As Citi spends "whatever's necessary" on its transformation, these are the issues
Citi's results yesterday contained much to be thankful for. Equities traders at Citi are thriving. M&A bankers at Citi have achieved a 22% increase in revenues year-on-year in the first nine months, more than at any other US bank. Debt capital markets bankers there are on fire with a similarly winning 74% revenue increase. Citi is gaining "wallet share" declared CEO Jane Fraser yesterday. The bank's earlier investments in healthcare and tech bankers are coming to fruition.
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And yet, Citi's share price is not thriving. Shares fell 5% at one point yesterday, reflecting both higher loan losses and ongoing issues with the bank's transformation, which resulted in a $136m fine from US regulators in July and a £27m fine from UK regulators for historic failings in May.
Speaking yesterday, Fraser said the bank is "committed to spending whatever is necessary" to resolve the issues relating to its regulatory reporting woes and broader transformation efforts. Speaking in July, CFO Mark Mason said the bank is spending $250m+ on data alone.
As Citi attempts to resolve the issues, it's promoted Tim Ryan, a former PWC partner to work alongside COO Anand Selva on data transformation. 800 staff who previously reported to Selva are now reporting to Ryan instead. However, the bank has 13,000 of its 229,000 employees working on the transformation in total.
Mason said yesterday that regulatory data remains Citi's primary concern. "We've got over 11,000 regulatory reports," he reiterated.
The fundamental problem appears to be that Citi isn't gathering the right data for its regulatory reports, and that employees are manually adding to it. "We're talking about ensuring that the data that we capture at trade entry is the data that's required to ultimately show up on these various regulatory reports in the way that we need it," said Mason yesterday. If Citi gets this right, it won't need to make "manual adjustments" and do a "lot of reconciliation," Mason added.
Data transformation isn't Citi's only endeavour, though. As we reported yesterday, the bank has also been decommissioning hundreds of technology applications this year (and has thousands still to go). Fraser said yesterday that the bank has retired 1,250 technology applications since 2022. Citi has entirely new operating models for "wholesale credit risk, enterprise risk, price risk firm-wide" and has implemented a new "strategic cloud solution for market risk analytics" called Zing. Fraser said it's also "embedded risk and controls" into performance management and that this will be reflected in bonuses in the future.
While this all sounds very industrious, Reuters has - however - cast some aspersions on Citi's efforts. Citing a consent order from last year, which it said hadn't been seen previously, Reuters suggested yesterday that Citi had been reprimanded for ""insufficient compliance risk management skills.” Reuters said matters may have been made worse by cuts earlier this year, which resulted in key people being let go. Citi denied this and said it's "the evolving skills needed so that we can hire." Maybe some previous staff might want to return?
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