Citigroup Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
January 13, 2022

There are 16 speakers on the call.

Operator

Hello, and welcome to Citi's 4th Quarter 2021 Earnings Review with the Chief Executive Officer, Jane Fraser and Chief Financial Officer, Mark Mason. Today's call will be hosted by Jen Landis, Head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time.

Operator

Ms. Landis, you may begin.

Speaker 1

Thank you, operator. Good morning, and thank you all for joining us. I'd like to remind you that today's presentation, which is available for download on our website, citigroupdot may contain forward looking statements, which are based on management's current expectation and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of of the company's financial results. With that, I'll turn it over to Jane.

Speaker 2

Thanks, Jen, and Happy New Year, everyone. I am delighted to join you again today. Well, we've been busy and we have a lot to talk about today. I'm going to start with an update on our strategy refresh. Then I'll share my thoughts on our 4th quarter and end on all the progress that we've made against our major priorities.

Speaker 2

As you saw earlier this week, we announced that we intend to focus of Franchise in Mexico solely on our institutional and wealth management businesses and therefore to exit the consumer, of Small Business and Middle Market Banking Operations there. This was not a decision we took lightly. We took a clinical look at our franchise in Mexico, and we drew the hard conclusion that the non institutional businesses do not fit our new strategic direction. Now to be clear, these are terrific. They're scaled high returning franchises, But our strategic goal is to invest in businesses that are fully aligned with our core strengths and to simplify of our firm.

Speaker 2

As we did the work, it was also clear that there continues to be a tremendous opportunity for our institutional clients group of Citi is Mexico's leading institutional bank. We've served corporate clients and investors there for almost and that isn't going to change. Mexico has a bright future and we are committed to playing an important role in building it. We expect Mexico will be a major recipient of global investment and trade flows in the years ahead. Therefore, we plan to maintain of the institutional network.

Speaker 2

This won't be a simple transaction. We have spent the last several months working through how to get the best results for our shareholders and be true to our local stakeholders. We will begin the separation process immediately and expect to begin the sales process in the spring. And of course, there will be an opportunity to return excess capital from the transaction to our shareholders. This is our final decision in terms of market exits as we conclude our strategy refresh and approach Investor Day.

Speaker 2

To talk you through the changes we're making to align our organization and financial reporting with our refresh Strategy. These changes will also allow us to reduce structural complexity and its associated Amongst other things, this is going to help make Citi easier for our investors to understand. You'll be able to see and assess more simply the core businesses that make up Citi going forward. 1st, we're creating a new personal banking and wealth management segment, which will be run by Arnon Selva. This will consist of 2 distinct reporting units, our U.

Speaker 2

S. Personal Banking businesses and our Global Wealth Management business, which is going to include the Private Bank. 2nd, on the institutional side of the house, which will continue to be run by Pacoebara, we will begin reporting under 3 units: Services, Banking and Markets. Services will include Treasury and Trade Solutions and Security Services. And this reflects just how important we believe these businesses are to Citi's future.

Speaker 2

Finally, we will create a new segment, legacy franchises, which will help all the businesses we intend to Sid. We're going to begin reporting our financials along these segments and reporting units no later than the second quarter to ensure you have the information you need to measure our progress and hold us accountable. And we really look forward to sharing our strategy and plans for how these businesses will work together and deliver for our shareholders on Investor Day in March. Now turning to earnings. We had a decent end to 2021.

Speaker 2

As you can see on Slide 2, we closed out the quarter with net income of $3,200,000,000 and EPS of 1.46 that includes a $1,200,000,000 hit to EBIT, primarily related to the wind down of our of Korean Consumer Business. Excluding those impacts, our net income would be $4,200,000,000 with an EPS of $1.99 Our net income for the full year of $22,000,000,000 reflected an improved credit and we had a resulting ROTCE of 13.4%. In ICG, We had another strong quarter in Investment Banking and gained share for the year in M and A. And we continue to make significant investments in talent, and we see a very solid pipeline of transactions ahead of us. Now while we could have had a better balanced performance in fixed income in the quarter, equities finished 2021, up 25% for the year.

Speaker 2

The rebound TTS is seeing in trade flows and cash volumes wasn't quite enough to offset the current rate It is poised to benefit as monetary policy changes and growth accelerates. You've heard Mark and I talk about improving the revenue mix of our institutional businesses as a priority, and it's yielding results with another quarter of strong momentum in fee growth across products. Parts of our consumer businesses are still weathering COVID's disruptive impact on customer behavior. In the U. S, Strong purchase sales continue to be offset by elevated payment rates, but we did see loans increase in branded cards this quarter.

Speaker 2

Deposits and AUM continued to grow with digital deposits up nearly 20% for the full year. For the year, we returned nearly $12,000,000,000 in capital to our shareholders and we grew our tangible book value per share by 7% to $79.16 We ended the year with a CET1 ratio of 12.2% on a standardized basis as we built the Capital needed to absorb the impact of SACA. Now keep in mind that regulatory change didn't take effect until January 1. While this causes to temporarily pause our stock buybacks, we will resume buybacks this quarter now that that impact has been addressed. Finally, as Slide 3 shows, we are executing and delivering against our priorities, the strategy refresh, the transformation and our culture, and we are doing so with a real sense of urgency.

Speaker 2

1st, on the strategy, we are laser focused on swiftly and successfully implementing the strategic decisions we made over the past to improve returns to our investors. We have signed deals in 6 of the Asia consumer markets, including the agreement to sell 4 markets that we announced yesterday. This means that within 8 months of making the decision to exit In Korea, we were decisive in determining the best path for our shareholders was to wind down our consumer operation, and we're able to get most of that charge behind us this quarter. Another area where we haven't wasted any time is helped us add about 750 Private Bank clients and 45,000 Citigold clients in 2021. In what we know as U.

Speaker 2

S. Personal Banking, we've seen good uptake of new products such as the custom Cash Card, and we've been building out digital platforms to capture opportunities in installment lending. Of the platform. We couldn't be more pleased to deepen our relationship with BlackRock by becoming the largest custodian for their I of Shares ETF. 2nd priority, we continue to execute on our transformation agenda in order to demonstrably strengthen our risk and controls as well as modernize our bank for a digital world.

Speaker 2

This work is foundational We are enhancing our operating model to improve long term efficiency and our service to clients. As it relates to the consent orders, we are deep into execution mode. We continue to be in constructive dialogue with our regulators as We get their feedback and incorporate it into our ongoing execution and project plans. 3rd and relatedly, we are building a culture that expects excellence and demands accountability. We're driving this effort in a variety of ways, including a more robust performance management process at this past year end, shifting the mix of compensation to better align with shareholders' interests and various culture changing initiatives.

Speaker 2

A culture of excellence also means creating a record of achievement that our people can be proud of. One area that our people take particular pride in is our ESG efforts. Later this month, we will share with you our plan to reach net 0 by 2,050, a commitment I made on my first day as CEO 10 months ago. And of course, we are going to do all this with a singular focus on our clients as we help them navigate COVID. We certainly hope Omicron is the final disruptive phase of this pandemic, but there are also quite a few other issues to navigate, whether macroeconomic, such as inflation, or geopolitical such as tensions with Russia.

Speaker 2

We have seen the resilience and the importance of of Citi as we supported our clients through uncharted waters, and we will be with them in the next chapter as well. So now, I'd like to turn it over to Mark, and then we would be delighted to take your questions.

Speaker 3

Thanks, Jane, and good morning, everyone. We have a lot to cover on today's call. I'm going to start by walking you through the financial reporting changes we plan on making in more detail. And changes we are making to our financial disclosure and then finally the quarterly results. As part of our strategy refresh, We've started to make changes to better align with our vision and strategy.

Speaker 3

We refreshed our earnings presentation and included additional metrics and key drivers to understand our performance and our key assets. Turning to Slide 4, we lay out the details of the changes in the financial reporting that Jane mentioned. First, we intend to move the consumer, small business and middle market banking operations of Citibanamex and the 13 Asia consumer exits under a new segment called legacy franchises. This will allow you to better understand the financials of the remaining company that will exist post these exits. We've experienced managing businesses being divested and are putting a dedicated team in place to manage the new segment.

Speaker 3

This will free up teams of the go forward businesses to fully focus on executing on the firm's strategy. 2nd, we're reorganizing our reporting units to help you better understand the financials of our businesses and the value they bring to Citi. Starting with ICG, we will move TTS and Security Services Markets will therefore no longer include security services and instead will only include equity and fixed income markets. And lastly on ICG, banking will only include advisory, equity underwriting, debt underwriting and corporate lending. The Global Consumer Bank, GCB, will be renamed Personal Banking and Wealth Management, TBWM.

Speaker 3

The private bank will move from ICG to PBWM. As a reminder, we announced in January of last which is a distinct reporting unit. The creation of this unit unifies the wealth management teams creating a single integrated platform serving clients across the wealth continuum from the affluent segment to the ultrahigh network clients. North America Consumer Cards, Retail Services and Retail Banking. We plan on providing the financials for the new reporting units on this page under the ICG and PBWM segments, starting no later than the 2nd quarter earnings.

Speaker 3

And our Today will be a natural opportunity to bring together all the work over the past year and lay out our medium term vision and strategy for of her. Slide 5 shows the contribution of the Citibanamex businesses that we plan to exit as well as the contribution from the 13 Asia markets. Hopefully, this gives you a better sense of the financial results for the combined exits. And in the appendix on Page 18, we have more detail on the and Analysis, we decided that we are no longer the optimal owner for the businesses that we're exiting. The Mexico Consumer and Small Business Banking operations included in the intended exit represents the entirety of the Latin America Global Consumer Banking Unit and the Mexico Middle Market Banking Business that is currently included in Citi's Institutional Clients Group segment.

Speaker 3

On the left side of the page, we show key figures for 20202021 for the businesses we intend to exit in Mexico. In 2021, the businesses contributed $4,700,000,000 of revenue and $1,100,000,000 of net income. The businesses in total had $20,000,000,000 of loans, dollars 31,000,000,000 of deposits and approximately $4,000,000,000 of allocated TCE. Again, we do not No. We will keep you updated on our progress as we run a thoughtful process that takes into consideration what is in the best interest of our shareholders as well as our clients and employees in Mexico.

Speaker 3

In addition to the opportunity to return additional capital to shareholders, these will also allow us to simplify the management and organizational structure across the firm. Now turning to Slide 6. As we've gone through our strategy refresh and simplification, we've been reviewing our disclosure and terminology and have decided that now is the right of income and revenue that we previously referred to as non NIR will now be called non interest revenue. 2nd, As you can see on the page, we've revised how we account for insurance paid on our deposits, including FDIC and foreign deposit of Insurance. We have previously accounted for the deposit insurance as a contra revenue and net interest income.

Speaker 3

However, beginning this quarter, we will report it as expense and remove it from net interest income. And as a reminder, this change is earnings neutral. We've made this change to make it easier for you to compare us to our peers. And we have revised prior years to reflect the same reporting treatment to assist with comparability for 2019 to 2021 and the rest of the presentation will also reflect these two changes. On slide 7, we show financial results for the full firm.

Speaker 3

As Jane mentioned earlier, in the 4th quarter, We reported net income of $3,200,000,000 and an EPS of $1.46 and ROTCE of 7.4 on $17,000,000,000 of revenues. Embedded in these results are costs of approximately $1,200,000,000 primarily related to the voluntary retirement program we offered in conjunction with the wind down of our Korea consumer business, as well as some additional Asia exit impacts, which I will collectively refer to as the Asia divestiture impacts going forward. Excluding these impacts, EPS would have been $1.99 with an ROTCE of approximately 10%. In the quarter, total revenues increased by 1% from last year as strength in non interest revenue driven by ICG, specifically TTS, Security Services and Investment Banking, was mostly offset by lower net interest across GCB and ICG. Our results include expenses of $13,500,000,000 An increase of 18% versus the prior year.

Speaker 3

Excluding the Asia divestiture cost, expenses would have increased by 8%. Increased expenses were largely driven by investments in our transformation, business led investments and higher revenue related expenses, partially offset by productivity savings. Cost Credit was a net benefit in the quarter, primarily driven by an ACL release of approximately $1,400,000,000 related to the improved macro backdrop and continued improvement in portfolio quality. Now turning to the full year. Our revenues were down 5% driven by the normalization in markets as well as elevated payment rates in consumer, somewhat offset by strong non interest revenue growth across ICG But excluding Asia divestiture costs, our expenses were up 6%.

Speaker 3

Also for the full year, we generated ROTCE of 13% and 14% excluding Asia related divestiture impacts. As a reminder, we had close to $9,000,000,000 in ACL releases for the full year. On Slide 8, we show an expense walk for the full year with the Key underlying drivers. In 2021, excluding Asia divestiture impacts, expenses were up 6% in line with previous guidance. Looking forward, we recognize that we have a lot more work to do.

Speaker 3

The divestitures provide an opportunity to simplify We're also taking a hard look at our structural expenses with an eye towards operating as efficiently and soundly as possible and self funding investments. We'll have a lot more to say about this at our Investor Day. On slide 9, we show net interest income, deposits and loans. In the 4th quarter, net interest income increased by approximately $130,000,000 on a sequential relationships with our institutional clients as well as our consumer clients, particularly in North America. Average loans were roughly flat year over year as growth in the ICG was offset by a decline in GCB.

Speaker 3

As the probability of higher rates has increased over the last Let me make a few comments regarding the potential impact from higher rates. In our 10 Q, we disclosed interest rate sensitivity assuming a and a 100 basis point parallel shift, we would expect Citi's total net interest income across all currencies to increase by over 3 times more than what was disclosed in our Q3 10 Q or roughly $2,500,000,000 to 3,000,000,000 On slide 10, we show our summary balance sheet and key capital and liquidity metrics. We maintain a very strong balance Of our $2,300,000,000,000 balance sheet, about 25% or $530,000,000,000 consists of HQLA, and we maintained total liquidity resources of approximately $960,000,000,000 And we continued to optimize our balance sheet deploying excess liquidity into securities as we took advantage of opportunities in the market, as well as reducing our short term and long term debt sequentially and year over year. On the loan side, corporate loans represent approximately 60% of total About 80% of our total corporate loans are investment grade. From a capital perspective, we ended the year with of approximately 12.2 percent as we prepared to adopt SACR on January 1.

Speaker 3

Having adopted SACR and maintained our capital ratio target, we are resuming buybacks this quarter to similar levels to what you saw in the second and third quarter of 2020 As we look into the remainder of the year, there are a number of variables with respect to capital. These include regulatory headwinds that are impacting us along with the rest of the industry such as elevated GSIB surcharges as well as the timing and impact from the divestitures of the 13 Asia Exits and Mexico. In light of this, you should expect us to manage to a CET1 ratio closer to 12% by the end of the year due to the expected GSIB surcharge increase at the beginning of 2023. That said, we remain focused on all aspects of capital with a goal of maintaining a CET1 ratio of 11.5%. And as you know, under the SCB framework, we can assess on a quarter by quarter the right level of buybacks and we will continue to do so throughout the year with a goal of returning excess capital to shareholders.

Speaker 3

On Slide 11, we show the results for our institutional clients group for the 4th quarter. Revenues increased 4% year over year, driven by Investment Banking, Private Bank and Security Services fees, partially offset by a decline in markets. Expenses increased 10% year over year, driven by transformation, business led investments and revenue related expenses, partially offset by productivity Cost of credit was a net benefit of approximately $300,000,000 as net credit losses were more than offset by an ACL release. And we continue to see strong credit performance with net credit losses declining on a year over year basis and non accrual loans down sequentially and year over year. This resulted in net income of $2,500,000,000 down and new client acquisitions.

Speaker 3

As for the full year, ICG delivered approximately $16,000,000,000 of net income on $44,000,000,000 of revenue with an ROTCE of roughly 17%. On slide 12, we show revenue performance by business and key drivers for ICG business for the Q4. Treasury and Trade Solution revenues were slightly down versus Highest fee quarter ever and revenue did increase sequentially driven by both net interest income and strong fee growth. We continue to see strong underlying drivers in TTS on a year over year basis that indicate continued strong client activity. Since this is the first time we are showing key metrics that demonstrate this momentum.

Speaker 3

I want to briefly walk you through each one and what it represents. Cross border flows were up 15%. These flows represent our global payment flows where we provide cross border solutions for our clients that are fully integrated across our TTS and Markets business in over 145 currencies. And importantly, This client activity drives recurring fee revenues and generates significant operating deposits. Commercial card percent.

Speaker 3

Again, these metrics are indicators of client activity and fees and on a combined basis drive approximately 50% of total TTS fee revenue. Investment Banking revenues were up 43% year over Private bank revenues were up 6% year over year as we continue to see strong momentum in new client acquisitions. Overall markets revenues were down 17% versus last year. And while there were different dynamics that played through fixed income and equity markets performance, the performance is against a very strong quarter last year. Fixed income markets revenues were down 20% year over year.

Speaker 3

While we had solid growth in FX and Commodities, this is more than offset by a decline in rates and spread products. Equity markets revenues were down 3% year over year as continued growth in prime finance balances and structured activities was offset by a decline in cash. Security Services revenues grew 5% year over year as fees grew 11% Here we show the results for our global consumer banking business for the Q4 in constant dollars. Revenues declined 6% year over year, driven by lower revenues across of Regents. Expenses were up 34% year over year, driven by the Asia divestiture costs.

Speaker 3

Excluding these Expenses were up 9%, driven by transformation and business led investments, partially offset by productivity savings. Cost of credit was $105,000,000 benefit this quarter as an ACL release more than offset net credit losses. The NCL rate for the quarter was 1.2%, a decline of 61 basis points year over year and 20 basis points sequentially. We released over $900,000,000 of ACL this quarter related to continued improvement in our Economic outlook and portfolio quality, partially offset by volume growth. This resulted in a net income decline of 42 and an ROTCE of 8%.

Speaker 3

Excluding the Asia divestitures impact, net income would have grown 44 and resulted in an ROTCE of 20%. As for the full year, GCB delivered $6,000,000,000 of net income on 27,000,000,000 revenues with an ROTCE of 17% and 22% excluding Asia divestiture quarter. Brandy Card's revenues declined 3% year over year on higher payment rates and portfolio mix. We're seeing encouraging underlying drivers In fact, the 4th quarter acquisitions exceeded the same quarter in 2019 by 2%, the 1st quarter to do so since the onset of the pandemic. Retail services revenues declined 10% year over year, driven by a 2% decline in net interest income due to elevated payment with account acquisitions up 6% and spend up 16% on a year over year basis.

Speaker 3

While we are encouraged by these underlying drivers in both cards businesses, payment rates do remain stubbornly high, impacting our loan growth and revenue growth in both cards businesses. Retail Banking revenues declined 6% year over year, driven by lower deposit spreads as well as lower mortgage revenue. However, underlying drivers remain strong with deposits up 13%, Citigold Household up 9%, with a focus on our Global Wealth unit. Asia revenues declined 7% year over year, largely driven by and higher payment rates. Performance in the Wealth Hubs exceeded that of the overall region with deposit growth of 12 AUM growth of 13% and 16% growth in Citigold and CPC clients.

Speaker 3

Latin America revenues declined 3% year over year, mainly due to lower loan volumes in both retail and cards. On Slide 15, we show results for Corporate Other for the Q4. Revenues increased year over year, largely Cost of credit was benign. At this point, we typically give a full year outlook. However, since we have our Investor Day coming up on March 2, we plan on bringing everything together at that point to talk about 2022 in the full context of our strategy and medium term performance As part of our strategy refresh, our goal is to be as simple and transparent as possible.

Speaker 3

And I hope you like the new earnings presentation and we will continue to evolve it going forward. And with that, Jane and I would be happy to take your questions.

Operator

We will pause for just a moment to compile the Q and A roster. Your first question is from the line of John McDonald with Autonomous Research.

Speaker 4

Good morning. Mark, thanks for the all the detail there and Jane for the strategic update. Mark, I wanted to ask if you could just go over the restatement of the Net interest income sensitivity, just want to make sure we caught that. What's the difference that's driving the new presentation there? And just what are the Key drivers for your net interest income outlook this year.

Speaker 4

You might have to give a number, but kind of when you think about trading and then core NII Card growth, maybe some of the thoughts there. Thanks.

Speaker 3

Well, thank you and good morning. Good morning, John. So on Slide 9 is where I kind of covered that. You'll recall, John, that historically, we have looked in our disclosure at a runoff balance sheet. And that obviously has deposits running off as they term out.

Speaker 3

It has loans running off as they mature. Others take an approach where they look at a static balance sheet, right? And so we've run the analysis around assuming a static balance sheet And assuming 100 basis point parallel shift in a rising rate environment, obviously, across all currencies. We obviously have a mix of U. S.

Speaker 3

Dollar And foreign currencies as well. And when we run that analysis now assuming that the balance sheet is static, that is the deposit levels, loan levels, etcetera, That delivers 3 times more than what we disclosed in the Q in Q3. So that's the 2 point 5 to $3,000,000,000 of net interest income. So obviously retaining or assuming that the deposit levels stay the same allow us to generate more net interest income and that's a major driver in the number range or the range that I provided.

Speaker 5

Got it.

Speaker 3

In terms of sorry? Yes. No, that's helpful. Great. In terms of The forward look, I'm not going to give you guidance as you mentioned, but I think there are a couple of things that are important to keep in mind that we're looking at for 2022.

Speaker 3

One is the drivers that we mentioned earlier. So a lot of the underlying drivers in our franchise Look very strong and are driving healthy fee revenue growth. And I would expect with an outlook for positive GDP That's going to continue to play to our advantage in 2022. The second thing I'd point out is the assumptions around interest rate hikes in 2022, as many as 3 or 4 depending On the Economist view that you listen to and that obviously is going to play to our favor as well when you think about the number of accrual businesses that we have, whether it's our TTS franchise Our private bank, etcetera, etcetera. So those are important factors that impact the top line, and that we expect to help contribute to some growth coming out of 2022.

Speaker 3

I mentioned the loan growth on the branded cards portfolio. For cards, it's really going to be about payment rates and how they taper off, hopefully taper off. They've been stubbornly high through all of 2021. So hopefully, we start to see some of that taper off when we get a little bit of growth in average interest earning balances in the back half of the year. Those are important factors that need to play through into 2022.

Speaker 4

Okay, great. And then just as a follow-up, as you're managing Capital, you mentioned you'll return to some level of buybacks this quarter and you've got a lot of capital that you expect to free up in transactions that haven't happened yet. So I guess how are you kind of thinking about that, that future capital is something that you'll deploy as you get it? It's part of your long term thinking, but you're not planning on using that throughout this year, I assume?

Speaker 3

Yes. So obviously, we look at Capital planning with a in the context of our strategy, and our ability to actually deploy that capital, but to return as much excess capital as we can to our shareholders. And so as we think about the divestitures, which are underway as that capital frees up, We're going to factor that into the capital plan for the year and the quarter and where we can, we're going to return that to shareholders. So a number of deals are scheduled to close in 2022. That will be part of our plan and we'll be looking forward to taking those actions in the outer part of the year.

Operator

Your next question is from the line of Mike Mayo with Wells Fargo Securities.

Speaker 6

Hi.

Speaker 2

Hey, Devin. Can you

Speaker 6

hear me? Good morning. For you, Jane, And I'm going to requeue after my two questions, so I have so many. But the most thank you for the new presentation. But The biggest question that I and I think many investors have is, when all is said is done, Who is Citigroup?

Speaker 6

What's the most simple statement you can give on who and what Citigroup represents?

Speaker 2

I love that question. So I would say that our vision for Citi is to be the preeminent bank for Institutions with cross border needs, will be a leader in global leader in wealth, a major player in consumer payments and lending in the home market. And that is Future City and our vision for it. It's a simpler firm, more focused, It's much better connected. It's certainly simpler to operate, characterized by a culture of Excellence and Accountability.

Speaker 2

And I think as I hope we've shown today, one that should be easier for everybody to understand and fully aligned with our shareholders' interests.

Speaker 6

And along those lines, are you freeing up what about $11,000,000,000 of capital now and intentions Mark, I always hear you say, you're going to invest in the business, you're going to do supply for growth and then you're going to buy back stock. But in terms of A stock price that's this low, I mean, the stock price relative to the financial index is one of the all time lows. Wouldn't you move buybacks up in the priority order? What else can you do or say to show That shareholders matter. Jane, I mean, you've done so much on the E side.

Speaker 6

You certainly have done a lot on the S side, but the G in ESG, When it relates to shareholders, shareholders have been left back for so long. Just seeing what else you might be able to do or say as it relates to recognizing shareholders and their desire to have a stock price that does better.

Speaker 2

Our shareholders are an enormous priority for us. And Mike, I know, we need to make the bank more shareholder aligned and friendly, and we are doing so. So let me give you four examples. Our strategy will generate and we will return excess capital to shareholders. And as you say, given where the stock is trading, it makes buybacks Highly attractive.

Speaker 2

2nd, we're taking the structural and strategic decisions to put the bank in the best position to drive shareholder value. And you can see, we're executing and we are delivering with urgency, and we're very driven to get the valuation in a far higher place than it is today. 3rd, we're changing many elements of the financial reporting, so it's easier for our shareholders to understand the bank. And we're going to be as transparent as possible so you can measure our progress and results. And I think the structure that Mark laid out and I gave the high level on, is it will make that job much easier.

Speaker 2

And then finally, on a topic I know you've been quite vocal around. We are also making changes to compensation. So more of our senior business leaders will be on the PSUs for this coming year. We've moved to 100% deferred stock versus a mix of stock and cash in the geographies that we're permitted to do so. And We're increasing the importance of returns in determining performance evaluations.

Speaker 2

There is a myriad and The different actions that we're taking, because, our shareholders matter to us and we want to get our valuation up to one that we think has realized its full potential.

Operator

Your next question is from the line of Glenn Schorr with Evercore.

Speaker 7

Hi, thanks very much. I'm going to turn my head just for the sake I personally love when management teams are buried in the stock that they ask Investors to invest in. To be a leader in all those areas that you want to be and answer to the who is Citi question, You're going to spend a lot to keep up. And so my question is, how do you balance doing all that and Closing profitability gaps with spending enough and feeding your franchises to be leaders And yes, to the extent this seems like so hard, I just want to hear you talk.

Speaker 3

I have to apologize. You broke up through Much of that question, would you mind just repeating the tail end of it? There's a lot of static on the line. Say a little bit more, I'm sorry, we're getting a lot of static, should we come back?

Speaker 7

Sure, thanks.

Operator

Your next question is from the line of Betsy Graseck with Morgan Stanley.

Speaker 8

Hi, good morning. Can you hear me okay?

Speaker 6

Yes. Hello. Hi there.

Speaker 8

Hi. Okay. So a couple of questions. One, just thinking through the walk from where you are today in CET1 till The end of the year when you mentioned you'd be ending the year at 12%, you have some businesses that are exiting, which should reduce RWAs, I would think, but then you've got the buybacks as well coming through. And At the same time, I would expect that you'd probably want to grow your RWAs.

Speaker 8

I know your RWAs were down 5% QQ and maybe that was part of the reason why FICC was a little light. So could you help me understand just how we should think about that trajectory and the drivers of that CET1 change because it will have some impact on how we're thinking about the rev growth in the markets business.

Speaker 3

Yes. Good question. So we are looking at, obviously, how we continue Invest in the franchise, particularly where there are areas of growth. At the same time, ensure that we're Delivering buybacks or share return to shareholders. As I look at the CET1 ratio, we're ending the year at about 12.2%.

Speaker 3

As you know, SACR kicks in or has kicked in on January 1. We're ending, therefore, on January 1 at roughly around where our target is. And over the course of the year, we'll be able to absorb Growth in the businesses where there is a need to do that, while continuing to identify offsets to both SACR, but also low returning assets that we may have and ridding ourselves of those and generating income as well as the capital from the divestitures that we will be able to close throughout the course of the year. And so as we look at that plan, the start of the year, which is close to our target, Towards the end of 2022, we will have to build that back up to about 12% in order to absorb The G SIB headwind, assuming there's no relief provided to that, which then kicks in at the beginning of 2023. And so through the course of the year, we'll utilize through RWA, we'll free up capital and return capital to shareholders, will generate more earnings, but at the end of the year, we'll need to kind of end on the higher end or towards that 12%.

Speaker 8

Do you have a sense as to how much the benefit to like G SIB or SCB should be from all the divestitures you're doing? I was actually thinking When I saw the Mexico news this week that maybe that was one of the reasons why you decided to put to exit the Mexico consumer business is potentially the pickup that you get since you mentioned it makes you a simpler company And that should feed into SCB, I would think.

Speaker 3

Yes. It's not a major driver as to the decision, as Jane has kind of framed But it is but it does factor into the points that you've raised. So from a GISA point of view, there's, I don't know, dollars 31,000,000,000 or so of deposits that are tied to our Mexico consumer business. That would drive about 10 basis points or so or 10 points, I should say, on the G SIP score. The total for the divestitures that we've earmarked are about $85,000,000,000 in deposits.

Speaker 3

And so you can do the math so we'd get some benefit from that. You're right and we I don't have numbers that I would share at this point, but And in part because the Fed has to run their analysis, but you're right from a CCAR point of view, when you think about the stress capital buffer, There's an impact to PPNR, but more importantly to stress losses that will play through as well. As you know, that impact, as well as the deposit impact won't really come into play until we've closed on these transactions, but it certainly is a factor to how we think about The longer term capital planning and it certainly is something that I'm going to talk more about at Investor Day on March 2.

Speaker 8

Okay. Thanks. And the low returning assets that you were talking about exiting, is that like that's basically Something like rates in the fixed income business and should we expect some impact there? Or again, I'm just trying to tie together the 5% decline in RWAs and the comment that Fixed income business was a little light this quarter.

Speaker 3

Yes. I'm not looking to be specific on where the low returning assets were getting out, but we're certainly looking at our markets franchise to see where those lower turning assets exist as well as to see where their client relationships that are Single product and don't necessarily link across the franchise. And so this is something that Jane and I, along with Paco, are keenly focused on. We realized that while we've seen growth in markets and in FIC, it has come with growth in the balance sheet, and we want to make Sure that we're optimizing the use of the capital.

Operator

Your next question is from the line of Erika Najarian with UBS.

Speaker 9

Yes. Hi, good morning. My first question is for Mark, please. And by the way, thank you so much for this new way of disclosing financials. I think this will be very helpful and the NII sensitivity as well.

Speaker 9

I know we're going to get a lot more detail in March, but as we think about the expense base that would be remaining post the related expenses, how aggressive do you plan to be in terms of investment spend in 2022? And do You think you've identified enough, inefficient expenses within the franchise to help fund some of those both initiatives? Of

Speaker 3

Great question. I'm not going to give guidance on 2022, but Let me try and frame out how we're thinking about it, because I think it is important. Both Jane and I recognize that we've got There's a lot of static we're getting, excuse me. So in terms of the expenses, we obviously have a large expense base. We've seen growth play out this year, but I think there's some real opportunities over time to attack Expense base, and that's exactly what we intend to do.

Speaker 3

So if you think about the divestitures, I'll start there for a second. There's some $6,800,000,000 of expenses tied to divestitures. As those divestitures get closed out, some of that will naturally go away. The balance of that, which tends to be referred to as stranded cost, we're already putting in place a team to focus on attacking and driving out That's stranded costs. The second point that I'll bring up around this is the transformation.

Speaker 3

The transformation has driven 3 percentage points of growth this year. I do expect that there is more growth associated with that, particularly since we're still doing more hiring. There's more tech spend that will be required, but the transformation over time will deliver efficiencies, will reduce the manual touch points, will drive straight through processing and therefore will allow for us to bring our expenses down. And the final piece that I'll mention is the strategy. And so Jane mentioned in our strategy, a focus on core businesses.

Speaker 3

That's going to allow for us to look at the organizational structure and identify more simplification opportunities in the way we manage and run the firm. We do about $300,000,000 to $400,000,000 of productivity savings a quarter. That's not enough. We think there's more opportunity for efficiencies than that. And it's those opportunities that we're going to Chase down in order to fund some of this investment spend that we expect in the next couple of years.

Speaker 3

More on that at Investor Day.

Speaker 9

Thank you for framing that. Jane, this next question is for you. When you responded to Mike's question about your vision of Citi. You led with your vision of Citi as the world's corporate bank, if I could How is your vision of Citi? What does it include in terms of your funding base?

Speaker 9

There's a How do you envision your funding base evolving over time? And do you have any interest in significantly building out your U. S. Retail Deposit franchise?

Speaker 2

So, Erica, we've got a pretty diverse Funding base. When we look at it from the institutional side, we've got the number one TTS franchise globally. And that has material funding from our cash management and dominant position in cash management there. Our wealth franchise, both from the ultra high net worth down to the affluent clients is also a source of material and very attractive deposits and funding for us. Obviously, we're making the exits on the international consumer banking front.

Speaker 2

And we've been focused in the Retail Bank in the U. S. In driving digital deposit growth and continuing to make sure that That business generates a stable low cost funding for the firm here in the U. S, and we'll expect to continue growing that going forward.

Operator

Your next question is from the line of Mike Mayo with Wells Fargo Securities.

Speaker 6

Hi. That was sooner than I expected. Just a follow-up on the compensation changes. Yes, that's good news that People are paying in stock instead of just cash in stock, but you had the new bonus arrangement. I did not think that was finalized, but as part of the new bonus arrangement based on the next 3 year financial targets, is that still all cash or Is that cash and stock or is that stock?

Speaker 2

I assume you're referring to the transformation award. Is that correct, Mike?

Speaker 7

Yes.

Speaker 2

Yes. So that one, it's, while it's paid in cash for the first two pieces, The last 50% is pegged to our 3 year stock performance, and we felt that that was the appropriate balance here. As we said, transformation is our highest priority. We need to successfully address the concerns raised and that's 100% in our shareholders' interests. One of the pieces that's important in that is that We need to have collective accountability to succeed in addressing these concerns.

Speaker 2

It's a shift in our culture And this award is one that is therefore dependent upon shared success versus individual incentives here. So it's an important part of delivering. And of course, if we fail to deliver the outcomes of the transformation and the not successful in the execution, there will be no award.

Speaker 6

And when will we find I guess we'll find out about those targets at Investor Day answering that question. As it relates to PSUs, How much was given in stock cash before and how many people will this apply to versus where it was before?

Speaker 2

The PSUs are given to the executive management team and now we're extending that to the broader operating team, which includes the leaders of our major businesses. And you'll see that information delivered in the proxy when we issue that in March. So you'll get all of that information at roughly the same time.

Operator

Your next Question is from the line of Ken Usdin with Jefferies.

Speaker 10

Hi, thanks a lot. Good morning. Mark, I was wondering if you could just talk a little bit about the card business in aggregate. Definitely starting to see a little bit of that balance, but I wonder if you could touch on, Number 1, like just how you're expecting that balance trajectory to go. Number 2, spend versus lend and how much you're seeing in that?

Speaker 10

And then 3, just the losses are obviously just amazingly low and how you would anticipate card normalization? Thanks.

Speaker 3

Yes, sure. So, as I've mentioned before, I mean, when you look at what's going on with cards, Across the board, we are seeing increases in spend volume. So branded card spend volume is up 24%, Retail services spend volumes up 16%, so very healthy spend volume. People are using our cards, which is a good thing. In terms of the liquidity that's still out there in the market, Even though savings rates have started to normalize, there's still a significant amount of liquidity that's out there in the market.

Speaker 3

And that's showing up in payment rates in both branded cards and retail services and frankly in some of the international card businesses as well. And that has not subsided. And so, we did start to see growth In branded cards loans, average loans are up 3% branded cards. The end of period loans were up 5%. What matters a lot when you come out of a crisis like this is how you reinvest.

Speaker 3

And so we've spent a lot of time focused on targeting new customers and driving new account acquisitions. Our new account acquisitions are up 43% in branded cards And we've been also driving that just generally across the board in retail services as well. So getting a good a very good response in terms of new accounts coming on board. We've also been focused on how we drive installment lending activity, Just kind of to broaden the lending that we're doing with this customer base and we've seen significant growth in our Flex Loan, Flex Pay products as we've targeted customers who have historically been transactors to really move them onto that product. So very good growth there.

Speaker 3

In fact, in 2021, We've not only gotten the growth just in aggregate, but if I look at kind of installment lending, we've gotten 90% of the total installment Sales are in digital sales, which is another kind of low cost acquisition approach that we've taken. So Good underlying indicators there, but again, it's not until payment rates start to subside. We would expect hope that, that would start to show up towards the back half of twenty twenty two. In terms of the losses, which was the other part of your question, Very low loss levels. You heard me mention delinquency rates earlier.

Speaker 3

When I look at while the loss rates earlier, when I look at delinquency Trends, there's really nothing to focus on there. They remain quite low and we don't see any signs or any Areas of concern, I would say, but I would imagine those 2 would start to normalize as payment rates start to come down.

Speaker 10

Great, Mark. Thanks. And then just a follow-up. You mentioned the record or the strongest quarter in advisory in a while. I was just wondering if you could just comment broadly on Investment Banking pipelines across of product groups.

Speaker 10

Thanks a lot.

Speaker 3

Yes, the investment banking pipeline looks very strong. We ended the year with Significant growth in advisory, up 146% year over year, well above the wallet. We've grown share there. ECM was up about 16%, again, above the wallet And really that reflecting some of the fees coming from SPAC activity. So very good growth.

Speaker 3

EMEA and North America are both up year over year due to continued momentum in M and A. So we feel very good about it. We think the pipeline still looks very strong. We think the investments that we've made in bringing on bankers In some of the sectors we needed to beef up, sectors such as healthcare, technology, sponsors group, those investments Certainly starting to pay off, so we feel good about it.

Operator

Your next question is from the line of Glenn Schorr with Evercore.

Speaker 7

All right. Let's try this again.

Speaker 2

Much better, Glenn.

Speaker 7

All right. All right. So I think we have a good long term process in motion and measured in more than 1 year. But What do you think of the sort of it feels like returns have to go down before they go up. I know you have the overall goal to close the gap to peers.

Speaker 7

But between the capital that gets freed up, the GSIB buffer and the denominator, the capital markets partially normalizing some stranded expenses On Sole Franchises and then continuing to execute on the transformation. Is it okay and is it normal? I think it's Partially in our models that we go down first and then rise up.

Speaker 3

Yes. So, thank you, Glenn. So look, if you look at 2021 with a 13.4 percent ROTCE and reserve releases that get close to $9,000,000,000 I'd have to say yes, Right, because those reserve releases drive a considerable amount of that. Now it's important to compare that to 2020, where we had the opposite effect Because we were building meaningful reserves. But as we look at the forward look, which we'll take you through in more detail.

Speaker 3

As Jane mentioned, we're focused on core parts of the franchise that show the opportunity for growth and the promise for higher returns. And that's where our energies are going to be focused and we think that's what's going to help to Drive improved returns over time.

Speaker 7

Fair enough. The reserve release have a big impact.

Speaker 5

Okay.

Speaker 7

And then in terms of that growth, I think a couple of questions danced around this, so you could be short. But Given your answer to what Citi is and wants to be in terms of Premier franchise and all those industries or business lines, I should say. How do you balance the doing what's right for stockholders near term drive stock return Versus making sure you invest for the future because each one of those is super competitive, each one of them has competitors as early as today or as recent as today, spending a ton of money to compete in those spaces. How do you balance that, invest for the long term be great versus improve the stock Sure, Tim.

Speaker 3

Yes. So let me start and then Jane feel free to add in if you'd like. So the first thing I think is important to remember is The focus that we're trying to put, on these core franchises that drive returns over time. So we're prioritizing how we're going to allocate our resources and our investments in part through the divestiture activity. Second thing I'd say is that we are investing in the franchise for the long term, right, as opposed to trying to hit some short term metric.

Speaker 3

And so that does involve us putting that money to work where there is client demand and where it leverages the competitive advantages that we have developed. And so that is the way we approach This with, again, an eye towards ensuring that we're clear and transparent with our investors And that if there's excess that we're returning that to our shareholders, so that it's not just sitting on the sidelines and not generating returns That they would expect of us.

Speaker 2

And I'd also just jump in. When you look at the different businesses that we are investing in, As Mark said, they're high returning ones. So our services businesses are much capital lighter, high return. Wealth Management, the same. I think the opportunities that we've been seeing to continually increase share in Investment Banking, another high returning business.

Speaker 2

So that will certainly be helping us over time on that mix that you're talking about. And not everything needs an enormous investment. If I look at wealth, for example, You put the different pieces together that we've already got, and we're putting them into a single integrated business and proposition. It's not things that we're starting from scratch. So a lot of this is incremental.

Operator

Ladies and gentlemen, please limit your questions to one question and one follow-up. Your next question is on the line of Vivek Juneja with JPMorgan.

Speaker 11

Hello, Jane and Mark. Quick one, firstly. Now that you're exiting Mexico, Singapore and Hong Kong were not part of the exits when you announced the exit from the 13 markets in the consumer business. Are you going to Stay on with the consumer business in those markets or meaning a traditional consumer business as you've had for years or is that going to change?

Speaker 2

No, we find the franchises we have in Singapore and Hong Kong, just given the nature of them, are really naturally tied to the wealth franchise that we are building and investing in there of our existing very strong platform as you say. So we expect to continue to provide the range of different services and capabilities that we have because they are so complementary and help support our wealth business in 2 of the most major wealth hubs in the world.

Speaker 11

Okay, great. And a follow-up question, if I may have. The NII change, Mark, that you made, what deposit beta are you assuming there? And how much of the change is coming from U. S.

Speaker 3

Yes. So we haven't shared our deposit betas, but As you would imagine, the betas tend to be higher on the institutional side than on the retail side. And so that's that piece. And I'm sorry, the second part of your question was what? Hello, Vivek.

Speaker 11

Yes. Can you hear me?

Speaker 3

Yes. I can hear you now. What was the second part of your question? I'm sorry.

Speaker 11

Okay. The second part was how much of the change in net interest Income from the interest rate sensitivity change market you're making. How much is in U. S. Net interest income versus the rest of the currencies?

Speaker 3

The increase is roughly Skewed towards the international. So I'd say of a $3,000,000,000 increase, I'd say About 2 thirds, 1 third international.

Speaker 11

Okay. And that's because that's where you were assuming the runoff?

Speaker 3

Sorry?

Speaker 11

That's where you were assuming more of the balance sheet runoff?

Speaker 5

Yes.

Speaker 11

Okay. Thank you.

Operator

Your next question is from the line of Charles Peabody with Portales.

Speaker 12

Yes. A question regarding the regulatory and political risk to share buybacks. And I ask that because earlier this week in the Powell renomination hearings, we listened to the last 2 minutes of that testimony. Shrogg Brown went on a rail against buybacks in the banking industry. And then last year, I think President Biden had 2 speeches in which he spoke out against buybacks.

Speaker 12

So I'm trying to understand, is there I mean a transaction tax isn't going to stop you guys from doing buyback. But are there other things being discussed out there other than just moral suasion to discourage buybacks?

Speaker 2

We're going to do the right thing for our shareholders. And right now, particularly given where the stock's trading, buybacks A very, very important and probably top of the stack for us action that we take. So, no, we're very clear in terms of The importance of giving our shareholders back our excess capital.

Speaker 12

No, I understand that you want to. I'm just trying to understand what the risk to your desires are From the regulatory or political side?

Speaker 2

I don't believe there is one. We're extremely well capitalized. I think we've heard it consistently from Washington. Confidence in the capitalization of the banks, both coming into and coming out of the pandemic, and we are not overly concerned on that front?

Speaker 3

We'll obviously adhere to regulatory guidelines as they exist or however they evolve, but that's exactly right.

Speaker 12

All right. And then as a follow-up just on that subject, assuming these regulators are just getting into their seats, they're probably not going to be able to do anything this year on buybacks, But I'm assuming that they'll try and do something on buybacks next year. So you want to do as much buyback Short term as you can and you've talked about getting back to like a $3,000,000,000 pace during the Q1. How sustainable is that $3,000,000,000 pace?

Speaker 3

Yes. So look, I mean, it's first of all, with the SCB framework, we take decisions on the capital actions on a quarter by quarter basis. Obviously, there's another CCAR run that will all go through that will determine at least part of the capital and then obviously there's the GSIB that's coming into play. So we factor all of those things In our case, as we develop the capital plan, we also will take a look at the divestitures. And in some instances, the divestitures will generate TCE for us to return to shareholders.

Speaker 3

There may be other impacts from divestitures that are temporary in nature that need to be factored in, but It's part of an entire annual capital planning process that we go through. That factors all of those things in.

Operator

Your next question is from the line of Gerard Cassidy with RBC.

Speaker 13

Thank you. Good morning, Mark. Good morning, Jane.

Speaker 10

Hi, George.

Speaker 2

Hey.

Speaker 13

Can you guys share with us, when you think about the strategy refresh that is underway. Are we 75% complete, 80% complete? Mark, you alluded to maybe some of the markets businesses that may not have the return as you It could be some area, but where are you there? And by the Investor Day, can we assume that it will be completed?

Speaker 2

In terms of the timeline for this one, this particular exercise is drawing to closed in terms of, so what I call, the big step back as a new CEO. So we said this is the last major structural decision that we're taking in Mexico, and we're now focused on pulling together everything from Investor Day, and that's where the new reporting structure I think that we've announced today is also a very important foundation for that. So I'm confident that we've made the right big Structural Decisions and that we're looking forward to Investor Day laying out the vision, the strategies and the plan for going forward.

Speaker 3

And let me be clear, Gerard, just in case I wasn't. I'm not suggesting we're exiting parts of our markets business. That is not what I'm suggesting at all. Why I'm suggesting is that as we would always do, we're constantly looking for opportunities to optimize the way we use our balance sheet, Capital RWA, etcetera, and where we identify the need to rid ourselves of low returning and assets that we have, we do that, right? And so with rule changes like SACR and the like, either pricing will adjust Or we'll have to take a hard look at some of those assets to see if it still makes sense.

Speaker 3

And that's more of what I meant than ever suggesting we were exiting part of the markets of

Speaker 13

Business. No, they're very clear. Thank you, Mark. And just as a quick follow-up, obviously, some of the businesses you're committed to, the TSS, In the Investment Banking area, you guys clearly are players there. You have economies of scale.

Speaker 13

When you look at the other businesses that you're committed to staying. Where is the heavy lifting going to come from where you're really going to step it up to get those economies of scale similar to the ones Quite obvious.

Speaker 2

Yes, you're right. We have a number of businesses that are already extremely scaled in both markets. If I look at TTS, we're moving $4,000,000,000,000 of volume daily there. So those are ones where the investments are much more around digitization, around data. And in terms of where we're looking at getting more to of increasing our scale, Commercial Bank is obviously 1, where we have a commercial banking presence in 30 different markets around the world, and they're very focused on the same target market I talked about in the vision, which are those mid market companies with global needs or multi market needs.

Speaker 2

And then the other areas in terms of wealth, where we've already begun, as you can see from our earlier remarks, building out our frontline scale on the back of the platforms and other investments that we're making.

Speaker 3

And to your point in Commercial Bank, this Huge opportunity to leverage more of the TTS offering that we have. We're already seeing diversification in the commercial bank in terms of CMO and other markets products. The revenue this year was up 12% year over year, and similar strength in acquisition of new clients and wealth, but those are 2 key areas, I agree.

Operator

Your next question is from the line of Ebrahim Poonawala with Bank of America.

Speaker 14

Good afternoon. Just quick couple of follow ups. Mark, on the capital return, I just want to make sure we hear you correctly. When we think about the $3,000,000,000 pace you're going to get back to in 1Q, moving forward, is there more upside risk to that $3,000,000,000 or could that be actually lower? Just want to make sure we have that right in terms of expectations.

Speaker 3

Yes, I'm not giving expectations for the quarter by quarter capital buyback Decisions in part because as I mentioned with the new SCB role we're able to look at it on a quarterly basis. So I'm not giving guidance beyond that. We'll talk more about the capital plan on March 2 broadly, right?

Speaker 14

And just, I guess going back, Jane, on U. S. Retail, I think the question is, is there something more meaningful that we should expect at the Investor Day? And it's fine if you want to hold it till then. Because If I recall correctly, you were a partner with Google.

Speaker 14

That didn't play out. The big question that investors have is, is there a better definition to the U. S. Retail franchise? I'm just wondering, will we get that at March Investor Day or there's nothing radical that you have in store at least in the near term as far as U.

Speaker 14

S.

Speaker 2

You'll be certainly hearing directly from Anand, who is responsible for that on Investor Day and he'll lay out all of our U. S. Personal banking strategy of what we're looking at both from our of our top 2 cards franchise and what we're doing in personal lending as well as what we're doing in wealth. And then obviously, the retail Bank in the supporting role, it's playing for those 2 core drivers of growth for us in the States. So yes.

Speaker 14

Got it. Thank you.

Operator

Your next question is from the line of Tim Mitchell with Seaport Research.

Speaker 5

Hey, good afternoon. Mark, maybe on just the expenses, I appreciate all the moving parts divestitures and you're not going to give us a full year expense guidance number, but can you help on the jumping off point at the Q1? We had Compensation was up about $1,000,000,000 quarter over quarter. How much of that was just sort of the comp changes? Or is that a good run rate to think about?

Speaker 5

So if you could just help us just the jumping off point for Q1 would be helpful.

Speaker 3

Yes. You know what, I'm not going to be able to give you kind of more guidance on that. I mean, what I would say is, again, You got a couple of things that play through 2021 that will be important factors in 2022. 1, the hiring that we've done, we're going to get a full year impact of that, at least for part of that in 2022. So that's going to play out.

Speaker 3

Some of the if you think about the mix for the transformation spend, which Is a mix of both hires, 3rd party spend as well as technology. That mix will start to shift Over time, away from 3rd party for sure and towards the others. And so we're going to have Some of that dynamic start to play out in 2022. In terms of the comp specifically in the Q4, We obviously tie the comp performance for the full year is tied to revenues. And so as we would expect to see Some forward broke based on the drivers I mentioned earlier, we would expect to see comp related to that Play out over the course of 2022, but I rather not get into the specifics here given that we're going to give you a better sense for it in early March.

Speaker 5

Okay. Just maybe as a follow-up on that, just so I understand the sequential drivers. So you're saying it's mostly incentive comp or was that more new hires or both Just on 3Q to 4Q change.

Speaker 3

Yes. In 3Q to 4Q, you've got both hires as well as incentive comp.

Speaker 5

Okay. All right. Thanks.

Operator

Your next question is from the line of Matt O'Connor with Deutsche Bank.

Speaker 6

Hi. I just wanted to follow-up. You had said the sale of Mexico wouldn't be an easy transaction. I was just hoping you could elaborate on that. And then just related, you talked about the capital is allocated to the business Being freed up, but any kind of initial thoughts on whether the transaction, the exit of the business will generate Gain or loss as we think about the combined or total capital impact?

Speaker 6

Thank you.

Speaker 2

Why don't I kick that off and Mark jump in. I just said it won't be a simple transaction because we separate the bank into the institutional business from the businesses that we're exiting and that's something that we kicked off yesterday, that process. And then we'll be looking to go to the market in the spring and be active with buyers, potential buyers in a few months' time. So it's more just the complexity of separating the bank. We've got good plans behind this.

Speaker 2

And as I said in my remarks, These are terrific. These are scale. These are great franchises. And there's obviously a lot of speculation in the press, which we use too early to comment on. But we do think this is a jewel for someone.

Speaker 2

It's just not for us.

Speaker 3

Yes, I agree. And I think it's premature to speculate on structure of the deal and things of that sort. You're right, we do have about $4,000,000,000 of TCE allocated to the business. The other layer of complexity, is around the CTA and you've heard us spend some time on that when we talked about the Australia sale and I introduced it as a complexity because, there's an accounting treatment associated with the CTA That happens at signing, that is separate from the capital implication that happens At closing, so with a CTA, the capital impact flows through AOCI, but it's neutral once the deal is closed. And Mexico, the consumer business would have a DTA of a little bit less than $3,000,000,000 or so.

Speaker 3

And so That's another factor that's involved with the transaction.

Speaker 2

A CTA, not a DTA.

Speaker 3

Can I say DTA? I'm sorry, CTA,

Operator

Your next question is from the line of Steven Chubak with Wolfe Research.

Speaker 15

Hi, good afternoon.

Speaker 2

Hey there, Steven.

Speaker 15

Well, actually, even before I ask you my questions, just wanted to echo some of the earlier remarks, the new presentation, the additional detail, it's really helpful. So Appreciate the new disclosure. Mark, I'm going to ask, well, I guess technically one question, but it's really a 3 parter. You noted the more than 3 times increase in NII assuming a static balance sheet, but there's still a lot of investors that just question your rate Given the fairly modest NII growth that we saw in the last cycle. And the first question, just wanted to Start by asking, given your heavier institutional deposit gearing, wouldn't it be reasonable for us to expect that your deposit runoff would actually be greater than peers?

Speaker 15

2, does the NII guidance contemplate liability sensitivity in the markets business? And could you help us size that potential drag? And then just lastly, it's more of a catchall. Any idiosyncratic factors that you can speak to that would support a better NII outcome or higher rate benefit versus what we saw in the last

Speaker 3

cycle. Yes, sure. So, look, we provided the sensitivity because we Comparability is important here, and you can see the magnitude of that difference is pretty sizable. There's still going to be a difference Between us and peers, but that difference narrows when you put it on a comparable basis. We do have a skew towards institutional clients and they do carry a higher beta associated with them, but we also have a SKU towards international currencies and we make good spreads there as well.

Speaker 3

In terms of the impact through markets, the impact I think the market's impact can come in any number of ways. I think rate moves and other uncertainty and volatility in the market can drive broader markets revenues, which we would potentially see depending on how investors have to reposition their books. In terms of the last part of your question, I don't think there's Anything else that I would point to, I mean, obviously, with the excess liquidity that we've seen and been carrying in the market, we've been putting that to work in investments. We've increased our investment portfolio By some $70,000,000,000 we expanded the duration to about 2.85, and we still have Significant dry powder to put the work with either client demand or in an increasing rate environment, which we expect.

Speaker 15

That's great color, Mark. Thanks so much for accommodating the multipart question.

Speaker 3

Yes.

Operator

Your next question is from the line of Jeff Harte with Piper Sandler.

Speaker 3

Hey, I'm sorry. I just thought I'd take myself out of the queue. My questions have been You almost be getting tired, so I'm done. Thanks.

Speaker 2

Thanks, Jeff.

Operator

Your final question is from the line of Mike Mayo with Wells Fargo Securities.

Speaker 6

One more question. What's the hardest part of the culture to change?

Speaker 2

Probably it's been breaking down some of the silos, and that's the point on the principles we laid out, Mike, of connected is really a key piece of it. We've rolled out some new leadership principles last year, and it's very much around how do we get the firm very well connected and really realize the full synergies. So breaking some of those old habits, I would say, the new structure is certainly helping as are the different initiatives we're taking.

Speaker 6

And how long do you think that will take? Because you're breaking down a culture that's been ingrained for quite some time.

Speaker 2

Yes, I would say I'm really happy with the progress. We've been one of the first things I did was laid the from to on our culture out when I took over. And we've got a terrific team of people being working at this for a year. So I'm very happy The progress we make, I think everyone's clear, we want the culture to be one of accountability, of excellence and acting with urgency, and part of that is well underway. But it will take a little bit longer.

Operator

There are no further questions. I will turn the call over to Jen Landis for closing remarks.

Speaker 2

Thank you all for joining today's call. Please feel free

Speaker 1

to reach out to IR with any follow-up questions.

Speaker 2

Have a great day. Thank you.

Operator

This concludes Citi's 4th quarter earnings call. You may now disconnect.

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Earnings Conference Call
Citigroup Q4 2021
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