Jane Fraser Grilled by Analysts: How Will Citi Catch Peers?

(Bloomberg) -- One analyst, then another and soon a third and a fourth all had questions in the same vein for Citigroup Inc.’s Jane Fraser Friday during her first earnings conference call as the bank’s incoming leader.

How will you close the gap with competitors?

Erika Najarian at Bank of America Corp. focused on what she called Citigroup’s “breadth and not much depth” in certain businesses. Gerard Cassidy from RBC Capital Markets asked about consumer banking. Mike Mayo of Wells Fargo & Co. went even wider: What about companywide return on capital? “Not to beat a dead horse,” Jim Mitchell of Seaport Global Securities followed up, but “I think one of the biggest concerns of investors is they can’t see the path to the peer-level returns.”

The queries underscored the extent of challenges Fraser faces as she takes over the third-largest U.S. lender next month, becoming the first woman to run one of the nation’s giant banks. Analysts made clear they have significant and pressing concerns about the company’s performance relative to competitors -- though they uttered no doubts that Fraser, a former McKinsey & Co. partner, is up to the job.

“While we have made demonstrable progress over the last 10 years since the crisis, I equally know that there is a gap to close with our peers,” said Fraser, 53, who previously led the consumer-banking unit. “You can hold me accountable for doing so along with the management team. We’re a team on a mission to get this done, and we will get this done.”

Hot Seat

While it was Fraser’s first time in the hot seat, it’s not the first time Citigroup has faced questions about its returns. In the final months of 2020, profit dropped 7% as return on tangible common equity slipped to 11.4%. At rival JPMorgan Chase & Co., such returns climbed to 24% as net income reached a new record.

Citigroup shares fell 6.9% to $64.23 in New York on Friday, the second-worst performer in the 24-company KBW Bank Index.

“While the financial results this year aren’t what I would have wanted them to be for my last year as CEO, in many ways, I couldn’t be prouder of all the work we did to strengthen our firm that helped us get through this extraordinary year,” Mike Corbat, 60, the firm’s current chief executive officer, said on Friday’s call.

To be sure, the queries analysts posed to executives were civil -- and some took obvious pains to be diplomatic.

“As you think about the wonderful franchise you already have and the opportunities that you have to improve upon it,” Najarian began, before asking how Fraser will help Citigroup catch up.

Revenue Warning

Citigroup warned revenue for this year would probably fall by a percentage in the mid- to high-single digits as results from its sprawling trading operations begins to normalize. The firm also said expenses would rise by as much as 3% with the firm continuing to invest in risk management and internal controls to comply with settlements reached last year with regulators.

Fraser herself is embarking on a wholesale review of the firm, she said, adding that the bank could ultimately consider divesting some of its businesses that don’t fit with its new strategic vision.

“This transition is giving me valuable time to take a dispassionate look at our strategy and businesses,” Fraser said. “If it ends up that there are businesses as we look at it that we don’t think fit well into the mix, then I think we’ve got good skills in terms of thinking about how we divest of those in a way that makes sense.”