Citigroup Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Hi. Could you elaborate more on the amended consent order, Jane? You said it was disappointing to have gotten that this week. It's almost four years into the consent order. And a little bit -- why it hasn't been resolved, and what's on -- that's the loss column and maybe a little bit more on the win column too. I mean, you have what, 12,000 people thrown at the problem, billions of dollars. Is it not enough people? Is it not enough money? Is it -- you need to look at it in a different way? Are you not talking the same language? You have John Dugan as your Lead Independent Director, ex-head of the OCC. And it seems like you got your report card; I guess you passed overall. They went out of the way to say some nice things, but it looks like you've got failing grades in data and regulatory management. So you're confident it's going to be resolved, but it's already been four years, and it hasn't been resolved. So what is it going to take from here? And how can you resolve the regulatory concerns while continuing -- or serving shareholders better? And then, in the win column, since it's so nebulous -- this back office, what are you achieving? You mentioned some items, but if you could put more meat on those bones. Thanks.

Question: Glenn Schorr - Evercore ISI Institutional Equities - Analyst : Hi, thank you. So Mark, I heard your comments on credit this year; I'm talking the US personal banking. I heard your comments for credit the rest of this year, and I think a position that you're very conservatively reserved. But right now, you put up a 3% margin. Credit costs are almost half of what revenues are in this space. I guess, my question is, as we roll forward, in a slowing economy with likely a little bit lower -- some rate cuts, how does the P&L evolve? How does it improve from here? Because can we be expecting credit costs to come in in a slowing economy? I'm just trying to figure out the path forward, because it could be impactful if USPB obviously marches to where you need it to be.

Question: Glenn Schorr - Evercore ISI Institutional Equities - Analyst : Okay. I appreciate all that. One quickie on DCM. You had amazingly good performance. There's been plenty of conversation about pull forward this year on just refi driving like three quarters of the activity. Could you just help us think through the second half when thinking about DCM, just to make sure that we don't start modelling this into perpetuity?

Question: Jim Mitchell - Seaport Global Securities LLC - Analyst : Hey. Good morning. Just Mark, maybe on NII down almost 4% year over year, it seemed a little bit more than -- the guidance was down modestly for the year. So can you discuss sort of the puts and takes this quarter, and how we should think about the quarterly trajectory for the rest of the year?

Question: Jim Mitchell - Seaport Global Securities LLC - Analyst : That' helpful. And maybe just quickly, just a similar question on expenses -- better than expected this quarter, but there was no restructuring or repositioning charges. I think to get to the high end of your range, you'd have to be up a little bit in the back-half from 2Q run rate. Is that because you expect more repositioning or restructuring in the second half? Or maybe just talk through expense trajectory from here. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2024 / 3:00PM, C.N - Q2 2024 Citigroup Inc Earnings Call

Question: Erika Najarian - UBS Securities LLC - Analyst : Hi. I had two questions, and I'll ask the first one on expenses first since it's a good follow-up to the previous. Mark, just to clarify, let's just say, take the highest end of your range at $53.8 billion. Just trying to think about how consensus will move. So we take that $53.8 billion and then add the $285 million of FDIC expenses year to date so far and add the civil money penalties of $136 million, so that gets us to $54.2 billion for the year and any other repositioning charges in the second half of the year would already be included in the $53.8 billion?

Question: Erika Najarian - UBS Securities LLC - Analyst : Got it. And my second question is for Jane, and I'm sure you're getting tired of the question on capital return. So you're buying back $1 billion -- or you plan to buy back $1 billion this quarter. It looks like you didn't buy back any in the second quarter. And I'm asking this question in this context, because [Consensus] has a buyback of nearly $1 billion in the fourth quarter and staying at this rate for the first half of next year and ramping higher. And I guess is the $1 billion number a catch-up pace because you didn't buyback any in the second quarter? And I fully appreciate that you also have the Banamex IPO coming, which is different from peers that are also waiting for Basel clarification. But I'm just wondering, do we need to wait for that -- for that Banamex IPO for the company to feel comfortable moving away from that quarter-to-quarter guidance? And also, of course, I just want to readdress the beginning of the question when I asked specifically about the pace.

Question: Gerard Cassidy - RBC Capital Markets Wealth Management - Analyst : Thank you. Hi, Jane. Hi, Mark. Mark, regarding the comments you made about the higher credit losses, the three factors that you gave us, can you also talk about if this was a factor at all for you folks -- was there any FICO score inflation back during the pandemic that might be playing into these credit losses? And as part of the credit card question, you mentioned the CFPB -- the fees that you have factored them -- the lower fees, you factored that into your forward look. Where do we stand on that? Do you guys have any color on that as well?

Question: Ken Usdin - Jefferies LLC - Analyst : Hey, thanks. Good morning. Hey, Mark. Talking about the NII outlook and the fact that now we've got a little bit of a discrepancy starting between US rates maybe higher for longer, and then the beginnings of some of the non-US curve starting to at least put forth their first cut -- I know we've without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2024 / 3:00PM, C.N - Q2 2024 Citigroup Inc Earnings Call got that good chart that you have in the Qs about the relative contributions. Can you just help us understand a little bit of just generally, how you're thinking through that discrepancy and how that informs the difference between US-related NII and non-US-related NII as you go forward?

Question: Ken Usdin - Jefferies LLC - Analyst : Got it. Okay. And just one follow-up on the OCC amendment, and that's specifically related to the Resource Review Plan. Do you have a line of sight on how long that will take you guys to finish? Because it seems like -- and is that what we should be thinking about in terms of just understanding like what's the side of -- what you need to get done in terms of the other language that's written in the order?

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : Hi, good afternoon. Okay. So I know we talked a lot about expenses. I just have one overarching question here which is on how we should think about the path of expenses between now and the medium term as we have come quite a long way in the simplification process. Maybe you could give us a sense as to how far along simplification impact on expenses we are. And overlapping with the regulatory requirements, do these net out, or are we skewed a little bit more towards regulatory requirements being a bit heavier than what's left on simplification from here? Thanks.

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : Okay, great. Thank you very much. Appreciate that.

Question: Vivek Juneja - J.P. Morgan Securities LLC - Analyst : Hi. Okay. Let me just clarify this, Mark and Jane, just to make sure that we all have it right. The $53.5 billion to $53.8 billion does not include anything thus far on what you think you may need to spend on the Resource Review Plan, meaning what additional resources you would have to put to fix the consent order. Am I right there?

Question: Vivek Juneja - J.P. Morgan Securities LLC - Analyst : Okay. So going forward, even though this plan is still to be sort of put together and approved by the regulators, we should not expect any change to this expense (multiple speakers)?

Question: Matt O'Connor - Deutsche Bank Securities Inc. - Analyst : 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?

Question: Matt O'Connor - Deutsche Bank Securities Inc. - Analyst : Okay. And then just separately on the very early 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. For all intents and purposes like, does that impact how you run the company or a 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.

Question: Saul Martinez - HSBC Securities (USA) Inc. - Analyst : Hi, good afternoon. Thanks for taking my question. I guess I just want to follow up on the latter question. I just want to be very clear. So 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've talked about in terms of simplification. So you don't see this impacting your ongoing level of capital flexibility in your ability to repurchase stock going forward, if some of these things actually do play out. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2024 / 3:00PM, C.N - Q2 2024 Citigroup Inc Earnings Call

Question: Saul Martinez - HSBC Securities (USA) Inc. - Analyst : Fair enough. That was clear as can be.

Question: Saul Martinez - HSBC Securities (USA) Inc. - Analyst : Second question on -- I just want to follow up on USPB. I mean, I still -- I get the point that you're seeing a normalization in losses in cards. But even if I adjust for reserve builds, your [RoTCE] is still single digits. I would think even at these NCL levels, your cards business is pretty profitable. You're a scale player. I mean, you're above 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 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] you talked about?

Question: Steven Chubak - Wolfe Research, LLC - Analyst : Hi, good afternoon. So Mark, I have a fairly technical question on the 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?

Question: Steven Chubak - Wolfe Research, LLC - Analyst : 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 pricing in an effort to win some new mandates. So maybe 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?

Question: Vivek Juneja - J.P. Morgan Securities LLC - Analyst : Hi, sorry. Just to 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 get this past due? Is that -- 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?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Hi. Just two clarifications. So this is a very high-profile amendment to the consent order. And I think what I hear you saying -- if you can confirm, your risk compliance and controls are getting passing grade. It's really the data -- and as it relates to the data, you're talking about 11,000 regulatory reports on which had 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 broader picture. Is that correct?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : A real short -- without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 12, 2024 / 3:00PM, C.N - Q2 2024 Citigroup Inc Earnings Call

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Just to say a 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 get it done in the eyes of the regulators, and why will it be fixed now? Just like a one sentence explanation for that if you have it.