In an investor presentation on Wednesday, Citigroup Inc. said the profitability will be affected as the bank pursues a shift in business strategy that will entail raised expenses in the short term. The ROTCE or Return on Tangible Common Shareholders Equity over the next 3-5 years will be 11% to 12%, and last year it was 13.4% compared to 23% posted by JPMorgan Chase.
Focus on high-yielding businesses
Jane Fraser, who has been the CEO for just about a year, has started overhauling many of the bank’s businesses for which Citibank was known for centuries.
She announced Citibank’s plan of exiting retail banking operations in around 14 countries globally. This also includes the Citi franchisee in Mexico, which is home to the largest branch network of the bank. The bank would now focus its investment on high-yielding businesses.
In her opening presentation on investor day of the bank, she said that the new strategy is not a quick fix and requires a multi-year solution. The investor meeting was switched to the virtual format after two executives tested positive for COVID -19.
The New York-based Citibank shares fell by 2.9% at 9.32 am to $56.91, extending the year’s fall by 6.2%.
According to Frazer, the by 6.2 company’s banking division would focus on high returns on investment banking. Citi will boost growth by expanding commercial banking and targeting new economy companies. She emphasized in her presentation the shift across Cogroup to high returns wealth management services and commercial banking to serve mid-sized businesses.
Over the years, Citigroup has been missing its targets repeatedly. In 2017, the last held investors’ day, the company had forecast a 14% ROTCE. This was the worst performer in the S&P500 Financials, a 67-company index grouping since 2020. The bank is the only major stock that trades below its book value, meaning that investors believe the stock destroys value.
The rising costs related to the new strategy and the higher expenses are expected, as warned by the company as it seeks to comply with consent orders, have wider ramifications, which it has been saddled with since 2020. Citigroup has submitted a plan to the regulators where its AHS deployed thousands of employees to address the concerns.
Glenn Schorr, an analyst with Evercore Inc. said in a note to its client Wednesday that the investors need to be patient and have some faith as Citigroup executes a transformation in the next two years and then gives tolerable returns in the next three years.
