumer hanging in there through April. Mark, you mentioned that there could be more uncertainty as we get later, but you believe, you know, you're still intact with your charge-off guides for the year. I think that just noticing retail services wise, I think, expectively higher than the high end at 643. Can you just remind us again how you're expecting the cadence of credit card losses to traject for both branded cards and retail services as you go forward? Thanks.
Mark Mason: Sure. Again, we do obviously feel that we are well reserved here. We did expect to see, you know, a pickup in the first half of the year before trending down, you know, in the back half of the year. And so that's kind of the, you know, the cadence that we'd expect between now and the end of the year. The first half is usually seasonally higher than the back half of the year, and you see that in retail services. I would also point out that and you can see it in the deck in the I think it's the second page of the appendix, but also in the supplement. You are starting to see the delinquency buckets. We show the ninety-day plus delinquency bucket starting to trend down in retail services. That is also, you know, an important indicator in terms of how we look at, you know, the expected losses, if you will, you know, in the go forward. And so that seasonality, as well as that trend, is a good sign.
Jane Fraser: We've also I think one of the pieces Gonzalo and the team have done a good job with is they've been proactive in tightening risk in acquisitions and existing programs in the last couple of years. I think that also puts us into another reason where we feel, you know, in a good position as we head into whatever lies ahead.
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Ken Usdin: Yep. Very good. And one just to a follow-up on NII and your outlook, did you make any changes to it, including card fees still in the NII guide? Does that now removed? Is that still in there? And know there's a lot of puts and takes given the change in the forward curve if you can help us understand which curve you're using and some of the balancing act there, that'd be great. Thank you.
Mark Mason: Yeah. So our, you know, so look. The late fee impact is for us, is, you know, important. And we included it in the range that we had given and we still feel good. We've now removed it, obviously, with the changes that have taken place, but we have not changed our range because there's obviously going to be puts and takes that occur. It does have an impact on the retail services print that we have in the quarter and more importantly, the year-over-year that you see there of down 11% because as you know, we share profits with those partners. And so, you know, that down 11% that we see in the quarter is informed by, you know, last year where we had an assumption that the late fee rule was going to come into play and therefore we had less profits to share with our partners versus this year first quarter where we've assumed it would not come into play and therefore have more profits to share with our partners. And so important to point that out on retail services, which jumps out in USPB that it's unlikely that we see that downward percentage in the remaining quarters because it's really a byproduct of what we assumed last year versus this year on late fees. In terms of the curve in the NII guidance we gave, we assumed two to three cuts. We're now assuming, you know, a fourth, but given the timing and that it would be back-loaded in the year, it doesn't have a significant impact on the NII guidance that we've given, you know, the 2% to 3% ex-markets.
Ken Usdin: Okay. Great. Thanks, Mark.
Operator: Your next question comes from Betsy Graseck with Morgan Stanley. Your line is now open. Please go ahead.
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Operator: Your next question comes from Betsy Graseck with Morgan Stanley. Your line is now open. Please go ahead.
Betsy Graseck: Hi. Good morning.
Mark Mason: Good morning.
Betsy Graseck: Hi, Betsy.
Betsy Graseck: Hi. Two questions. Just first on the buyback, I noticed you know, you came in at $1.75 billion. Is that right this quarter?
Mark Mason: Yep. Yep.
Betsy Graseck: And I know you indicated that you're looking to keep pace, and I'm wondering, does that mean at $1.75 billion, or does that mean keep pace with the increased q on q, which was, you know, a hundred and fifty-six million and so that little I know you're laughing up. Just trying to understand how you're thinking about that given, you know, what we discussed last quarter, which is you have so much opportunity here for buyback and the accretion is so powerful. So you don't mind.
Mark Mason: Yeah. Sure. So look. We're, you know, we're targeting a similar level. You know, as you know, we've been working to we brought it down twenty basis points this quarter. We're still focused on bringing it down to thirteen one. There is uncertainty. The uncertainty is multifaceted in some extent, you think about the uncertainty with the SCB. We'll hopefully get some clarity on that. You know, as we often do in the summer. And that will inform, you know, the pace at which we bring that down. And then there's the broader market uncertainty, and we want to obviously be there to support clients and the demand that may come on the heels of that. And so, you know, this quarter, like I said, similar level of share repurchases. Twenty billion dollar program that we will continue to work through. SCB clarity soon, hopefully, favorable clarity. And we're steadfast focused on it. I don't know if you want to add anything to that.
Jane Fraser: We like giving shares back to back in, buying them back, and giving capital back to our shareholders. So it's a priority for us, will continue to be.
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Betsy Graseck: Okay. Excellent. Thank you so much. And then Jane, just separately, on slide two, you identify the main priorities for 2025 and 2026, many of which we've talked about here this call. I just wanted to understand from your perspective on the transformation how far along do you feel you are in the modernizing your infrastructure? And what kind of time frame do we have to go from here to check the box on that one? If you ever can check the box. And then separately on the commercial banking segment, if you could just give us some insights there too. Thank you.
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Jane Fraser: Okay. There's a lot in there. So as you remember, the transformation is a very large body of work. We're overhauling our infrastructure. We're reducing and modernizing our applications. We're simplifying our processes as of addressing the different root causes of what helped us back thoroughly. And once and for all. And I feel good about the progress we've made. We're seeing more and more of the benefits into how we run the bank. As you know, we fell behind in data. We've taken action to get that into shape, and we're confident in how that's now progressing. In many parts of risk management compliance programs, we're already operating at or close to the target states. So our focus is now ensuring we're delivering the risk reductions and the outcomes in a sustainable way. And I'm excited about the work we've been doing in making sure that our technology and our overall control environment is what we call modern and simple. We're simplifying and standardizing controls across common activities. We put a lot more preventative and detective controls in place. We're upgrading others that weren't effective enough. We're driving automation, we're driving straight-through processing of our end-to-end processes across the bank. And, you know, you've heard us talk pretty consistently over the last couple of years about the work to make technology infrastructure onto consolidating onto single platforms, retiring legacy applications. So I'd say where we are as many of the efforts are now impacting how we run the bank better and more efficiently and in a much more controlled way. There's still work to do, and as you say, I'm not sure any bank finishes its modernization because the pace of innovation is there. And we're still innovating and investing in supporting our businesses with new innovations in different areas, talk briefly about AI, a lot of work and services there, USBB and Andium wealth. So there's a lot going on. I think you can tell I'm pretty excited about it. I'm pleased where we're headed and at
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wealth. So there's a lot going on. I think you can tell I'm pretty excited about it. I'm pleased where we're headed and at the pace we're heading.
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