Citigroup, under the leadership of CEO Jane Fraser, is undergoing a significant transformation, distancing itself from the expansive "financial supermarket" model it embraced in the 1990s. Speaking at an investor event in New York City, Fraser declared, "We are no longer the financial supermarket of the past. Instead, our vision is focused." This shift involves shedding non-core businesses, reducing headcount, and aiming to boost the bank's stock price by eliminating inefficiencies that have accumulated over decades.
Citigroup's recent efforts to reassure investors of its strategic direction were highlighted in a series of presentations focusing on its multinational services division, which plays a crucial role in facilitating global money movement for corporations. CFO Mark Mason emphasized that 2024 would be an "inflection year," predicting that by 2026, Citigroup aims to increase its annual revenue by at least $6 billion while cutting expenses by $500 million.
Fraser articulated the bank's new strategic focus: "We are determined to be the preeminent banking partner for institutions with cross-border needs, a global leader in wealth, and a valued personal bank here in our home market. We've made significant strides." Citigroup's stock has responded positively, rising nearly 17% since the start of the year and outperforming the broader banking industry index.
Fraser, who took over as CEO in March 2021, initiated a comprehensive overhaul of the company, prioritizing services for large multinational corporations, divesting unprofitable segments, and streamlining operations. This strategy marked a departure from the conglomerate structure established by the landmark 1998 merger of Citicorp and Travelers, a deal orchestrated by Sandy Weill that aimed to create a one-stop financial services giant.
The "financial supermarket" model proved difficult to manage, particularly during the 2008-2009 financial crisis, leading to a gradual unwinding of various parts of the empire. Fraser accelerated this process, exiting the municipal bond and distressed debt businesses and reorganizing Citigroup into five distinct divisions. She described this restructuring as the "most consequential" change in nearly two decades.
A major focus of Fraser's presentation was the bank's services division, which she described as Citigroup's "crown jewel." This division, responsible for helping major corporations like Amazon and Alphabet manage and move money globally, accounts for nearly half of Citigroup's profits. The division's activities include Treasury and cash management, cross-border settlements, digital payments, and securities services like currency hedging, moving close to $5 trillion daily-an amount comparable to Germany's GDP.
Fraser emphasized, "This is a business that is powering global commerce. No one else can compete with our global reach. No one else can match our products, our services, and our digital capabilities, and no one else is bringing innovations to the market at the rate that we are."
Despite these advancements, Fraser acknowledged ongoing challenges in regulatory and compliance areas. Following a Wall Street Journal report about potential downgrades by the FDIC due to data management issues, Fraser stated, "We recognize there are places where progress has been too slow, so we have intensified our efforts in areas such as regulatory processes and the related data remediation." Mason added, "We're going to spend whatever it takes to address the consent orders and modernize the firm, as this is an incredibly important body of work and critical to our long-term success."
The investor presentations also highlighted Citigroup's commitment to its multinational services division. Head of Citi Services Shahmir Khaliq expressed excitement about finally giving the division the spotlight it deserves. "The strength of Services hasn't always received the strength of mindshare that it has long deserved," Khaliq said. "We are excited to finally take center stage and pull back the curtain on our business."
Citi Services encompasses several key units, including liquidity management and payments, trade finance, and securities services. These units support over 5,000 of the world's largest multinational companies and investment managers, providing critical financial infrastructure across 190 countries.
Analyst Mike Mayo highlighted the value of Citi Services, estimating it to be worth between $90 billion and $120 billion, while Citigroup as a whole trades at approximately $114 billion. Mayo noted the steady performance of the services division, even during financial turmoil, and its significant potential for growth amid rising digital payments and evolving global supply chains.
