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 firm-wide financial results, focusing on year-over-year comparisons unless I indicate otherwise, I'll also focus on our guidance for 2024 and end with the path to our medium-term return target. Presentation of our results reflects the changes we've made in conjunction with our organizational simplification, including reporting legacy franchises and corporate other in All Other.
However, before I go into the results, let me walk you through some of the notable items that impacted the quarter that were included in the 8K we recently filed. At the top-right of Slide 7, we show these items on a pretax basis. The FDIC special assessment of approximately $1.7 billion related to regional bank failures in March. This impacted expenses and All Other. A restructuring charge of approximately $780 million related to actions associated with our organizational simplification, which will drive headcount reductions and future savings over the medium-term impacted expenses in All Other. The impact of the currency devaluation in Argentina of approximately $880 million, this was recorded in non-interest revenue across services, markets and banking, and you can see the impact by business in the appendix of the presentation.
While we did have an adverse impact from the Argentina devaluation this quarter, we also benefited from high interest rates earning approximately $250 million of NII on the net investment in the quarter, given the hyper-inflationary environment. And a reserve build of $1.3 billion related to increases in transfer risk associated with exposures to Russia and Argentina as described in the 8K, this impact is mostly included in other provisions and cost of credit and spends multiple businesses due to their globality. The combination of these items negatively impacted diluted EPS by approximately $2 and RoTCE by approximately 920 basis points.
Now, turning to the left side of the slide, where we show our financial results for the full firm. In the fourth quarter, we reported a net loss of $1.8 billion and a net loss per share of a $1.16 or $17.4 billion of revenue. Excluding the notable items, diluted EPS would have been $0.84 with an RoTCE of 4.1% for the quarter. In the quarter total revenues decreased by 3% on a reported basis. Excluding divestiture-related impacts and the impact of the Argentina devaluation, revenues increased 2%, driven by strength across Services, USPB and Investment Banking, partially offset by lower revenues in Markets and Wealth and the revenue reduction from the closed exits and wind downs.
Turning to expenses, we reported expenses of $16 billion, which include the FDIC special assessment and modest divestiture-related costs. Excluding these items, expenses increased 10% to $14.2 billion, largely driven by the restructuring charge I just mentioned. Cost of credit was approximately $3.5 billion, excluding the reserve bill for transfer risk, cost of credit was primarily driven by card net credit losses, which are now at pre-COVID levels as well as ACL builds for new card volume. At the end of the quarter, we had nearly $22 billion in total reserves with a reserve to funded loan ratio of approximately 2.7%, and on a full-year basis, we delivered $9.2 billion of net income and an RoTCE of 4.9%. Adjusting for the notable items, net income was approximately $13.1 billion with an RoTCE of 7.3%.
On Slide 8, we show full-year revenue trends by business from 2021 to 2023. It is important to highlight that in conjunction with the change, to align with our new financial reporting structure, we moved the majority of the financing and securitization business from Banking to Markets. We also implemented a revenue sharing arrangement within Banking, and between Banking, Services and Markets to reflect the benefit the businesses get from our relationship-based lending. These changes are now reflected in our results in our historical financials.
Now, looking at the full-year numbers. Services had a record year with revenues of $18.1 billion up 16%, benefiting from both rates and business actions, new client wins and deepening with existing clients, partially offset by the Argentina devaluation. Markets revenues decreased 6% to $18.9 billion, largely driven by lower volatility and a significant slowdown in December. The Markets business was also impacted by the Argentina devaluation. Banking revenues decreased 15% to $4.6 billion, primarily driven by the mark-to-market on loan hedges as well as a decrease in corporate lending. Investment Banking revenues were relatively flat for the year as we gained share amidst a declining wallet.
Corporate lending revenues were down 4%, excluding mark-to-market on loan hedges. Wealth revenues decreased 5% to $7.1 billion, primarily due to the deposit mix shift towards higher yielding products which drove lower deposit spreads. USPB revenues increased 14% to $19.2 billion, primarily driven by growth in Card balances, as we continue to see the benefit of our investments in digital acquisition and customer engagement. Total revenues, excluding divestitures, came in at $77.1 billion below our guidance of $78 billion to $79 billion for the year, largely due to the impact of the Argentina devaluation; softer markets performance, particularly in December; and losses on loan hedges. However, NII ex-Markets came in at $47.6 billion in line with our guidance.
Despite the challenging environment and the impact of the Argentina devaluation, we grew firm-wide revenues by approximately 4% ex-divestitures in line with our Investor Day target, demonstrating the benefit of our diversified business model and the investments we've been making.
On Slide 9, we show full-year expense trends from 2021 to 2023. Excluding the FDIC special assessment and divestiture-related impacts, full-year expenses were $54.3 billion for 2023 in line with our guidance. As I mentioned, this includes roughly $780 million of restructuring cost associated with our organizational simplification and additional severance cost of approximately $730 million, which included actions to address stranded costs, and start to right-size the businesses.
Relative to the prior year, expense growth continued to be driven by transformation and business-led investments, volume-related expenses and other investments in risk and controls and technology, partially offset by productivity saving and a reduction in expenses in legacy franchises within All Other. Over the past few years, we've been investing across these themes, which has not only impacted the performance of the firm, but also the businesses.
On Slide 10, we show the components of our transformation in technology spend from 2021 to 2023. Over the past three years, we have invested significantly in our infrastructure, platforms, applications, processes and data. As you can see in the bar chart at the top of the slide, roughly 30% of our transformation investments over the last three years were in technology, with the remainder related to non-tech employees and consultants.
In 2023, we've seen a shift from consulting expenses to technology and compensation as we've gotten deeper into the execution of our transformation, and you should expect to see this trend continue. In total, we invested over $12 billion in technology in 2023. Beyond transformation, our technology investments are also focused on digital innovation, new product development, client experience enhancements and areas that support our infrastructure like cloud and cyber.
On Slide 11, we show key consumer and corporate credit metrics. Across Branded Cards and Retail Services, approximately 80% of our card loans are to consumers with FICO scores of 680 or higher. And across both portfolios, NCL rates have reached pre-COVID levels, but we continue to be well reserved with a reserve to funded loan ratio of 7.7%. In our Corporate portfolio, the majority of our exposure is investment grade, which is reflected in our low level of non-accrual loans at 63 basis points of total corporate loans. We feel good about the quality and mix of our portfolio and are well reserved for the current environment.
As it relates to Argentina, we've included a slide in the appendix summarizing the value it brings to the global network and the broader institutional client relationships we hold, as well as the strength of our financial profile in Argentina. As it relates to Russia, we've also included a slide in the appendix. You will see that the reserves for transfer risks that we have taken have significantly reduced our net investment and therefore our risk of loss related to Russia.
On Slide 12, we show our summary balance sheet and key capital liquidity metrics. We maintain a very strong $2.4 trillion balance sheet, which is funded in part by a well diversified $1.3 trillion deposit base, which is deployed into high quality diversified assets. The majority of our deposits, $801 billion, are institutional and operational in nature and span across 90 countries and are complemented by $426 billion of U.S. Personal Banking and Wealth deposits. We have approximately $561 billion of HQLA, and approximately $690 billion of loans, and we maintain total liquidity resources of $965 billion. Our LCR decreased modestly to 116%, and our tangible book value per share was $86.19, up 6%.
On the bottom left corner of the slide, we show a full CET1 walk to provide more detail on the drivers in 2023. First, we generated $8 billion of net income to common, which added 70 basis points. Second, we returned $6.1 billion in the form of common dividends and share repurchases, which drove a reduction of about 53 basis points. Third, we benefited from the impact of lower rates on our AFS investment portfolio, which drove an increase of 20 basis points. And finally, the remaining three basis points was largely driven by higher RWA, partially offset by capital releases from the exit markets.
We ended the quarter with a 13.3% CET1 capital ratio, approximately 100 basis points above our regulatory capital requirement of 12.3%. As you can see, we've grown our CET1 ratio by approximately 30 basis points over the course of the year, while returning over $6 billion to shareholders in common dividends and repurchases. Before I take you through each business, as Jane mentioned, we're not satisfied with the performance and returns of our businesses; and therefore, we are laser-focused on executing against our strategy, simplifying the organization and right-sizing the expense base. As a reminder, the investments that we've been making have impacted each of the business as you will see in the next few slides.
We're now turning to Slide 13 where we show the results for Services for the fourth quarter and the full-year. Revenues were up 6% this quarter, largely driven by NII across TTS and Securities Services partially offset by NIR, driven by the Argentina devaluation. Services non-interest revenues were up 20%, excluding the impact of the Argentina devaluation. Expenses increased 9%, primarily driven by continued investments in technology, product innovation and client experience. Cost of credit was $646 million, driven by a reserve build of approximately $652 million, primarily associated with transfer risk in Russia and Argentina.
Net income decreased to $776 million as higher revenues were more than offset by higher cost of credit and higher expenses. Average loans were up 6%, primarily driven by strong demand for working capital loans in TTS, both in North America and internationally. Average deposits were down 3% as the impact of quantitative tightening more than offset new client acquisition and deepening with existing clients. However, sequentially deposits were up 1%. Services delivered an RoTCE of 13.4% for the quarter; and for the full-year, Services delivered an RoTCE of 20% or $18.1 billion of revenue.
On Slide 14, we show the results for markets for the fourth quarter and the full-year. Markets revenues were down 19% versus a strong quarter last year, driven by a decline in fixed income and the impact of the devaluation, partially offset by an increase in equities. Fixed income revenues decreased by 25%, largely driven by rates and currencies on lower volatility and a significant slowdown in December, as well as the impact of devaluation. However, we saw good underlying momentum in equities with revenues up 9%, driven by gains across all products, and we continued to grow prime balances while making solid progress on our revenue to RWA target.
Expenses increased 8%, driven by investments in transformation and risk and controls, and volume-related cost partially offset by productivity savings. Cost of credit was $209 million, driven by a reserve build of approximately $179 million, primarily associated with the transfer risk in Russia and Argentina. Markets reported a net loss of $134 million, as revenues were more than offset by higher expenses and higher cost of credit. Average loans increased 4% to $115 billion, as we saw increased client demand for credit driving growth in warehouse lending. Average trading assets increased 18% to $391 billion, largely driven by treasuries and mortgage-backed securities, given the strong client activity and fixed income for much of the year.
While it was a challenging quarter, Markets performed relatively well for the full-year with revenue of $18.9 billion and an RoTCE of 7.4%, compared with very strong performance in the prior year, and we are focused on improving returns over time through a combination of revenue growth, expense discipline and capital optimization.
On Slide 15, we show the results for Banking for the fourth quarter and the full-year. Banking revenues increased 22%, driven by growth in Investment Banking fees and lower losses on loan hedges partially offset by lower corporate lending revenue. Investment Banking revenues increased 27% year-over-year, driven by DCM and Advisory, due to improvements in market sentiment. In Advisory, we saw signs of strength across technology, healthcare and energy, and we feel good about the strength of our pipeline.
Corporate lending revenues, excluding mark-to-market on loan hedges increased 26%, largely driven by lower revenue share from Investment Banking, Services and Markets. Expenses increased 37%, primarily driven by the absence of an operational loss reserve release in the prior year. Excluding the reserve release, expenses were roughly flat. Cost of credit was $185 million, driven by a reserve build associated with the transfer risk in Russia and Argentina. The NCL rate was 32 basis points of average loans and we ended the quarter with a reserve to funded loan ratio of 1.6%.
Banking reported a net loss of $322 million as higher expenses and cost of credit more than offset higher revenues. RoTCE was negative 6% for the quarter, and for the full-year, Banking reported an RoTCE of negative 0.2% or $4.6 billion of revenue. So clearly, we have more work to do on returns. And while it's difficult to predict when activity will normalize, we're positioning the business to capitalize on the rebound in the market wallet, and that includes continuing to invest in key growth areas, upgrading talent in traditional sectors and continuing to right-size the business.
On Slide 16, we show the results for Wealth for the fourth quarter and the full year. Wealth revenues decreased 3%, driven by lower deposit spreads, partially offset by lower mortgage funding costs and higher investment fee revenues. We're seeing good momentum in non-interest revenue, which was up 13% in the fourth quarter, driven by higher investment assets, increased client activity and market performance. Expenses were up 4%, primarily driven by investments in risk and controls and technology, partially offset by repacing strategic investments and tighter expense control as we begin to right-size the expense base in the business.
Wealth reported a net income of $5 million, as revenues were mostly offset by higher expenses. Client balances increased 6%, primarily driven by higher client investment assets partially offset by lower deposit balance. Average loans were flat as we continued to optimize capital usage. Average deposits decreased 2%, reflecting the continued mix shift of deposits to higher yielding investments on Citi's platform. Client investment assets were up 12%, driven by new acquisitions and the benefit from higher market valuation and we're seeing good momentum in net new assets, which more than doubled to $16 billion for the quarter.
For the full year, we added an estimated $21 billion in net new assets. RoTCE was 0.1% for the quarter and for the full-year RoTCE was 2.6% or $7.1 billion of revenue. Looking ahead, we're going to improve the returns in the business as we invest in talent to execute on our refocused strategy to drive investment revenue, with an eye towards right-sizing the expense base. We will wind down non-core initiatives, exit less productive performers and enhance discipline across every expense line.
On Slide 17 we show the results for U.S. Personal Banking for the fourth quarter and the full-year. U.S. Personal Banking revenues increased 12%. Branded Cards revenues increased 10%, driven by higher net interest margin and interest earning balances growth of 13%, and we continue to see healthy growth in new account acquisition up 8% and spend volumes up 3%. Retail Services revenues increased 15%, also driven by higher net interest margin and interest earning balance growth of 11%, as well as lower partner payments due to higher net credit losses. Retail Banking revenues increased 15%, driven by higher deposit spreads, loan growth and improved mortgage margins.
Expenses decreased 1% as higher expenses to support lending programs and client engagement, as well as the rollout of simplified banking, were offset by lower non-volume related expenses. Cost of credit of $2.1 billion increased 20%, driven by higher NCLs, partially offset by a lower ACL build. Net income increased to $201 million, driven by higher revenues, partially offset by higher cost of credit. Average deposits decreased 5%, driven by the transfer of relationships and the associated deposits to our Wealth business.
We continue to make progress against our digital strategy, with digital deposits up 14% and active digital users increasing 6%. RoTCE for the quarter was 3.6% and for the full-year U.S. Personal Banking delivered an RoTCE of 8.3% or $19.2 billion of revenue. Here again, we are focused on improving the return profile of the business. Managing through this part of the credit cycle and continuing to make progress in Retail Banking will be key.
On Slide 18, we show results for All Other on a managed basis, which includes corporate other and legacy franchises and excludes divestiture-related items. Revenues decreased 17% driven by a decrease in NII of 29%, driven by the closed exits and wind downs partially offset by higher non-interest revenue. And expenses increased to $4.5 billion, driven by the FDIC special assessment and restructuring cost partially offset by lower expenses in both wind down and exit markets.
Turning to Slide 20, as we kick-off 2024, the environment remains somewhat uncertain and markets remain difficult to predict. But based on what we see today, we expect revenues to be approximately $80 billion to $81 billion as shown on the left side of the slide. And on the right side of the slide, we list the key drivers.
In TTS, we expect revenue growth to be driven by new client wins, deepening with our existing clients and continued momentum with commercial clients as we continue to leverage our global footprint and product innovation. In Securities Services, we have a very healthy pipeline and will continue to onboard assets under custody from new mandates, win new clients and deepen relationships with existing clients. In Investment Banking, we anticipate a rebound in activity and to maintain our position as the wallet recovers. Over time, we do expect the investments that we've made in key growth areas such as healthcare and technology to allow us to gain share. And we also expect a modest rebound in Wealth as we execute on our refocused strategy with an eye towards growing investment fees, particularly with our existing clients.
In USPB, we expect continued growth in Card balances driven by the investments we've been making, as well as lower partner payments in Retail Services to continue to drive revenue growth. We also expect to continue to improve our retail branch performance. And as it relates to NII, excluding Markets, we expect net interest income to be down modestly as the volume growth we expect from loans and deposits is more than offset by lower U.S. rates and the reduction from the closed exits and wind down.
Turning to Slide 21, we expect expenses to be approximately $53.5 billion to $53.8 billion, down from $54.3 billion subject to volume-related expenses. The decrease in expenses will be driven by the benefits of our organizational simplification, a continued reduction from exit markets and wind downs, and productivity savings partially offset by investments in risk and controls and volume-related expenses. Embedded in this guidance, includes an elevated level of severance as well as additional potential costs related to the organizational simplification, totaling approximately $700 million to $1 billion, this will contribute to reducing headcount over 2024 and the medium-term, which we will discuss on the next slide.
On Slide 22, we show the drivers of headcount and expense reduction over the medium-term. As we've discussed in the past, there are three drivers that will reduce our expenses; organizational simplification, including the reduction of management layers; eliminating stranded costs, as we take additional actions to reduce excess overhead in light of the exit markets; and realizing productivity savings from our investments in the transformation and technology.
We expect the combination of these three drivers to reduce our headcount by a net 20,000 excluding Mexico, and generate a net run rate save of $2 billion to $2.5 billion over the medium-term. This will underpin our path to $51 billion to $53 billion of expenses subject to volume-related expenses. Both the headcount and expense reduction will allow us to right-size the firm and businesses to improve performance and return.
On Slide 23, we show our outlook for U.S. cards in 2024. In terms of credit performance based on the trends that we're seeing, we expect NCL rates, both in Branded Cards and Retail Services portfolios, to rise above pre-COVID levels and peak in 2024. On a full-year basis, for 2024, we expect the Branded Cards NCL rate to be in the range of 3.5% to 4%m and the Retail Services NCL rate to be in the range of 5.75% to 6.25%.
From an allowance perspective, we are reserved for a weighted eight quarter average unemployment rate of almost 5%, which embeds a downside scenario of approximately 6.8%. ACL builds in 2024 will primarily be a function of the volume growth that we see, as well as changes in the macro scenarios and the probabilities associated with them. And we expect continued momentum in Cards, albeit more in line with mid-single digit loan growth.
On Slide 24, we summarize our medium-term targets. From a revenue perspective, we continue to expect 4% to 5% revenue CAGR in the medium-term, including the ongoing reduction of revenue from the closing of the exits in the wind down. From an expense perspective, we're now on the path to lowering our expenses beginning in 2024. From a credit perspective, we expect credit costs to be a function of portfolio mix, volumes and macro assumptions. And we are committed to returning capital to our shareholders, and in fact expect to do a modest level of buybacks in the first quarter of 2024. So to wrap it up, while the world has changed significantly and the components have shifted since Investor Day, our strategy has not and we are confident we are on the right path to deliver our 11% to 12% RoTCE in the medium-term.
With that, Jane and I will be happy to take your questions.
