Citigroup, Inc.

Hello and welcome to Citi's first quarter 2023 earnings review 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 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.

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, citygroup.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 filing. With that, I'll turn it over to Jane.

Thank you, Jen. And hello to everyone joining us today. Well, 2023 is shaping up to be another interesting year. Given the tumultuous events of the last few weeks, I'm going to share some observations, and then we'll turn to what was a good quarter. First, our banking system as a whole is very strong. While a small handful of institutions still have challenges to overcome, the US financial system remains unmatched globally. And I feel confident saying that as someone who has worked in many different systems around the world. The US system comprises a healthy mix of community banks, regional banks, and larger global banks, including Citi. We all have important but different roles to play, serving different clients with different needs and on different scales. I would also point to the rapid response by state, federal, and international regulators that help reinforce confidence in the system at a very critical juncture. I'm pleased the city has been a source of stability for the financial system and a source of strength for our clients. That's not an accident. We are in a position to play this role because our strategy is delivering a simpler, more focused bank. We benefit from a diversified earnings base and resilient business model. This is reinforced by our robust balance sheet management, liquidity position, and strong risk management frameworks. We are disciplined in how we run the firm, from client selection to capital planning. And it's also thanks to our people, and I want to express my pride in our colleagues around the world who worked tirelessly last month to serve clients as they turned to Citi as a port in the storm. Recent events have shown that prudent asset and liability management is absolutely paramount. While Mark is going to walk you through our approach and our focus on interest rate risk, liquidity, and capital, I do want to mention a few things myself. In terms of assets, our loans are high quality and short duration. We have highly liquid investment securities and a significant amount of cash. We have over $1 trillion worth of available liquidity resources, including $584 billion of HQLA and an LCR of 120%. And we maintain a diverse set of funding sources, including over 1.3 trillion of deposits across corporates, consumers, industries, and regions, many of which are operational in nature. Indeed, the cornerstone is our institutional deposit base, which comprises about 60% of our deposits. Most of these deposits are particularly sticky because they sit in operating accounts that are fully integrated into how our multinational clients run their businesses around the world, from their payrolls, their supply chains, their cash and liquidity management. 80% of these deposits are with clients who use all three of our integrated services, payments and collections, liquidity management, and working capital solutions. The data that we aggregate from these deposits and their related flows is fundamental to how our clients manage their efficiency, risk, and compliance. And this greatly increases our deposit stickiness. It's also why nearly 80% of these deposits are from client relationships that are 15 years old or more. Finally, we operate a strong risk framework that looks at both assets and liability concentrations across client segments, industry, and region. And we're confident in the size and nature of our exposures even our very rigorous stress testing. We also diligently manage counterparty risk, which is critical given the interconnectedness of financial institutions. We are in a strong position to navigate whatever environment we face, which is particularly relevant given the degree of uncertainty today. The Fed continues to use rate policy to battle inflation, which has been more than stubborn in services even as we see signs of cooling in labor and manufacturing. We expect the recent events to be disinflationary and credit to contract. We believe it's now more likely that the U.S. will enter into a shallow recession later this year. That could be exacerbated in depth and duration in a more severe credit crunch. But right now, the biggest unknown is the impact on terminal short-term U.S. interest rates. And of course, how the debt ceiling plays out. In Europe, the ECB is on a similar but more difficult quest to tame inflation. They have had some help from low than expected energy prices, and the outlook continues to be a bit brighter. However, the war in Ukraine sadly shows no sign of ending, and Europe faces more structural challenges, such as the need for increased defense spending, higher energy costs, and fiscal burdens. that will make efforts to dampen inflation and stimulate growth more difficult. In Asia, the reopening of China is adding to the momentum in the region, although the Chinese consumer has been slower to rebound than expected. I saw many green shoots firsthand talking to our clients and our bankers in my various trips to India, Japan and Hong Kong this year. We have to keep a close eye on geopolitics, as the U.S.-China relationship becomes increasingly strained and is fragmenting economic blocks. And we see this translate into shifts in flows and heightened cross-border volume across TTS and our global network. Now, turning to how we performed this quarter, we reported net income of $4.6 billion and an EPS of $2.19. We had good revenue growth of 6% and both revenue and expenses were in line with our guidance. Our ROTCE of nearly 11% benefited from the closing of the sales of our consumer businesses in India and Vietnam and would have been over 9% without those gains. Let me highlight our operating performance in each of our five core businesses. TTS just continued to go from strength to strength, with revenues up 31%. Non-interest revenue was up 11% quarter on quarter on the back of increased cross-border activity and good performance in commercial cards due to the rebound of corporate travel. Security services wasn't too shabby either, up 23% as we executed on new mandates, onboarded new AUCs, and benefited from higher rates. Within markets, our fixed income revenues were up 4% from a year ago. We benefited from excellent performance in rates and continued engagement from our corporate clients. The first quarter of 2022 was no slouch, as you may recall, but this quarter was our third best in a decade. Equities was much weaker, however, down markedly in both derivatives and cash, although it still had revenues north of $1 billion. Banking was down again, but there were signs of the beginning of a pickup, including increased activity in the investment-grade market. In U.S. personal banking, our cards businesses gained momentum as old drivers continued to normalize the pre-COVID levels and beyond. Branded cards and retail services saw revenues up 18% and 24%. Retail banking saw some growth as we continue to see good momentum in mortgages and installment lending, and also experience a significant increase in digital deposits. We did see a notable softening in consumer spending growth over the course of the quarter. Travel and entertainment continued to grow in March, but essentials were flat, and almost all other spend categories were down. Stavings rates are below historic averages. And while the upper quintiles of household income still have roughly a trillion dollars in excess savings, the savings of the lower quintiles have been significantly drawn down. So we're keeping a diligent eye on the lower FICO bands as economic growth and services spend slow. Finally, while revenues were down again, we remain confident about the prospects of our wealth business. Despite the challenging headwinds, growth in Citigroup accounts, client acquisition and client advisors were all solid, and we expect these drivers to flow through to revenue later this year and beyond. We also saw the early signs of a long-awaited Asian recovery. We built credit reserves this quarter on the back of growth in revolving balances in cards and poorer macro outlooks. NCLs continued to normalize in consumer, while the health of our corporate base was evident in another quarter of very low NCLs. Finally, we continue to generate capital through our earnings. With our CET1 ratio now at 13.4%, we have room to absorb the temporary upfront impact should we sign a deal for Mexico. As you know, we continue to pursue a dual path here. And we are committed to increasing the amount of capital we return to our shareholders over time. As you can see from slide three, in addition to good operating performance from our businesses, and despite everything else going on in the industry, we got a lot done this quarter as we implement the strategy we shared with you at Invest Today. We closed the sales of our consumer businesses in India and Vietnam. Indonesia and Taiwan are next on the list. to close later in the year. Our Asian consumer sales will then be complete, and we are intensifying our efforts to eliminate stranded costs and simplify our organizational structure. We made some significant leadership announcements. I'm delighted that Andy Sieg will join Citi at my table as the new head of wealth management. Andy is a widely respected leader in this space and comes to us after running an $18 million business with $2.8 trillion in client balances. Here's the latest and the most visible example of the excellent talent we have attracted over the last couple of years. With Karen Peets retiring, we named Anand Selva as our Chief Operating Officer and asked him to take on running our enterprise-wide transformation program in addition to his current responsibilities. Anand has been at Citi for over three decades and has a strong track record of delivering results. In terms of our transformation, we're completely focused on executing our plans to address the consent orders and improve our risk and control environment. Mark will walk you through specific examples of how we're modernizing our infrastructure, simplifying processes, and improving data quality. Importantly, these efforts are improving the client experience and helping us deliver cities' full capabilities to them. To wrap up, it's one year after our investor day, and I'm proud of the progress we've made and our relentless focus on delivering. Our strategy is clear. Our business model is resilient and diversified. Our balance sheet is strong. We're making good progress on execution. Amidst considerable turmoil, we're delivering on our guidance and our commitments. Our team is determined to continue delivering with excellence. And with that, I would like to turn it over to Mark, and then we will be delighted, as always, to take your questions.