By Tatiana Bautzer
NEW YORK, May 5 (Reuters) - Citigroup will unveil medium-term profitability targets at its investor day on Thursday, highlighting improvements in expenses and revenue from its multi-year overhaul, while betting on artificial intelligence to drive growth in its wealth business, CEO Jane Fraser said in an interview.
Citi is concluding a large reorganization that reduced its size, focusing on fewer businesses and cutting management layers.
"We will be laying out new [return] targets
... and the growth path for each of the businesses," Fraser told Reuters, declining to give specifics on the new guidance but saying the bank planned to raise the bar beyond its 2026 goals. Citi's target this year is a return over tangible common equity between 10% and 11%.
Fraser, who took over in 2021, moved quickly to shed unprofitable global retail franchises and address regulatory penalties as part of a push to tighten risk and control frameworks. On her first investor day in 2022, analysts greeted Fraser's pledge of higher returns with skepticism.
"We have credibility behind us now," Fraser said at the bank's Manhattan headquarters. "It has just become clearer, as we sold the consumer franchises and reorganized the company, that we changed."
Executives will also discuss capital use and specific goals for the five businesses: Services, Banking, Markets, U.S. Consumer Cards and Wealth Management.
Analysts such as Wells Fargo's Mike Mayo and Piper Sandler's Scott Siefers predict new return on tangible common equity (ROTCE) targets of up to 15% through the end of the decade. Citigroup has so far only given profit guidance through 2026.
Siefers wrote in a note to clients that the bank had undergone its most consequential strategic transformation in decades. "It has been an extraordinary several years for a company that had otherwise spent the better part of two decades lacking clear direction," he said.
Investors are also watching for the possible lifting of consent orders imposed by the Federal Reserve and the Office of the Comptroller of the Currency (OCC) in 2020, after the bank mistakenly wired $900 million to Revlon creditors instead of a $7.8 million interest payment.
Wells Fargo's analyst Mayo expects the consent orders to be removed this year. Fraser refrained from discussing any timeline, but has said recently the bank has completed 90% of the work related to compliance, risk management, technology and data.
On top of the new guidance for return and capital, Citi is also expected to spell out its strategy for its five business lines. "We'll lay out the growth path ahead for each of them," Fraser said.
AI MAY IMPROVE WEALTH RETURN
One of the main challenges to be tackled is the performance of the wealth management unit, which produced a return of 10.8% in the first quarter and manages $1.3 trillion in client assets. By comparison, Morgan Stanley, which oversees $7.35 trillion, had a 30.4% profit margin in the same period.
On the latest earnings call, Fraser dismissed speculation of potential M&A to close the gap, saying the bank was focussed solely on organic growth.
Artificial intelligence could improve results in the wealth division in the short term, she told Reuters. "We feel very confident in the path to get to more peer-like return levels in wealth," Fraser said, citing as an example the launch of Sky, the bank's AI initiative that can scale up productivity.
"I wouldn't want to buy something right now in wealth, even if I thought it was the right thing to do, because we have to see how much of this is going to be more heavily AI-driven, with humans still very much involved," she added.
Analysts expect more product offerings from Citi's Services division, which caters to multinational corporations, including increased instant cross-border payments. The unit has 5,000 large multinational clients, as well as 12,000 medium sized companies. Dubbed the 'crown jewel' by Fraser, it has returned 27% on tangible common equity in the first quarter.
The banking unit is expected to outline areas for growth after gaining market share under Vis Raghavan, who was hired to lead the division two years ago. Banking and Markets posted about 15% ROTCE in the first quarter.
Across the group, Citi is set to elaborate on the impact of AI. Fraser said the new tools are doing more than automating routine tasks. "Agentic commerce is much more revolutionary," she said. "It will help us grow revenue too."
(Reporting by Tatiana Bautzer; editing by Megan Davies and Shri Navaratnam)
