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 by walking you through the financial reporting changes we plan on making in more detail. Then I'm going to walk you through the 2021 financial impact from the 13 Asia market exits as well as Mexico, 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. We refreshed our earnings presentation and included additional metrics and key drivers for the ICG businesses. Our goal is to simplify our financial reporting to make it much easier for our investors 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 Citi Banamex, 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. This will free up the management teams of the go-forward businesses to fully focus on executing on the firm's strategy.
Second, we are 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 to a reporting unit called Services. These businesses are foundational for us as they have a unique position given their global footprint and full suite product offering. 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, PBWM. The Private Bank will move from ICG to PBWM.
As a reminder, we announced in January of last year that we created a single wealth management organization under Citi Global Wealth, now called Global Wealth Management, 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 ultra-high net worth clients.
North America Consumer will be renamed to U.S. Personal Banking and will remain a reporting unit under PBWM. This unit will continue to include branded 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 second quarter earnings. And our Investor Day 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 the firm.
Slide 5 shows the contribution of the Citi Banamex 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 13 Asia exit markets and the deals that we've announced to date.
Turning to Mexico. As Jane mentioned, we remain committed to Mexico and will continue to serve our institutional and private bank clients there. That said, upon very careful consideration and analysis, we decided that we are no longer the optimal owner for the businesses that we're exiting. 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.
On the left side of the page, we show key figures for 2020 and 2021 for the businesses we intend to exit in Mexico. In 2021, the businesses contributed $4.7 billion of revenue and $1.1 billion of net income. The businesses in total had $20 billion of loans, $31 billion of deposits and approximately $4 billion of allocated TCE. Again, we do not yet have a transaction and are pursuing multiple divestiture path, so the ultimate financial impact of a transaction is not yet known. 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. In addition to the opportunity to return additional capital to shareholders, these divestitures 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 in terminology and have decided that now is the right time to more closely align with our peers. First, revenue that we previously referred to as net interest revenue will now be called net interest income, and revenue that we previously referred to as non-NIR will now be called noninterest revenue.
Second, as you can see on the page, we've revised how we account for insurance paid on our deposits, including FDIC and foreign deposit insurance. We have previously accounted for the deposit insurance as a control revenue and net interest income. However, beginning this quarter, we will report it as an 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 2 changes.
On Slide 7, we show financial results for the full firm. As Jane mentioned earlier, in the fourth quarter, we reported net income of $3.2 billion and an EPS of $1.46, an RoTCE of 7.4% on $17 billion of revenues. Embedded in these results are costs of approximately $1.2 billion 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 noninterest revenue driven by ICG, specifically TTS, Security Services and Investment Banking, was mostly offset by lower net interest income across GCB and ICG. Our results include expenses of $13.5 billion, an increase of 18% versus the prior year. 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 of credit was a net benefit in the quarter, primarily driven by an ACL release of approximately $1.4 billion 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 noninterest revenue growth across ICG and in particular, in investment banking, TTS and security services. Our full year expenses were up 9%, but excluding Asia divestiture costs, our expenses were up 6%. Also for the full year, we generated RoTCE of 13% and 14% excluding Asia-related divestiture impacts. As a reminder, we had a benefit of close to $9 billion 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. The divestitures provide an opportunity to simplify our management and organizational structure. 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 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 fourth quarter, net interest income increased by approximately $130 million on a sequential basis, driven by North America Consumer. Sequentially, net interest margin remained relatively stable. On a year-over-year basis, net interest income was flat. Also on a year-over-year basis, average deposits grew in the quarter as we continue to deepen 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.
As the probability of higher rates has increased over the last few quarters, let me make a few comments regarding the potential impact from higher rates. In our 10-Q, we disclosed interest rate sensitivity assuming a parallel shift and a runoff balance sheet. This is different from our peers' methodology, which tends to assume a static balance sheet. Assuming a static balance sheet and a 100-basis point parallel shift, we would expect Citi's total net interest income across all currencies to increase by over 3x more than what was disclosed in our third quarter 10-Q, or roughly $2.5 billion to $3 billion of net interest income.
On Slide 10, we show our summary balance sheet and key capital and liquidity metrics. We maintain a very strong balance sheet. Of our $2.3 trillion balance sheet, about 25% or $530 billion consists of HQLA, and we maintained total liquidity resources of approximately $960 billion. And we continue 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 loans with loans to corporates outside of the U.S., representing approximately 30% of total loans. And as we've mentioned in the past, about 80% of our total corporate loans are investment grade.
From a capital perspective, we ended the year with a CET1 capital ratio of approximately 12.2%, as we prepared to adopt SA-CCR on January 1. Having adopted SA-CCR 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 2021. 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 the 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 basis the right level of buybacks, and we will continue to do so throughout the year with the goal of returning excess capital to shareholders.
On Slide 11, we show the results for our Institutional Clients Group for the fourth 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 savings.
Cost of credit was a net benefit of approximately $300 million 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 nonaccrual loans down sequentially and year-over-year. This resulted in net income of $2.5 billion, down approximately 22% from the prior year, largely driven by the higher expenses and a smaller ACL release versus the prior year. And ICG delivered a 10.8% RoTCE for the quarter.
We also saw a 5% growth in both loans and deposits on a year-over-year basis as we continue to see good momentum and deepening of existing client relationships and new client acquisitions. As for the full year, ICG delivered approximately $16 billion of net income on $44 billion of revenue with an RoTCE of roughly 17%.
On Slide 12, we show revenue performance by business and key drivers for our ICG business for the fourth quarter. Treasury and Trade Solution revenues were slightly down versus the prior year, driven by continued headwinds from rates offset by 18% growth in fees, in fact our 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, I want to briefly walk you through each one and what it represents.
U.S. dollar clearing transactions are up 4%, which reflect the clearing and settlement activity of commercial and treasury flows for financial institutions. 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 and over 145 currencies. And importantly, this client activity drives recurring fee revenues and generate significant operating deposits. Commercial card volumes, which reflect travel, purchase and virtual card activity across all clients are up 48%. 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-year, driven by growth across products, including record advisory performance, the best advisory quarter we've had in over a decade. 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. While we had solid growth in FX and commodities, this was 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%, driven by higher settlement volumes and higher assets under custody, partially offset by interest rate headwinds.
Now turning to Slide 13. Here we show the results for our Global Consumer Banking business for the fourth quarter in constant dollars. Revenues declined 6% year-over-year, driven by lower revenues across regions. Expenses were up 34% year-over-year, driven by the Asia divestiture costs. Excluding these costs, expenses were up 9%, driven by transformation and business-led investments, partially offset by productivity savings. Cost of credit was $105 million 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 million 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%. Excluding the Asia divestitures impacts, net income would have grown 44% and resulted in an RoTCE of 20%. As for the full year, GCB delivered $6 billion of net income on $27 billion of revenues, with an RoTCE of 17% and 22% excluding Asia divestiture impacts.
On Slide 14, we show GCB revenues by product as well as key business drivers and metrics for the fourth quarter. Branded cards revenues declined 3% year-over-year on higher payment rates and portfolio mix. We're seeing encouraging underlying drivers with new accounts up 43%, card sales volumes up 24% and average loans up 3%. In fact, the fourth quarter acquisitions exceeded the same quarter in 2019 by 2%, the first 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 rates as well as by higher partner payments driven by improved credit performance. But despite this, we are seeing positive underlying drivers with account acquisitions up 6% and spend up 16% on a year-over-year basis.
While we're 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 remained strong, with deposits up 13%, Citigold households up 9% and assets under management up 8% year-over-year as we continue to execute on our North America retail strategy with a focus on our global wealth unit.
Asia revenues declined 7% year-over-year largely driven by rate headwinds 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. 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 fourth quarter. Revenues increased year-over-year, largely driven by higher net revenue from the investment portfolio. Expenses were down year-over-year, largely due to the wind down of legacy assets. 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 expectations.
As part of our strategy refresh, our goal is to be as simple and transparent as possible. 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.
