Citi points to credit cards and Mexico on path to highe…

Executives at Citigroup are expected to hang an attempt to improve industry-trailing returns in part on the US bank’s credit card and Mexico operations at its first investor day in nine years.

Michael Corbat, chief executive, will seek to convince shareholders at the eagerly anticipated event in Manhattan this week that recent investments made by the $1.86tn-in-assets bank will bear fruit.

Citi has not held an investor day since Mr Corbat’s predecessor Vikram Pandit took to the stage in May 2008, shortly before the crisis in the global financial system and the bank’s $45bn government bailout.

Since then Citi has unpicked what was a sprawling financial empire, closing branches from Pakistan to Paraguay. Yet its stock valuation remains lower than peers on metrics such as price-to-book ratio while the company has fallen short of financial targets including return on equity.

“For essentially all of the past 10 years Citi has struggled in what we might call the intensive care unit of investor relations,” said analysts at Oppenheimer in a note. “We expect the event to help rehabilitate investors’ image of Citi.” 

Managers believe they can squeeze far better returns out of Citi’s global consumer banking powerhouse, run by Stephen Bird. Presenting earnings to Wall Street analysts this month, John Gerspach, chief financial officer, said it would be a “critical driver” for the bank in hitting financial targets. 

He maintained that the division, which in the past year has produced a measure of returns on equity of 12.8 per cent, should be “capable” of at least 20 per cent. 

Much of the improvement would need to come from Citi’s cards operation, which now accounts for about 60 per cent of the consumer bank’s revenues. The group has been expanding the business, adding last year about $11bn worth of Costco credit card assets.

It has also been sweetening offers for consumers as it takes on rivals. Citi last week unveiled enhanced benefits for its Prestige card.

Mr Gerspach claimed last month that the cards business was nearing “an inflection point” as “early investments” it had made matured. Jud Linville, who runs Citi Cards, is one of five executives scheduled to speak on Tuesday. 

The outlook for the bank’s Mexico business, Citibanamex, will also be in focus. The group said last year it would plough $1bn into the country, adding 2,500 new ATMs and improving its mobile offering.

It has stuck with the investment plans despite President Donald Trump’s protectionist rhetoric. 

Executives are targeting more a modest improvement at the institutional side of the business, which includes sales and trading. Mr Gerspach said the division, which generated a return by Citi’s measure of 13.5 per cent in the past year, “should be able to” do at least 14 per cent.

The measure he was talking about inflates the return figure compared with standard return on equity. It counts only tangible common equity and excludes capital that supports tax benefits the bank receives from the huge losses it incurred during the crisis. 

Returns could also be improved as the bank distributes more capital. The Federal Reserve has given the bank the go-ahead to hand over $18.9bn over the coming 12 months, an 82 per cent increase from the year before.

Source link

قالب وردپرس

Leave a Reply

Your email address will not be published. Required fields are marked *