Citi Q1 2024 Notes


  • Organization simplification is over; 7000 positions are eliminated and $1.5 B ongoing savings.
  • Still some more reduction in eliminating stranded costs (roles associated with the businesses that are sold/ eliminated, etc)
  • Separately, while Citi may not talk about this publicly to avoid employee moral issues, my expectation is there is still some more fat to trim
  • Total net savings in $2 to $2.5 B
  • Still over next few years, especially if mexico is IPO’ed then Citi would have reduced 20K roles
  • Some branch level right sizing will further reduce head count ( from our retail branches, as well as getting the expense base right to increase returns there)
  • Technology rationalization is on-going, but don’t expect any savings; As the savings will be deployed on new technology spend (" we’ll look to self-fund the necessary investments), but don’t be surprised if we have to invest on technology to meet regulatory compliance
  • Andy Sieg hire from BAC, Vis Raghavan hire from JPM bringing some outside perspective and expect them to right size (fire some old hands) and bring new talent (their own guys)
  • Committed to 11% ~ 12% RoTCE still (we are committed to reaching our medium-term targets)


  • The goal is 4% to 5% CAGR; I expect Citi may be able to achieve 2% to 3%, but doubt they can get to 4% to 5%, also revenue is somewhat dictated by economy
  • If they gain the revenue growth via fees, then it has the ability to flex, i.e, reduce the expense if the revenue is not growing, allowing them to maintain the RoTCE
  • Between revenue growth and RoTCE, in the next 3 year time horizon, RoTCE has bigger impact on the share price


  • Expenses are the significant part of Citi’s story. Citi’s path to 11% ~ 12% RoTCE is through expense reduction; The markets are cautiously believing it, especially with the head count reduction; This is reflected in the share price
  • The expense for this quarter is $14.2 and the full year guidance is $53.8 (at the high end), that means at least $1 B reduction per quarter in the coming quarters. Of course, this is not going to be linear, but the second half is going to see significant expense flex. The expense flex is something Citi is talking for last few quarters.
    -There is $260 M repositioning cost incurred in the quarter, but I expect this not to fall into bottom line, as the savings are going to be used in transformation investments. The expected savings from these actions will allow us to continue to fund additional investments in the transformation this year
  • Credit losses this quarter are $2.36, bulk of this is retail card losses. I have talked about this a bit in this post Citi: A covered call strategy - #43 by Kingran
  • Expect the charge off’s to be higher for the rest of the year and moderate starting 2025; Still my expectation is Citi will incur close to $10 B losses full cycle, this is over and above the normal charge off’s.
  • They currently have $22 B reserve, this assumes 5% unemployment and have modeled scenarios for 7% unemployment; Reserves are conservative

Deposits & loans

  • Deposits have slightly gone down y-o-y
  • Loans have gone up slightly, yet risk weighted assets have gone down, this is important as the capital requirements (CET1) didn’t go up, which means there is more capital available to do buyback
    -If Citi can release some of this capital then they can do $8 ~ $10 B in buybacks; Of course currently they are at $2 B run rate.; We ended the quarter with a preliminary 13.5% CET1 capital ratio, approximately 120 basis points, or over $13 billion above our regulatory capital requirement of 12.3%
  • Also, they can further simplify the business and reduce the capital requirement by another 1%, of course it will take a year or two for that
  • The interest on deposits and the loans have gone alike, however, expect future NII to trend lower


  • Citi’s expectation for each segment as stated by their CEO is In services, we want … the mid-20s in RoTCE. Banking should be getting to around 15%. Markets 10% to 13%… USPB getting that back to the mid-teens and then moving on to the high teens … And then lastly… getting wealth to a 15% to 20% return in the medium-term, but the goals to the mid-20s in the longer-term here
  • Services is firing on all cylinders, and key jewel of Citi; Citi has an investor day dedicated to this segment in mid-june.
  • Wealth segment needs to step up, RoTCE, 4.6% is poor; The goal is 20%+; this should be a sort of up to a 30% pre-tax margin business The 20% RoTCE is additional $2 ~ $3 B profit, and a key driver to get to 11% to 12% RoTCE
  • Andy Sieg hire from BAC is in place and should drive growth in the wealth in coming quarters, but this is something I will keep a close eye; This is one segment I think Citi is weak and has significant work ahead of them.
  • Investment Banking, while largely driven by the economic conditions, should benefit from Vis Raghavan hire from JPM
  • USPB division drives income from retail operations (normal consumer banking), and card services (credit card). Credit card is going to experience higher charge off (losses) for the next few quarters, this is due to COVID anomaly, i.e, due to government stimulus checks credit cards delinquency were abnormally low and it is trending back to normal levels.
  • Credit card delinquency normalization along with any recession will end up costing additional $10 B in charge offs (over and above the normal delinquency levels); When this normalizes this segment can produce additional $2 B in profits


  • While they did $500 M buyback last quarter, it is primarily anti-dilution and not materially reducing the share count
  • While Citi has capacity to do higher buyback, depending on Basel III, and traction on their re-org/ transformation, they will slowly increase the buyback.
  • Eventually I expect all the profit generated will be returned to shareholders via dividend + buyback and the additional capital buffer will allow them to grow
  • I still believe they have ability to reduce 400 ~ 500 M shares over the next 4 to 5 years.

Between buyback, growth and expense stabilization they can get to $10 EPS by 2026 and TBV of $100 to $110. The stock could get to trade .9 x TBV to 1.2 x TBV.

Assuming the shares trade at .9x of $100 TBV (both lower range), the stock price will be $90, while enjoying 3% dividend (3.5% for now).


Somewhat better scenario is

Any market volatility presents an opportunity to buy for the long-term. Most of the challenges are behind and decent execution means you can get 20% to 25% CAGR.

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Morgan Stanley’s Betsy… For longtime she was a bear and even had sell rating. She recently (2/15) upgraded to buy with a title “The future is so bright we gotta upgrade”