Mark Mason
Chief Financial Officer at Citigroup
Thanks, Jane, and good morning everyone. We have a lot to cover on today's call. I'm going to start with the fourth-quarter and full-year financial results focusing on year-over-year comparisons unless I indicate otherwise. I'll also discuss our progress against our medium-term KPI targets, and with our guidance for 2023. On slide six, we show financial results for the full firm. In the fourth quarter, we reported net income of approximately $2.5 billion and an EPS of $1.16 and an ROTCE of 5.8% and $18 billion of revenue. Embedded in these results are pretax divestiture-related impacts of approximately $192 million, largely driven by gains on divestitures. Excluding these items, EPS was $1.10 with an ROTCE of approximately 5.5%.
In the quarter, total revenues increased by 6% or 5% excluding divestiture-related impacts as strength across services, markets and U.S. Personal Banking was partially offset by declines in Investment Banking, wealth, and revenue reduction from the close exit. Our results include expenses of $13 billion, a decrease of 4% versus the prior year. Excluding divestiture-related costs from both the fourth quarter of this year and last year, expenses increased by 5%, largely driven by investments in our transformation, business led investments and higher-volume related expenses, partially offset by productivity savings and the expense reduction from the exit.
Cost of credit was approximately $1.8 billion, primarily driven by the continued normalization in card net credit losses, particularly in Retail Services and an ACL build of $645 million, largely related to growth in cards and some deterioration in macroeconomic assumptions.
And on a full-year basis, we delivered $14.8 billion of net income and an ROTCE [Technical Issues] with a full-year revenue walk on slide seven. In 2022, we reported revenue of approximately $75 billion, up 3% excluding the impact of divestitures, in line with our guidance of low-single digit growth.
Treasury and Trade Solutions revenues were up 32% driven by continued benefits from rates, as well as business actions such as managing deposit repricing, deepening with existing clients and winning new clients across all segments. Client wins have accelerated due to the investments that we've been making and market leading product capability. These products include the first 24 x 7 U.S. dollar clearing capability in the industry, the seven day cash sweep product that we launched earlier this year and instant payment, which is live in 33 markets, reaching over 60 countries. So while the rate environment drove about half of the growth this year, business actions and investments drove the remaining half.
In security services, revenues grew 15% as net interest income grew 59%, driven by higher interest rates across currencies, partially offset by a 1% decrease in noninterest revenue due to the impact of market valuations. For the full-year, we onboarded approximately $1.2 trillion dollars of assets under custody and administration from significant client wins and we continue to feel very good about the pipeline of new deals.
In markets, we grew revenues 7%, mainly driven by strength in rates and FX as we continue to serve our corporate and investor clients while optimizing capital. This was partially offset by the pressures in equity markets, primarily reflecting reduced client activity in equity derivatives. On the flip side, banking revenues excluding gains and losses on loan hedges were down 39% driven by investment banking as heightened macro uncertainty and volatility continued to impact client activity.
In cards, we grew revenues 8% as we continue to see benefits from the investments that we made in 2022 along with the rebound in consumer borrowing levels.
And in Wealth, revenues were down 2%, largely driven by market valuations and China lockdowns. Excluding Asia, revenues were up 3%. Corporate-Other also benefited from higher NII in part as the shorter-duration of our investment portfolio allowed us to benefit from higher short-term rates. And as you can see on the slide, in legacy franchises, excluding divestiture-related impact, revenues decreased by about $1.3 billion as we closed five of the exit markets and continue to wind-down Russia and Korea consumer. Going forward, we would expect Legacy Franchises to continue to be an offset for overall revenue growth as we close and wind-down the remaining exit markets.
On slide eight, we show an expense walk for the full-year with the key underlying drivers. In 2022, excluding divestiture-related impact, expenses were up roughly 8% in line with our guidance. Transformation grew 2% with about two thirds of the increase related to risks, control, data and finance programs. And approximately 25% of the investments in those programs are related to technology.
About 1% of the expense increase was driven by business led investments, which include improving and adding scalability to our TTS and security services platform, enhancing client experiences across all businesses, and developing new product capabilities. We also continue to invest in front-office talent, albeit at a more measured pace given the environment. And volume-related expenses were up 1%, largely driven by market and card.
The remainder of the growth was driven by structural expense, which include and increase the risk in control investments to support the front office, as well as macro impacts like inflation. These expenses were partially offset by productivity savings, as well as the benefit from foreign-exchange translation and the expense reduction from the exit markets. Across the firm, technology-related expenses increased by 13% this year.
On slide nine, we started 2022 results versus the medium-term API target that we laid out at Investor Day, which we will continue to show you as we make progress along the way. Macro factors and market conditions including those driven by monetary tightening at levels we didn't anticipate at Investor Day impacted some KPIs positively and others negatively. However, we were able to offset some of the impact as we executed against our strategy.
In TTS, we continue to see healthy underlying drivers that indicate consistently strong activity from both new and existing clients, as we roll out new product offering and invest in the client experience, which is a key part of our strategy. Client wins are up approximately 20% across all segments. And these again include marquee transactions where we are serving as the client's primary operating bank.
The third quarter year-to-date, we estimate that we gained about 70 basis points of care and maintained our number one position with large institutional client. In addition, we have onboarded over 700 suppliers this year, helping our clients manage their supply-chain to address the evolving global landscape. And in security services, we onboarded new client assets, which offset some of the decline in market valuation. And we estimate that we have gained about 50 basis points of share in security services through the third-quarter of this year, including in our home markets.
In markets, we strengthened our leadership position in fixed income by gaining share while making progress towards our revenue to RWA target. In cards, loan growth exceeded our expectations in both branded cards and Retail Services. Card spend volumes were up 14%. End-of-period loans up 13%. And most importantly, interest-earning balances up 14%.
That said, in areas like investment banking, we lost share this year, but maintained our market position. And in Wealth, while we have brought on new advisors and new client assets, given the impact of market valuations, this didn't translate into growth in client assets or topline growth at this point.
So in summary, we made good progress against our medium-term KPI targets despite the significant changes in the macroeconomic backdrop since Investor Day. This highlights that our diversified business model is adaptable to many environments. We have the right strategy to achieve our return targets over the medium-term.
Now turning back to the fourth quarter, on slide 10, we show net interest income, deposit and loans. In the fourth-quarter, net interest income increased by approximately $710 million on a sequential basis, largely driven by services, card and market. Average loans were down as growth in card was more than offset by declines in ICG and legacy franchise. Excluding foreign-exchange translation, loans were flat.
And average deposits were down by approximately 1%, largely driven by declines in legacy franchises and the impact of foreign-exchange translation. Excluding foreign-exchange translation, deposits were up 2%. Sequentially, average deposits were up driven by growth in ICG and PBWM and our net interest margin increased by eight basis points.
On slide 11, we show key consumer and corporate credit mix. We are well-reserved for the current environment, with over $19 billion of reserve. Our reserves to funded loan ratio is approximately 2.6%. And within that, PBWM and U.S. cards is 3.8% and 7.6%, respectively, both just above 1 CECL level. And we feel very good about the high-quality nature of our portfolio. In PBWM, 45% of our lending exposures are in U.S. cards and of that, Branded cards makes up 66% and retail services makes up 34%.
Additionally, just over 80% of our total corporate exposure is the prime customers. And NCL rates continue to be well below pre-COVID LEVEL. Now ICG portfolio, of our total exposure, over 80% is investment grade. Of the international exposure, approximately 90% is investment grade or exposure to multinational clients or their subsidiary. And corporate nonaccrual loans remain low and are in line with pre pandemic levels at about 39 basis points of total loans. That said, we continuously analyze our portfolios and concentration under a range of scenarios. So while the macro and geopolitical environment remains uncertain, we feel very good about our asset quality, exposures and reserve levels.
On slide 12, we show our summary balance sheet and key capital and liquidity metrics. We maintain a very strong balance sheet. Of our $2.4 trillion-dollar balance sheet, about a quarter or just under $600 billion consists of H3LA and we maintain [Technical Issues]. And our tangible book value per share was $81.65, up 40% from a year-ago.
On slide 13, we show a sequential CET1 walk to provide more detail on the drivers this quarter and our target over the next few quarters. Walking from the end of the third quarter, first, we generated $2.3 billion of net income to common, which added 19 basis points. Second, we returned $1 billion in the form of common dividend, which drove a reduction of about nine basis points. Third, the impact on AOCI through our AFS investment portfolio drove an eight basis point increase. And finally, the remaining 56 basis point increase was largely driven by the closing of exit, RWA optimization and market move towards the end of the quarter.
We ended the quarter with a 13% CET1 capital ratio, approximately 70 basis points higher than the last quarter. As you can see, we hit our 13% CET1 target, which includes a 100 basis point internal management buffer. That will allow us to absorb any temporary impacts related to the Mexico consumer exits at signing, while continuing to have ample capacity to serve our clients. And as it relates to buyback this quarter, we will remain on pause and continue to make that decision quarter-by-quarter.
On slide 14, we show the results for our Institutional Clients Group for the fourth quarter. Revenues increased by 3% this quarter with TTS up 36% on continued strength in NII. Security Services revenue up 22%. Markets revenue up 18% on strength in fixed-income, partially offset by a decline in equity. And Investment Banking revenues down 58%, which is in the range of the overall decline in industry volume. Expenses increased 6%, driven by transformation, business led investments specifically in services and volume-related expenses, partially offset by FX translation and productivity savings.
Cost of credit was $56 million, driven by net credit losses of $104 million, partially offset by an ACL release. This resulted in net income of approximately $1.9 billion, down 18% driven by higher cost of credit and higher expenses. ICG delivered a 7.9% ROTCE for the quarter and average loans were down slightly, largely driven by the impact of foreign-exchange translation and our continued capital optimization efforts.
Excluding FX, loans were up 1%. Average deposits were roughly flat. Excluding the impact of foreign-exchange translation, deposits were up 3% and sequentially, deposits were up 4%. As for the full-year, ICG grew revenues by 3% to $41 billion and delivered approximately $10.7 billion of net income with and ROTCE of 11.1%.
Now turning to slide 15, we show the results of our Personal Banking and Wealth Management Business. Revenues were up 5% as net interest income growth was partially offset by a decline in noninterest revenue, driven by lower investment product revenue and wealth and higher partner payments in Retail Services. Expenses were up 7%, driven by investments in transformation and other risk and control initiatives. Cost to credit was $1.7 billion, which included a reserve build, driven by card volume growth and a deterioration in macroeconomic assumptions.
NCLs were up, reflecting ongoing normalization, particularly in Retail Services. Average loans increased 6% while average deposits decreased 1%, largely reflecting clients putting cash to work in fixed-income investments on our platform. And PBWM delivered an ROTCE of 1.4% driven by the ACL build this quarter and higher expenses. For the full-year, PBWM delivered an ROTCE of 10.2% or $24.2 billion in revenue.
On slide 16, we show results for legacy franchise. Revenues decreased 6%, primarily driven by the closing of five exit markets, as well as the impact of the wind-down. Expenses decreased 38%, largely driven by the absence of divestiture-related impacts last year related to Korea.
On slide 17, we show results for Corporate-Other for the fourth quarter. Revenues increased, largely driven by higher net revenue from the investment portfolio. Expenses are down, driven by lower consulting expense.
On Slide 19, we summarized our guidance for 2023. As Jane mentioned earlier, 2023 is a continuation of Phase one. We will continue to execute and invest, laying the foundation for the future with an eye towards driving long-term shareholder value. With that as a backdrop, we expect revenue to be in the range of $78 billion to $79 billion, excluding any potential 2023 divestiture-related impact. Expenses to be roughly $54 billion, also excluding 2023 divestiture-related impacts. Net credit losses in card are expected to continue to normalize.
And as we said earlier, we met our 13% CET1 target and we will continue to evaluate the target as we go through the next DFAST cycle and close additional exits and announce others. On slide 20, on the right-side of the page, we show our revenue for 2021 and 2022 and our expectations for 2023, excluding the impact of divestitures. In 2023, we expect the revenue growth I just mentioned to be driven by NII and NIR. In TTS, we expect revenues to grow but at a slower pace, driven by interest rate and business actions. And for Security Services, we expect a bit of a tailwind from increased market valuations and onboarding of additional client assets.
We also assume somewhat of a normalization in Wealth as lockdowns in China end market valuations start to rebound. And we expect investment banking to begin to rebound as the macro-economic backdrop becomes more conducive to client activity. As for Market, we expect it to be relatively flat given the level of activity we saw in 2022.
Now turning to the NII guidance for 2023. We expect both ICG and PBWM to contribute to NII growth as we grow volume, particularly in card and we continue to get the benefit of U.S. and non-U.S. rate hike in our Services business. As a reminder, the guidance for revenue includes the reduction of revenue from the exit in legacy franchises that we closed in 2022 and we expect to close this year in 2023.
Turning to slide 21, in 2023, the increase in expenses that I just mentioned reflects a number of decisions that we've made to further our transformation and execute on our strategy. And the main drivers are, first transformation as we continue to invest in data, risk and control and technology to enhance our infrastructure and ultimately make our company more efficient. Second, business led investments as we execute against our strategy. Third, volume-related expenses in line with our revenue expectations. And four, elevated levels of inflation, mainly impacting compensation expense, partially offset by productivity savings and expense benefits from the exit. And we are investing in technology of cost to firm, with total technology-related expenses increasing by 5%. While we recognize this is a significant increase in expenses, these are investments that we have to make and I am certain that these investments will make us a better, more efficient company in the future.
And finally, let's talk a little bit about the medium-term part. At Investor Day, we said the medium-term was three to five years. That timeframe represented 2024 to 2026. So while a lot has changed in the macro-environment since Investor Day, our strategy has not, and we are on a path to the 11% to 12% ROTCE target in the medium-term. We continue to expect top-line revenue growth, material expense reduction and capital levels largely consistent with our medium-term CET1 target range to contribute to the achievement of our 11% to 12% ROTCE target.
So let me walk you through where we stand today. From a revenue perspective, rates have moved much higher and at a faster pace across the globe, which accelerated NII growth and that coupled with the execution of our strategy has allowed certain businesses to accelerate. At the same time, other businesses such as Wealth and Investment Banking have slowed. Despite these, consistent with Investor Day, we expect a 4% to 5% revenue CAGR in the medium per, including the ongoing reduction of revenue from the closing of the exit.
From an expense perspective, as we showed at Investor Day, expenses will need to normalize over the medium term. And we now expect to bend the curve on expenses towards the end of 2024. The three main drivers of the necessary expense reduction will be benefits from the exit, which will be included in Legacy Franchises, the benefits from our investments in transformation and control, and the simplification of the organizational structure.
First, let me remind, at this point, the ongoing expenses in Legacy Franchises are approximately $7 billion. Of the $7 billion, roughly $4 billion is transferred to the buyer upon closing through a transition services agreement that typically lasts about a year. The remaining $3 billion relates to potentially stranded costs and wind-down, which takes time to eliminate. Second, as our investment in transformation and control initiatives mature, we expect to realize efficiency as those programs transition from manually-intensive processes to technology-enabled ones.
And finally, we remain focused on simplifying the organization and we expect to generate further opportunity for expense reduction in the future. From a credit perspective, we still expect net credit losses to continue to normalize and any future ACL build or releases will be a function of macro assumption and volume.
So to wrap up, while the world has changed significantly and the components have shifted, we remain on our path to achieve the 11% to 12% ROTCE in the medium-term. And Jane, the rest of the firm and I are prepared to continue to show proof points along the way and demonstrate our progress.
With that, Jane, and I will be happy to take your questions.
