Transcription
Hello everyone and welcome to At Barrens and welcome to our guest Jane Frasier, CEO of Cityroup. Jane, great to see you. Thank you for having us again to your headquarters.
>> Oh, it's wonderful to have you here. Thank you for coming on a glorious spring day.
>> It really is a beautiful day. So, we're heading very rapidly towards the midyear point of 2026 and I'm wondering what your goals are for this year and how far along you are to achieving them.
>> So, we've I've got a co goals for different time frames for the year. So, obviously one of our main commitments is delivering improved returns to our shareholders and so we're looking at 10 to 11% ROC um and a strong commitment and after a very good start to the year confidence around that. Um but we've also got the goal of making sure we continue to uh execute against our transformation. Um so been a priority for a number of years and we are 90% through with the uh being at our target states. And then our third priority is around growth. Um we are very focused around making sure that we are setting up the firm for the next uh medium-term and longer term. So what are the investments we're making? uh AI, what are the investments we're making in business growth, the momentum so that we're uh putting in the f the firm in the position to have continued improvement in our financial performance.
>> Now, you've been CEO for just over five years and the stock just with this latest burst has just now exceeded the S&P 500 over your tenure. You've also exceeded the bank index. It's trading at a 17 and a half year high. It's trading above book value. So, Jane Fraser, how do you feel about that? And is this the beginning, middle, or end of things?
>> I feel like we're only just getting started. Uh, and I I I truly mean that. Um, I think the upside that lies ahead for us is is very significant. Um, I'm excited about the potential for each of our five businesses. Um but also when we look at the enterprisewide dynamics that lie ahead um I I just I see a lot more runway ahead for the firm um and runway that's in our control um that's independent of where the world heads in the next few years. Um so I I'm delighted to see the improvement in the performance but uh there's no victory lap and we we aren't even we're at the way point um my eyes are on the destination.
Is this a matter of going from can Jane Frasier fix this problem to what is city's new ceiling? Would you characterize it that way?
>> Uh no. I think we've been demonstrating that we can both um transform the bank as well as grow at the same time. And I think that that's the dimension I feel the most proud about. Um as we think about the journey that city is on um that we've been able to do a lot of things at the same time while significantly growing. uh the firm and driving a lot of innovation. So I think that's uh I would I would characterize it that way.
>> You mentioned the return on tangible common equity for Q1 being over 13% which was above your 11% target. Is that because of specific conditions in Q1 or is that sort of a new normal the 13 versus the 11?
Well, we hope to be driving to higher results than that in the in the medium term, but um the first quarter is typically the strongest quarter in the financial services industry. Um clients are extremely active in that first quarter. So um one quarter does not a full year make um and that's why we're expressing a lot confidence around the 10 to 11% ROC for this year. Um but uh and and unquestionably with a strong start to the year but there's a lot of uh uncertainty uh in the macro environment um there's a lot of uh questions around the world at the moment um so that's how I look at it.
>> For years the story here has been about restructuring delayering divevestatures um now that the surgery is largely done what is the core organic growth engine or engines that will drive this company forward chain.
>> Look, I I if I just take a step back, Andy, when when when I started as CEO, I looked at this very much not as a story of how do I fix the bank, but I was very clear about how did we position the bank and change the bank for the to position it for the decade ahead. It was never from one to another. Whereas we were looking at transformation rather than remediation. we were looking at how you know where do we have businesses we have the right to win in and make sure we were positioned for them. So for me uh it's not we've done one and we're moving to the other. It's all been part of the same consistent journey and eye on the destination. Um and we're we're done with a lot of the tough decisions we took early on. Um we've completed a lot of the work. We've still got a bit more to do um in terms of the final legs of devestures um and completing the transformation work. Um so that the end of those tunnels are in sight but it was never a move from one to the other. We were doing both simultaneously. Um I'm looking forward to and I've always said this I look forward to the bank to running the bank um that is that is at more of that end state of simplified um in terms of transformation exits um the organization restructuring work we've done you know has put us in a strong position the modernization of our infrastructure has put us in a strong position for AI and what lies ahead and so I very much look forward to the next few years um on the back of the the heavy lifts that we've done, but it was always being done together.
>> Understood. I want to ask you about some specific parts of the business chain. Services, a crown jewel of the bank, 17% growth there.
>> How do you keep competitors though from encroaching on that business and how are you going to keep it strong?
Yeah, I mean we we when you think about um the businesses that will win um in an AI world, in the geopolitical world, the other dimensions, the one word that's critical is scale. And we have massive scale in this business. Um and it is everywhere in the world and it is connected to everything in the world. Um it's moving trillions of dollars a day around the world for multinationals. We keep innovating on it. Um we added in huge capabilities in e-commerce. So now the e-commerce juggernauts are major clients of ours around the world and that's a Micardo Libre in Latin America as well as the famous Chinese clients there as well as those in India um as well as the ones obviously like the Amazon and uh and the like here uh we've done a huge amount of investment in tokenization and blockchain and digital assets over the last several years quietly getting on with it. Um, and we're the leader in tokenization globally at the moment. Um, that that will continue because we have uh moes that are impossible to uh overcome for peers. Um, and I I just look at the scale. You know, some of the best players in the fintech world and in payments are moving a trillion dollars a year. We are doing multiples of that a day.
>> Right?
>> Scale.
>> And wealth though has been a little slower growing. And what are you going to do to sort of get that growing as fast as your institutional business?
Look, I'm really proud of what the team's done in wealth so far because they they put in it was a lot of different foundations that needed to get put in place because we brought multiple different businesses together to form um a single platform and putting things onto a single investment platform, lending platform, deposits platform takes quite a bit of work particularly globally because this is a global franchise. and at the same time a lot of talent change that was put through and he was given a tough mandate um which he's ex um executed very well getting the um getting all of the infrastructure into position on the technology front and operations. So that's been a heavy lift. I think what you'll certainly be hearing when we have our investor day is those foundations are in place. many of them are very distinctive compared to our competitors because of the globality. Um but also we don't have our own asset manager. So for a client the investment proposition at city is truly in the client's interest. We're not confused as whether we're a manufacturer or on the client's side of the table here. Um, and uh the growth has been um we've we the growth has been good. Um if I look at our client investment assets, they grew 14% the last year. Uh that included the devesture of our trust business which is a good $30 billion worth of assets. So when you look through a lot of this uh the growth has been strong, the foundations are in place and now it's really about how we use some of the new technologies are available as well as investment to drive the frontline growth. Um that's a lot of what we'll be focused on.
>> Right. Over the past few years, you've had to do a lot of um job cuts, Operation Bora Bora, and I'm wondering if you feel like you're right size right now in terms of headcount, and if you're sanguin about the quality of employees and talent in terms of retention and being able to attract those employees.
>> We I think the the facts speak for themselves. We have attracted extraordinary talent to the firm and we have extraordinary talent in the firm like the depth of the bench here is very impressive. I think it was evident to the street for example and our services investor today um is evident around who we've brought in in wealth um an incredible diversity of talent from the buy side um and with different experiences globally um a very very strong team same in banking um you know viz has brought uh where we had gaps the best of the talent on the street to the firm so city's ability to bring extraordinary ary talent um and create a hungry team that doesn't just want to sit there with a mindset of okay I can just sit here on an annuity business and run it. They want to win. Um they want to build, they want to win. They're hungrier. Um, they're a little bit scrappier. I like that. Um, so uh that that's that's a real strength of the firm and you can see it when you walk around our building. Our talent loves our firm. We're in a we've had to put the firm through a lot of hard change the last five years, right? The the organizational simplification was very hard. I think what the people see now is the benefits it's given us. We're a simpler firm. It's easier to get things done in the firm. We're a more decisive firm. We're making decisions much faster. Got better information around it. We're a better connected firm. We're able to deliver for clients better. So that pride is coming through and I think uh when I speak to our people um we don't shy away from the fact there's been a lot of change we've put through um but I I'm really happy to see they can see the benefits and the results.
>> Shifting over to macro. Um you guys say you're the world's most global bank. Yeah.
>> But does that make sense right now? After all, you just wrote the new the old world order, excuse me, and the assumptions that went along with it are falling away, unlikely to return.
>> So, is having this global footprint given what's going on around the world?
>> Well, we had the highest revenue growth of any firm on the street in the last quarter. So, I think that would be evidence.
>> From that global business of across the street, right? Because the globality feeds into our different businesses. We are everywhere our clients are. This is a client-driven strategy. So where our clients are, we have our presence. Um in many instances, we were the first bank in a foreign bank in a country. I look at Korea. We were the first foreign bank there. Um we um have an incredible history of supporting the country um supporting the clients in the country through their transformation. They remember that. They know that um they see us as almost local. Um, so as the world is changing, we're we are everywhere where people want to be, but we're also trusted. Um, we're we're part of the family in many of these countries. We're a critical part of the cash management, foreign exchange, payment space. Like we are part of the uh we're part of the plumbing in many of these countries that enable the companies to open their doors every day. So right now as you can see from our services business with 17% growth this year um in a uh in an environment where many people are saying oh well surely this would be problematic for you. No it plays to our strengths and we take share in this environment.
>> US consumer card showing a 20% return recently but credit provisions are rising. Is this reflective of the K-shaped economy um that you've talked about and does that concern you?
Yeah, actually part part of the growth um in our our reserves was related to the American Airlines. The but the portfolio that we are um onboarding from Barclays. Um so that's where you saw a lot of the the um the growth in the ACL came from that in in the consumer business. So it's growth related. Um what do I think about the consumer right now in Kshape? Affordability is a real issue for some people. I I am very mindful of that. Um, we keep a very close eye on the um on the labor market because when Americans have jobs, they're in a better position for those that are in the lower income brackets than when they don't. Um, but what I'm really happy with was our NCLS um went down by quite a lot this this year. And so it tells us that the consumer is is in is in good health. um the indebtedness of the consumer is not very high. Um much healthier than we've seen it for um over the decades before and the consumers being mindful mindful of their spend, mindful of their fiscal position. Um, but I don't want to pretend that affordability particularly with rising oil prices at the moment um and the inflation that we've seen over the last few years has not been tough for many Americans. And we we've really tried to make sure in our consumer banking propositions, in our car propositions, that we've got propositions for those consumers, not just for the affluent American who's doing great. And that we're aware that value is important that double that, you know, the double back cash cards, these other things are really important for some people here. And how how do we help them as much as we can?
Do you think regulators, Jane, will finally vacate the consent order this year? And if so, or when they do, how will that change your strategy? Will that give you an eye more towards M&A, for instance?
>> Look, um the most important thing from um an investor point of view is when we complete the work because then you aren't spending the remediation money. And that's what we've indicated with 90% of our programs at target state and no nearing the end of the rest of the work um that needs to be done. Um that then enables us to take the cost down and what we're also doing is we're going through and further simplifying using AI our processes end to end which will be additional um efficiency saves. Uh so uh as I talked about on our earnings call when we finish the work it then has to go to audit for validation and then if they when it passes that it then goes to the regulators and they have their own time frame and timetable for it. So we um what we can control um we're in a good place on um and now it it will be over the timetable is driven not by us but by our regulators but from an investor point of view you'll already start seeing the expenses coming off um and you'll also see us re realizing the benefits of the um of the work we've done and you can see it we had a 7% positive operating leverage this quarter we've had many quarters of positive operating leverage and that is because it's not just I'm Scottish and cheap um but it's because we're driving the efficiencies um into our expense base we're driving the benefits of these investments as we drop down th those benefits the bottom line and we invest in our growth for the future um so we're doing many things at the same time see women can multitask Andy so can so can Yes.
Well, and I want to pick up on a couple things, not the least of which is that Scottish quip that you made there, but I also want to pick up on what you said about AI because AI is a spend though, and I'm wondering how that is going to uh affect your 60% efficiency ratio target because it is more money that you need to put in place.
>> Look, I think um there's a lot of excitement and there's also angst around AI at the moment. how we're addressing at city particularly with the advances that the models have made over the last few months and um is with a structured strategic approach. So we're looking in in a few different buckets four of them. The first one is we're looking at what does this mean for let's call it the revenue dimension and the business models the what you can do with the AI the creativity around it the innovation around it huge improvements for um revenue growth big opportunities around client the client experience what you can do for clients making it easier as well as our employees um but there's a disruptive element and there's a creative and innovative element and so we look through all of our businesses and we're seeing how do we change the business models and how do we drive the revenue generation. Second bucket is more of the operating um the endto-end processes the productivity and what does AI do for that. So that's looking again at how does AI really change um how we run the firm um and um a lot of efficiency saves that come from that too. Um the next bucket is more the defensive capabilities. Security with the global footprint we have and how critically important we are to the movement of money around the world. Um security is our highest priority from a defensive side. Um so we're really um investing a lot in how AI changes those defensive capabilities and fraud helping protect our customers AML. And then the final piece is our people and our culture. And I'd say that is as important. Um for me, how do I make it easier to be an employee at the bank? How do I get rid of more of the mundane tasks? Let them focus on um where more of the value added can be um and how do we have a culture where AI is enabling our people. I am very cleareyed. It's also going to be a lot of change, right? There's going to be jobs displaced. there's going to be new jobs created. Um, and and everyone's job is changing. I use AI every day and it's hopefully making me better. Um, so how do we equip our people for that change is also an important um part of what I view of the future.
Stock buybacks. Want to ask you about that. You had the obviously the massive dilution, the reverse stock split. You still had 2.9 years ago. That was a long time ago, but you still had you were stuck with 2.9 billion shares outstanding. You reduced it to 1.8 8 billion. Can we anticipate more buybacks going forward?
>> Yes. Um how I look at it is very simple. Um we we are generating uh our earnings generation is significant in city now and it's only going to grow. So I look at it then is where is it we need to be investing for growth um and innovation and the future and those I put a high bar on that. you you better be in a sort of 20% marginal rosy if you're coming in front of me saying I need to invest in this. Um and then the other elements of where we have excess delighted to return it to our shareholders. We had our big Russian devesture the final phase of it um this last quarter and that enabled us to uh return more capital shareholders as we were investing in other parts of the firm.
I'm going to follow up on that Scotland remark you made because you're an American citizen, lived here for decades, but you are from Scotland. You had a most Scottish upbringing living near St. Andrews. Your father was in the financial business.
>> How does that upbringing inform you as the CEO of City?
>> I look I think the Scots are quite dispassionate in their decision- making. They can be financially frugal. Um, and we like seeing results over promises and flowery language. So I think that that making sure that there is discipline in the organization, there is dispassion, there is urgency um those are certainly um skills that uh and sort of foundations for me as a person that are very important.
>> And brevity.
>> Yes.
>> Um enough said. Final question, Jane. Um, and this is getting to the crux of why our audience likes to hear from you, which is why should investors buy city stock right now? Have they missed it? It's run up a bit. Have they missed it already or is there still more upside?
>> The the point I will I make to all of our investors, we are only just getting started. It it we we are there is so much upside and it's not just upside in terms of driving our returns to um higher levels which again will drive the price to book ratio and the other elements and we'll be laying out a very clear path for that going forward. But it's the growth potential of this firm. We have unique strengths um in our global footprint in our connectivity. The role we play in global payments is extraordinary and it is I it you just cannot replicate it. I mean you really cannot replicate it. I look at the talent we've got in the firm. So be between the five interconnected businesses a lot of synergies tremendous growth. Our clients need us and we are only just getting started um in using our scale and our adv our advantages. We're cheap. Get on. Get on. Get get on the train.
>> Jane Fraser, CEO of City, thank you so much for talking to us.
>> Thank you.
>> This is At Barrens. I'm Andy Sir. We'll catch you next time.