Citigroup, Inc.

Hello and welcome to Citi's third quarter 2022 earnings call with the Chief Executive Officer Jane Fraser and Chief Financial Officer Mark Mason. Today's call will be hosted by Jen 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 call is being recorded today. If you have any objections, please disconnect at this time. Ms. Landis, you may begin.

Thank you, operator. Good morning, and thank you all for joining us. 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 SEC filings. With that, I'll turn it over to Jane.

Thank you, Jen, and thanks, everyone, for joining us today. Well, we are certainly still living through interesting times. And overall, I am pleased with how our bank is navigating through them. As you'll hear from me shortly, we continue to focus intensely on executing our strategy and our transformation, as we outlined at Investor Day, whilst supporting our clients in this complex environment. So before I get into the quarter, let me highlight some observations about what we see going on around the world given our unique vantage point. The global macro outlook that we shared with you over the last couple of quarters has been borne out. There is accumulating evidence of slowing global growth, and we now expect to experience rolling country-level recessions starting this quarter. The severity and timing of these recessions depend where in the world you are. although persistently high inflation is driving a global softening of consumer demand for goods. In the Eurozone and the UK, the supply shocks are most severe. Growth prospects have deteriorated sharply, and headline inflation is running at nearly 10%. All eyes are on this winter's weather forecast and the energy supply. The US economy, however, remains relatively resilient, So while we are seeing signs of economic slowing, consumers and corporates remain healthy as our very low net credit losses demonstrate. Supply chain constraints are easing, the labor market remains strong. So it is all a question of what it takes to truly tame persistently high core inflation. Now history would suggest that that will be quite a lot and for some time. Therefore, we could well see a mild recession in the second half of 2023. We believe the US economy is well positioned to withstand it, all else being equal in the geopolitical arena, that is. Finally, in Asia, we continue to be concerned with China's COVID lockdowns, which took a bigger bite out of economic activity than anticipated. exacerbated by a lack of intensified macro stimulus. It is geopolitical risks and rates that dominate discussions with our corporate clients worldwide. And I'd say we're more focused on market liquidity generally and counterparty risk than our credit risk in the near term. Nonetheless, we are planning conservatively and we are prepared for all environments. Against this backdrop, Today, we reported net income of $3.5 billion, EPS of $1.63, and an ROTCE of 8.2%. We grew revenues by 6%, including a gain on sale of our consumer business in the Philippines. While we had excellent performance in some areas, our results could have been better in a few others. Services delivered another very strong quarter. TTS saw revenues up 40% year over year, with growth in each business and in fees. Key drivers of our strategy, such as wallet share, trade loan originations, and cross-border transactions, are all trending strongly in the right direction and are ahead of our plan. Security services was up 15%. despite assets under custody being impacted by the declines in equity markets. We have imported over a trillion dollars in AUC and AUA since the beginning of the year, and we're seeing good momentum in issuer services in particular. Markets, on the other hand, came in lower, with revenues down 7%. In fixed income, we matched last year's particularly good showing through our longstanding strength in FX, offsetting a weaker quarter in spread products. In equities, reduced activity in derivatives, which is a core part of our platform, led to lower revenues compared to last year's exceptional performance. And we continued to optimize RWA in markets consistent with our strategy. Banking was the business most adversely impacted by the macro environment across the industry, with geopolitics and fears of recession significantly reducing deal flows and the appetite for M&A. We continue to invest in building out our teams for long-term growth opportunities, including healthcare, technology, and energy. And I'm really pleased with the high caliber of bankers who are attracted to both our platform and our culture. The environment for wealth management continued to be less than ideal. Our revenues were down only slightly and meaningfully up outside of Asia. Our strategy to capture the synergies with our businesses, such as the wealth referral initiatives between commercial banking, retail banking and investment banking, is progressing well. We also continue to steadily attract new clients and increase the ranks of our client advisors, as you will see in our KPIs. Nonetheless, we are slowing the pace of some of the investments in this business, given the environment. U.S. personal banking further solidified its growth trajectory. Card sales, A&R, interest earning balances, and customer acquisition all saw good growth. and we continued to increase digital uptake. Retail services joined branded cards in having double-digit revenue growth this quarter. Retail banking also grew, contributing to a 10% overall revenue increase for the business. As you can see in the presentation, our cost of credit reflects the quality of our loan portfolio in both ICG and PBWM. There were effectively no credit losses in ICG, and US consumer NCLs remain well below the pre-COVID levels. Consumer loan growth, together with a worsening of our macroeconomic assumptions, drove a modest ACL build this quarter. While our expenses are elevated as we continue to invest in our businesses and in our transformation, we are managing them closely and we remain on track to meet the full year guidance. As you know, the transformation is a multi-year effort and we're committed to meeting the expectations of our regulators, given the paramount importance of safety and soundness. We continue to be in constructive dialogues with them and are updating our execution plans as appropriate. Stepping back, I'm generally pleased With the advances we're making in the key drivers of the strategy we laid out for you in March, and these are laid out on page three. We're seeing good momentum in realizing client synergies and in attracting talent to grow the franchise. In terms of simplification, we continue to make progress on the divestitures of our international consumer businesses and the elimination of their associated stranded costs. We closed the sale of the Philippines during the third quarter and are on track to close Bahrain, Malaysia and Thailand during the fourth quarter. We also announced the wind down of our consumer franchise in the UK to focus fully on the wealth franchise there. I would also note we're ahead of our plan in our Korean consumer wind down. We continue to shrink our operations in and exposure to Russia to be clear. Our intention is to wind down our presence in that country. In August, we announced the wind down of our consumer and local commercial banking businesses. While we have been supporting our multinational clients in Russia, we are now informing them that we will be ending nearly all of the institutional banking services we offer by the end of the first quarter of next year. At that point, our only operations in Russia will be those necessary to fulfill our remaining legal and regulatory obligations. Turning to capital, we returned $1 billion to our shareholders through common dividends during the quarter, while buybacks continue to be on hold. We will keep evaluating that decision on a quarterly basis as, due to increasing regulatory requirements, we build our CET1 ratio to 13% or so by mid-next year, and that includes a management buffer of 100 basis points. We ended the quarter at a CET1 ratio of 12.2%, as we actively managed our RWA usage throughout our lines of business. Lastly, our tangible book value per share increased to $80.34. So the bottom line is that while the environment is a challenging one, and we expect it will remain so, we continue to focus relentlessly on executing the strategy we presented to you as our investor day and on making steady progress. Now, I'd like to turn it over to Mark, and then we'd be delighted, as always, to take your questions.