Citigroup, Inc.

Hello, and welcome to Citi's third quarter 2023 earnings call. 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 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 our third quarter earnings call. 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 earnings materials, as well as in our SEC filings. And I'm joined today by our Chief Executive Officer, Jane Fraser, and our Chief Financial Officer, Mark Mason. Now let me pass it over to Jane.

Thank you, Jen, and good morning to everyone. I shall touch briefly on the macro environment before reviewing the quarter and last month's organizational announcement. The global macro backdrop remains the story of desynchronization. In the US, recent data implies a soft landing, but history would suggest otherwise, and we are seeing some cracks in the lower FICO consumers. In the Euro area and the UK, the picture has turned distinctly more negative. The summer weakness in industrial economies is spreading south, and the weight of structurally higher labor and energy costs suggests a more enduring competitiveness challenge for that region. China's economy may have reached a cyclical bottom supported by the government's modest stimulus efforts, but it still has to work through weak sentiment, youth unemployment, and the pain in its property market. All of these macro dynamics have clearly impacted client sentiment. September is always a busy month seeing clients, and I'm struck how consistently CEOs are less optimistic about 2024 than a few months ago. The shift in the rates question from how high to how long has catalyzed more client activity, however. Corporates have stopped waiting for rates to come down and are beginning to access the debt capital markets around the globe. Our multinational clients are adapting their operations to the evolving geopolitical landscape and are building redundancy and resiliency. And this plays to our strengths and strategy, in particular, our invaluable global network. And between our high-quality asset portfolio, our strong reserve levels, our ample liquidity, and our diversified earnings base, we are proving to our clients that we are truly a bank for all seasons. Turning to the quarter, Today, we reported net income of $3.5 billion, an EPS of $1.63, and an ROTCE of 7.7%. Our revenues were up 10% extra vestiges, and each of our five core interconnected businesses posted revenue growth. We remain on track to meet the revenue and expense guidance we set for the year. Let's start with our fastest growing business, services. TTS was up 12% from a year ago. That's the highest revenue quarter in over a decade, and it continues to outpace the target we set as Investor Day. Half of that growth was business drivers and the other half rates. And even with the impact of the long-expected Argentine devaluation, we again drove fee growth, which is the best sign of the potential of our globally leading franchise. We keep relentlessly innovating for our clients, Amongst other launches this quarter, we announced the creation of Citi Token Services, which will use distributed ledger and smart contract technologies to deliver a digital asset solution for our TPS clients. And this is a first for the industry, as it allows us to seamlessly integrate a permissioned tokenized bank deposit network with traditional cash services, such as 24-7 dollar clearing. Security services had revenue growth of 16% with some good underlying fee growth. We took share again and we have grown our AUC and AUA by over $2 trillion in the last year. This business has considerable momentum and a strong pipeline of clients who are benefiting from the cloud and data investments we're making. Markets with up 10% year over year on the back of rates and currencies having the best third quarter in 10 years, and commodities, which also grew nicely. This was partially offset by equities, which was down slightly. Despite this, we continue to see good momentum in cash, and we have grown our prime balances year to date. Banking had a good quarter, with revenues up 17%, with activity playing to our mix. Now, while corporate lending was essentially flat, as we remain very disciplined about how we use our balance sheet, DCM was healthier and the IPO market also showed some signs of life. This helped drive investment banking revenue up 34%, albeit of a low base and a small wallet. Sitting here today, it remains hard to predict when deal activity will sustainably rebound. Still, and proud of our role advising on some of the biggest deals globally so far this year. As you know, we're committed to growing our banking franchise. We've brought together the management of the investment, corporate, and commercial banks under one umbrella, and this structure will help us better drive the important synergies between all three. We've been bringing in new talent in key sectors, and we've begun to provide more leverage finance for key clients in the right situations. U.S. personal banking was also up double digits at 13%. Cards revenues were strong in both our branded and retail services portfolios. The growth in spending is decelerating and the consumer is more mindful what they spend on. Indeed, the affluent who still have excess savings at their disposal drove the growth in spending with a continued tilt to travel and entertainment. During the quarter, we introduced simplified banking to improve the client experience for our retail banking clients. We believe that by tiering offerings and simplifying our fee structure, we're going to incentivize our clients to deepen their relationships with us. And the early reaction from clients along those lines has been very positive. Wealth revenues have stabilized and were up slightly. Most notably, investment revenues picked up across our geographies. And the drivers of the franchise, such as referrals, client acquisition, and net new inflows, were all quite strong around the world. And we won important new mandates for wealth at work, an offering we had highlighted at Investor Day. Andy Sig has now officially joined our firm. This is a time of massive global wealth creation, and our franchise is uniquely positioned for it. Andy will ensure we're at the forefront of what's happening around the world. In terms of our balance sheet, our discipline of growing operating deposits has enabled us to maintain a stable deposit base over the past five years. We grew loans during the quarter, and our credit quality remains extremely strong, aided by our disciplined client selection. Our CET1 ratio grew to 13.5%, above our regulatory minimum and still includes a 100-bit internal management buffer. During the quarter, we returned $1.5 billion to our shareholders through common dividends and stock buybacks. We continue to evaluate buybacks quarter by quarter and I expect we will continue to do a modest level in the fourth quarter, subject to approval by our board. And while the ultimate impact of potentially higher capital requirements won't be known until the Basel III endgame is finalized, we have been actively working through mitigating actions. As you can see on slide three, we are relentless in executing our strategy. This quarter, we closed on the sale of our Taiwan consumer business, and that's the second largest of the Asia consumer divestitures. And earlier this week, we announced that we will sell our consumer wealth portfolio in China to HSBC. And this includes approximately 2.6 billion in assets under management and a billion dollars of deposits. In the fourth quarter, we expect to close on the sale of our Indonesia consumer business. In terms of the international consumer businesses we're exiting, in addition to the three wind-down markets, we've restarted the sales process in Poland and we remain on track to separate Mexico next year, followed by an IPO in 2025. Transformation remains our number one priority. We're deep into the large body of work of automating manual controls and processes, consolidating fragmented tech platforms and upgrading our data architecture. We're committed to doing this the right way, knowing it will take time to meet our regulators' expectations and to deliver a modern, more efficient infrastructure. Last month, we announced consequential changes that align our organizational structure with our strategy and changes how we run the bank. I said at Investor Day that organizational simplification would follow the divestitures. The changes will eliminate layers, duplication, and complexity, allowing us to operate the bank more agilely and freeing our people up to focus on clients and execution. Elevating the five core businesses to my leadership team will enable me to drive greater accountability and sustainable results. So to bring it alive, the actions we've taken in the last four weeks will eliminate over 15% of the regional and functional roles at the top two layers of the company. It will also take out 60 committees, which frees up over tens of thousands of people hours annually. We've identified approximately a thousand or 50% of our internal financial management reports that we won't need any longer. And we have taken up co-heads and dual reporting lines to enable faster decision-making. We're cascading these changes through the organization at pace. We announced the first two layers in September and the next set of changes will be implemented by mid November. And we aim to bring the entire process to a close by early next year. When we speak in January, Mark and I will be in a position to update you on the financial and other metrics, showing the impact of the simplification amongst other details. Now, while expenses is not the primary driver of the organizational changes, they will help us stop bending the expense curve in the fourth quarter of next year. And at the end of the work, we will have a simpler firm that can operate faster, better serve our clients, and unlock value for our shareholders. We've made tough decisions here, and I want to note how pleased I've been with how the leaders of the firm, especially the next generation, have embraced these changes and are stepping up to implement them. They fully understand that we need to change how we run Citi in order to truly transform it once and for all. Before I close, I'd like to address our people in Israel. We are a significant bank in the country, and many of our people have lost friends and loved ones. Others are being called up to serve. Despite all they're dealing with, they are keeping our bank running in the country. And I'm frankly in awe of their commitment to our clients and each other. More broadly, the price innocent civilians are paying as this crisis unfolds is absolutely devastating to witness. And with that, I would like to turn it over to Mark, and then we would be delighted, as always, to take your questions.