Citigroup Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 13, 2023

There are 12 speakers on the call.

Operator

Hello, and welcome to Citi's Third Quarter 2023 Earnings Call. 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 call 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 our Q3 earnings call. I'd like to remind you that today's presentation, which is available for download on our website, citigroup.com, They contain forward looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And I'm joined today by our Chief Executive Officer, Jane Fraser and our Chief Financial Officer, Mark Mason.

Speaker 1

Now let me pass it over to Jane.

Speaker 2

Thank you, Jen, and good morning to everyone. I shall touch briefly on the macro environment before reviewing the quarter and last month's organizational announcement. The global macro Drop remains the story of desynchronization. In the U. S, recent data implies a soft landing, But history would suggest otherwise and we are seeing some cracks in the lower FICO consumers.

Speaker 2

In the euro area and the UK, The picture has turned distinctly more negative. The summer weakness in industrial economies is spreading south And the weight of structurally higher labor and energy costs suggests a more enduring competitiveness challenge for that region. China's economy may have reached a cyclical bottom supported by the government's modest stimulus efforts, but It still has to work through weak sentiment, youth unemployment and the pain in its property market. All of these macro dynamics

Speaker 3

have clearly

Speaker 2

impacted client sentiment. See client sentiment. September is always a busy month seeing clients, and I'm struck how consistently CEOs are less optimistic About 2024 than a few months ago. The shift in the rates question from how high to how long Has catalyzed more client activity, however. Corporates have stopped waiting for rates to come down and are beginning to access the debt capital markets around the globe.

Speaker 2

Our multinational clients are adapting their operations to the evolving geopolitical landscape And are building redundancy and resiliency, and this plays to our strengths and strategy, in particular, our invaluable global network. And between our high quality asset portfolio, our strong reserve levels, our ample liquidity and our diversified earnings base, We are proving to our clients that we are truly a bank for all seasons. Turning to the quarter. Today, we reported net income of $3,500,000,000 an EPS of 1.63 And an ROTCE of 7.7%. Our revenues were up 10% ex divestitures And each of our 5 core interconnected businesses posted revenue growth.

Speaker 2

We remain on track to meet the revenue and expense guidance we set for the year. Let's start with our fastest growing business, services. PPS was up 12% from a year ago. That's the highest revenue quarter in over a decade and it continues to outpace the target we set at Investor Day. Half of that growth was business drivers and the other half rates.

Speaker 2

And even with the impact of the long expected Argentine devaluation, We again drove fee growth, which is the best sign of the potential of our globally leading franchise. We keep relentlessly innovating for our clients. Amongst other launches this quarter, we announced the creation of Citi Token Services, which will use distributed ledger and smart contract technologies to deliver a digital asset solution for our TTS clients. And this is a first for the industry as it allows us to seamlessly integrate a permission tokenized bank deposit network with traditional cash services such as $20.47 clearing. Security Services had revenue growth of 16% with some good underlying fee growth.

Speaker 2

We took share again and we have grown our AUC and AUA by over $2,000,000,000,000 in the last This business has considerable momentum and a strong pipeline of clients who are benefiting from the cloud and data investments we're making. Market was up 10% year over year on the back of rates and currencies having the best Q3 in 10 years And commodities, which also grew nicely. This was partially offset by equities, which was down slightly. Despite this, we continue to see good momentum in cash and we have grown our prime balances year to date. Banking had a good quarter with revenues up 17% with activity playing to our mix.

Speaker 2

Now while corporate lending was essentially flat, as we remain very disciplined about how we use our balance sheet, DCM was healthier And the IPO market also showed some signs of life. This helped drive Investment Banking revenue up 34%, Albeit of a low base and a small wallet. Sitting here today, it remains hard to predict when deal activity will sustainably We bound. Still, I'm proud of our role advising on some of the biggest deals globally so far this year. As you know, we're committed to growing our banking franchise.

Speaker 2

We brought together the management of the investment, Corporate and Commercial Banks under one umbrella. And this structure will help us better drive the important synergies between all three. We've been bringing in new talent in key sectors and we've begun to provide more leverage finance for key clients in the right situation. U. S.

Speaker 2

Personal Banking was also up double digits at 13%. Cards revenues were strong in both our branded and retail The growth in spending is decelerating and the consumer is more mindful of what they spend on. Indeed, the affluent, who still have excess savings at their disposal, drove the growth in spending with a continued tilt to travel and entertainment. During the quarter, we introduced simplified banking to improve the client experience for our retail banking clients. We believe that by tiering offerings and simplifying our fee structure, we're going to incentivize our clients to deepen their relationships with us.

Speaker 2

And the early reaction from clients along those lines has been very positive. Wealth revenues have stabilized and were up slightly. Most notably, investment revenues picked up across our geographies and the drivers of the franchise such as referrals, client acquisition and net new inflows We're all quite strong around the world. And we won important new mandates for Wealth at Work, an offering we had highlighted at Investor Day. Andy Sieg has now officially joined our firm.

Speaker 2

This is a time of massive global wealth creation, And our franchise is uniquely positioned for it. Andy will ensure we're at the forefront of what's happening around the world. In terms of our balance sheet, our discipline of growing operating deposits has enabled us to maintain a stable deposit base over the past 5 years. We grew loans during the quarter and our credit quality remains extremely strong, aided by our disciplined client selection. Our CET1 ratio grew to 13.5%, which is $14,000,000,000 above our regulatory minimum and still includes a 100 bps Internal Management buffer.

Speaker 2

During the quarter, we returned $1,500,000,000 to our shareholders through common dividends and We continue to evaluate buybacks quarter by quarter, and I expect we will continue to do a modest level in the 4th quarter, Subject to approval by our Board. And while the ultimate impact of potentially higher capital requirements won't be known until the Endgame is finalized. We have been actively working through mitigating actions. As you can see on Slide 3, we are relentless in executing our strategy. This quarter, we closed on the sale of our Taiwan consumer business, And that's the 2nd largest of the Asia consumer divestitures.

Speaker 2

And earlier this week, we announced that we will sell our consumer wealth Portfolio in China to HSBC, and this includes approximately $2,600,000,000 in assets under management and $1,000,000,000 of deposits. In the Q4, we expect to close on the sale of our Indonesia consumer business. In terms of the international consumer businesses we're exiting, In addition to the 3 wind down markets, we've restarted the sales process in Poland, and we remain on track to separate Mexico next year, followed by an IPO in 2025. Transformation remains our number one priority. We're deep into the large body of work of automating manual controls and processes, consolidating fragmented tech Platforms and upgrading our data architecture.

Speaker 2

We're committed to doing this the right way, Jen? Last month, we announced consequential changes that align our organizational structure with our strategy and changes how we run the bank. I said at Investor Day that organizational simplification would follow the divestitures. The changes will eliminate layers, duplication and complexity, allowing us to operate the bank more agilely And freeing our people up to focus on clients and execution. Elevating the 5 core businesses to my leadership team Will enable me to drive greater accountability and sustainable results.

Speaker 2

So to bring it to life, the actions we've taken in the last 4 weeks We'll eliminate over 15% of the regional and functional roles of the top two layers of the company. It will also take out 60 committees, which frees up over tens of thousands of people hours annually. We've identified approximately 1,000 or 50% of our internal financial management reports that we won't need any longer. And we have taken up Co heads and dual reporting lines to enable faster decision making. We're cascading these changes through the organization at pace.

Speaker 2

We announced the first two layers in September and the next set of changes will be implemented by mid November and we aim to bring the entire process To a close by early next year. When we speak in January, Mark and I will be in a position to update you on the financial and other metrics, showing the impact of the simplification amongst other details. Now while expenses is not the primary driver of the organizational changes, They will help us start bending the expense curve in the Q4 of next year. And at the end of the work, We all have a simpler firm that can operate faster, better serve our clients and unlock value for our shareholders. We've made tough decisions here, and I want to note how pleased I've been with how the leaders of the firm, especially the next generation, Have embraced these changes and are stepping up to implement them.

Speaker 2

They fully understand that we need to change how we run Citi In order to truly transform it once and for all. Before I close, I'd like to address our people in Israel. We are a significant bank in the country and many of our people have lost friends and loved ones. Others are being called up to serve. Despite all they're dealing with, they are keeping our bank running in the country.

Speaker 2

And I'm frankly in awe of their commitment To our clients and each other, more broadly, the price innocent civilians are paying as this crisis unfolds It's absolutely devastating to witness. And with that, I would like to turn it over to Mark, and then we would be delighted as always to take your questions.

Speaker 4

Thanks, Jane, and good morning, everyone. I'm going to start with the firm wide financial results focusing on year over year comparisons for the Q3, Unless I indicate otherwise and then spend a little more time on the businesses. On Slide 4, we show financial results for the full firm. In the Q3, we reported net income of approximately $3,500,000,000 EPS of $1.63 and an ROTCE of 7.7 percent on $20,100,000,000 of revenues. Embedded in these results are divestiture related impacts of approximately $214,000,000 after tax, primarily driven by the Taiwan consumer business sale.

Speaker 4

Excluding these items, EPS was $1.52 with an RoTCE of 7.2%. In the quarter, total revenues increased by 9% on a reported basis and 10% excluding divestiture related impacts, Driven by strength across services, cards and markets as well as modest growth in banking, partially offset by the revenue reduction from the closed exits and Windapp. Our results include expenses of $13,500,000,000 up 6% on a reported basis And $13,400,000,000 excluding divestiture related costs also up 6%. Cost of credit was approximately $1,800,000,000 Up 35%, primarily driven by the continued normalization in card net credit losses and volume growth. At the end of the quarter, we had over $20,000,000,000 in total reserves with a reserve to funded loan ratio of approximately 2.7%.

Speaker 4

And year to date, we reported an RoTCE of 8.3%. On Slide 5, we show expense drivers for the 3rd quarter as well as our key investment themes. Expenses were up 6% and our level of expenses continue to be driven by a number of factors, including Investments in transformation as well as risk and controls business led and enterprise led investments macro factors including inflation and FX Severance, which was approximately $190,000,000 in the quarter and roughly $640,000,000 on a year to date basis. This included actions across banking, markets, wealth and the functions. And all of this was partially offset Our productivity savings and expense reductions from the closed exits and wind downs.

Speaker 4

And our technology spend across the firm was $3,000,000,000 in the quarter, Up 8%, largely driven by investments in product development, platform enhancements and improving the client experience. Also driving the increase is continued investment in technology for the transformation as we address the consent orders and modernize the firm. As we said last quarter, our transformation and technology investments span the following themes platform and process simplification, Security and Infrastructure Modernization, Client Experience Enhancements and Data Improvements. And we remain in line with our full year guidance of roughly $54,000,000,000 excluding divestiture related impacts and the FDIC special assessment. On Slide 6, we show net interest income, deposits and loans where I'll speak to sequential variances.

Speaker 4

In the Q3, net interest income decreased by $72,000,000 Excluding markets, net interest income increased $332,000,000 Primarily driven by growth in PBWM as we continue to see loan growth and higher loan spreads, a pickup in services Driven by higher deposit spreads as a result of higher interest rates and active beta management, partially offset by reductions From closed exits and wind downs. Average loans were up 1%, largely driven by growth in U. S. Personal Banking across cards and Retail Banking as well as TTS. Average deposits were down 2% largely driven by services As we saw non operational deposit outflows as expected in light of quantitative tightening.

Speaker 4

And our net interest margin increased 1 basis point. On slide 7, we show key consumer and corporate credit metrics. We are well reserved for the current environment with over $20,000,000,000 of total reserves. Our reserves to funded loan ratio is nearly 2.7% and within that U. S.

Speaker 4

Cards is 7.8%. In PBWM, 45% of our loans are in U. S. Cards and of that exposure 80% is to customers with FICO scores of 680 or And both Branded Cards and Retail Services NCL rates are still below pre COVID levels, But are normalizing in line with our expectations. The remaining 55% of our PBWM loans are largely in wealth, predominantly in mortgages and margin lending.

Speaker 4

In our ICG portfolio, of our total exposure approximately 85% Is investment grade. Of the international exposure, approximately 90% is investment grade or exposure to multinational clients or their subsidiaries. Corporate non accrual loans increased by $490,000,000 but remain low at 68 basis points of total corporate loans. And we ended the quarter with a reserve to funded loan ratio of approximately 1%. As you can see on the page, we break out our commercial real estate lending exposures across ICG and PBWM, which totals approximately $65,000,000,000 of which 86% is investment grade with a total reserve to funded loan ratio of 1.4%.

Speaker 4

To give you a sense of the macro scenario that underpin our over $20,000,000,000 of reserves, Our current scenario weighted average unemployment rate is approximately 5%, which includes a downside scenario with an average unemployment rate of roughly 7%. So while the macro and geopolitical environment remains uncertain, we feel very good about our asset quality, Exposures and reserve levels and we continuously review and stress the portfolio under a range of scenarios. On Slide 8, we show our summary balance sheet and key capital and liquidity metrics. We maintain a very strong $2,400,000,000,000 balance sheet, which is funded in part by a well diversified $1,300,000,000,000 deposit base across regions, industries, customers and account types, Which is deployed into high quality diversified assets. Our balance sheet reflects our strategy and well diversified business model.

Speaker 4

We leverage our unique assets and capabilities to serve corporates, financial institutions, investors and individuals with global needs. The majority of our deposits $782,000,000,000 are institutional and operational in nature And span across 90 countries. These institutional deposits are complemented by $416,000,000,000 of U. S. Personal Banking and Global Wealth Deposits.

Speaker 4

We have approximately $569,000,000,000 of HQLA and approximately $66,000,000,000 of loans and we maintain total liquidity resources of $937,000,000,000 Our LCR was 117%. We ended the quarter with a 13.5% CET1 ratio based on standardized RWA, which is our binding constraint. Although not binding, our advanced RWA did increase this quarter, largely driven by business activity. And our tangible book value per share was $86.90 up 8% from a year ago. On Slide 9, we show a sequential CET1 walk to provide more details on the drivers this quarter.

Speaker 4

Starting from the end of the Q2, first, we generated $3,200,000,000 of net income to common, which added 28 basis points. 2nd, we returned $1,500,000,000 in the form of common dividends and share repurchases, which drove a reduction of about 13 basis points. And finally, the remaining 2 basis point increase was primarily driven by lower DTA deductions and a net reduction in RWA. We ended the quarter with a 13.5 percent CET1 capital ratio, approximately 120 basis points or $14,000,000,000 above our Current regulatory capital requirement of 12.3% as of October 1. Before we move on, I'd like to spend a minute on capital.

Speaker 4

We continue to optimize our RWA and capital, which we expect to be a tailwind over time. Contributing to this is the execution of our strategy, Such as further diversifying our business mix and simplifying our business model, including exiting our 14 international consumer markets. Our investments in the transformation will continue to enhance our data, analytics and stress testing capabilities, enabling continued capital optimization. And of course, in light of the evolving regulatory environment, we're also looking at other mitigating actions, but those will largely depend on how the final capital rules play out. These actions could include exiting or restructuring certain products, divesting certain equity investments and reevaluating both how we deploy capital and our management bucket.

Speaker 4

We've consistently demonstrated our ability to manage our RWA and capital levels through various macro environments and the evolving regulatory landscape And we'll continue to do so. On Slide 10, we show the results for our Institutional Clients Group for the 3rd quarter. Revenues were up 12% this quarter, driven by double digit growth across services, markets and banking. In the quarter, normal course foreign currency translation impacts drove a net revenue headwind in ICG. On an ex FX basis, ICG revenues would have been up 15%.

Speaker 4

Additionally, there was an approximately $180,000,000 negative impact From the currency devaluation in Argentina on our net investment in the country, mainly across TTS, Markets and Security Services. Expenses increased 10%, primarily driven by continued investments in risk and controls and volume related expenses, partially offset by productivity savings. Foster credit was $196,000,000 including $51,000,000 of net credit loss. This resulted in net income of approximately $2,400,000,000 up 12% driven by higher revenues, partially offset by higher expenses and higher cost of credit. Average loans were down 4% as we were very deliberate about how we deployed resources across the businesses, including the reduction in subscription credit facility.

Speaker 4

Average deposits were flat as new client acquisition And deepening of relationships with existing clients were offset by non operational deposit outflows. ICG delivered an ROTCE of 10% for the quarter and 11% year to date. On Slide 11, we show revenue performance by business and the key drivers we laid out at Investor Day. In Treasury and Trade Solutions, We recorded our highest revenue quarter in the last decade. Revenues were up 12% driven by 17% growth in net interest income.

Speaker 4

Non interest revenues were up 1% and on an ex FX basis, non interest revenues would have been up 8%. We continue to see healthy underlying drivers in TTS that indicate consistently strong client activity With cross border flows up 16% outpacing global GDP growth and year to date cross border flows are up 12%. U. S. Dollar clearing volumes are up 6% both year over year in the quarter and year to date.

Speaker 4

And commercial card volumes were up 8% year over year, driven by growth in business to business payments and travel and entertainment spend. And year to date, commercial card volumes were up 20%. In fact, similar to the last few quarters, Client wins are up approximately 40% across all client segments. These include marquee mandates where we are serving as the client's primary operating bank. We continue to make good progress on our commercial client strategy as year to date wins more than doubled driven by expansion into new markets and growth in multi product mandates from clients with cross border needs.

Speaker 4

In Security Services, revenues were up 16% driven by higher net interest income across currencies. Non interest revenues were up 3%. We're very pleased with the progress we're seeing in Security Services As we continue to onboard assets under custody and administration, which are up approximately 10% or $2,100,000,000,000 Markets revenues were up 10% driven by fixed income. Fixed income revenues were up 14% Largely driven by strength in our rates and currency franchise. While volatility remains subdued versus a year ago, We did see overall volatility tick higher relative to the beginning of the quarter.

Speaker 4

Equities revenues were down 3% driven by a decline in equity derivatives, partially offset by growth in cash and prime. And we continue to make solid progress on our revenue to RWA target. And finally, banking revenues excluding gains and losses on loan hedges We're up 17%, driven by Investment Banking, which increased 34% on a reported basis and 12% excluding Mark's. Here too, we saw a pickup in activity in the last couple of weeks of the quarter, particularly in DCM, but also in M and A as we closed a few deals earlier than expected. So overall, while the market environment remains challenging and there's more work to be done, we're making solid progress against our strategy in these businesses.

Speaker 4

Now turning to Slide 12, we show the results for our Personal Banking and Wealth Management business. Revenues were up 10% driven by net interest income growth of 9% and a 20% increase in non interest revenue, primarily due to lower partner payments in retail services and higher investment product revenues in Wealth. Expenses were up 5%, predominantly driven by risk and control investments and severance, partially offset by productivity savings. Foster credit was $1,500,000,000 driven by higher net credit losses as we continue to see normalization in our card portfolio. Average loans increased 7% driven by cards, mortgages and installment lending.

Speaker 4

Average deposits decreased 2%, largely reflecting our clients putting cash to work in investments on our platform. And PBWM delivered an ROTCE of 8.8% and 6.6% on a year to date basis. On Slide 13, we show PBWM revenues by product as well as key business drivers and metrics. This quarter was our 5th consecutive quarter of double digit growth in personal banking driven by cards. Branded cards revenues were up 12%, primarily driven by higher net interest income.

Speaker 4

We continue to see strong underlying drivers with new account acquisitions up 5%, Card spend volumes up 4% and average loans up 12%. Retail services revenues were up 21% driven by higher net interest income and lower partner payments on the heels of higher net credit losses. In Card portfolios, we continue to see the investments we've been making as well as lower payment rates contribute to growth in interest earning balances Up 15% in Branded Cards and 12% in Retail Services. Retail Banking revenues decreased 3% Driven by the transfer of relationships and the associated deposits to our Wealth business, partially offset by higher deposit spreads. Wealth revenues were up 2% driven by higher investment fees across all regions and segments, the benefit from relationships Transfer from Retail Banking and Higher Lending Revenue.

Speaker 4

We also saw strong net new inflows across all regions. And year to date, new client acquisitions were up almost 30% in the Private Bank and over 60% in Wealth at Work. Overall, we are pleased with the progress we're making across these businesses. On slide 14, we show results for legacy franchises. Revenues were down 13%, largely driven by the difference in one time gain on sale impact in the Asia consumer businesses as well as the reductions from closed consumer exits in wind down, partially offset by higher revenue in Mexico.

Speaker 4

It's worth noting that Mexico's revenues were up 32%, primarily driven by Mexican peso appreciation, Higher interest rates and volume growth. Ex FX, Mexico revenues were up 16%. Expenses decreased 3%, primarily driven by closed consumer exits and wind down, partially offset by separation costs in Mexico and Mexican peso appreciation. And expenses in Mexico were up 27%, but ex FX Expenses were up 11%. On Slide 15, we show results for Corporate Other.

Speaker 4

Revenues Increased largely driven by the absence of mark to market impacts on certain derivative transactions in the prior year And expenses decreased largely driven by lower consulting fees. On Slide 16, I'll briefly touch on our full year 2023 outlook. With 1 quarter remaining in the year, we continue to expect full year revenues of $78,000,000,000 to $79,000,000,000 excluding 2023 divestiture related impacts. Having said that, based on what we've seen play out year to date in terms of U. S.

Speaker 4

And non U. S. Rate and lagging non U. S. Betas, We now expect net interest income to be slightly above $47,500,000,000 for the full year excluding markets.

Speaker 4

And we are maintaining our expense guidance of roughly $54,000,000,000 excluding 2023 divestiture related impact and the FDIC Special Assessment. Net credit losses in cards should continue to normalize With both portfolios reaching pre COVID levels by year end. And as it relates to buybacks, we expect to do a modest level of buybacks in the 4th Before we move to Q and A, I'd like to end with a few points. We're executing on our strategy and delivering top line revenue growth of 5% year to date. We continue to invest for the long term with discipline while remaining on track to deliver our expense guidance.

Speaker 4

We're focused on simplifying our organizational and management structure, which will further support our speed of execution. We're managing our capital in a disciplined way in light of regulatory headwinds, while continuing to optimize and return capital to shareholders. And we remain confident in our ability to achieve our RoTCE target of 11% to 12% in the medium term. And again, we look forward to hosting a more expansive 4th quarter earnings call, where we plan to share additional details related to the organizational simplification, including expected related severance and expense saves as well as our outlook for 2024. With that, Jane and I would be happy to take your questions.

Operator

Thank And our first question comes from Mike Mayo with Wells Fargo.

Speaker 5

Hi. Jane, you spoke more about the restructuring That you commented on recently. The real question is why is this restructuring different than the other 5 or 10 Or 15 restructurings you've heard about since Citi's creation in its current form 25 years ago, I Just like a week ago. So I'd say, Why is this different? We hear the talk about cascading downward and the simplification, reducing dual heads and the committees, But we've heard this so much that, why is this time different?

Speaker 2

Yes. It's a very important question. Mike, thank you for asking it. As I've said, we view these as the most consequential changes we've made, Not just to our organization model, but how we run the bank in almost 2 decades. And The first piece is simple, which is our org model was set up for a financial supermarket.

Speaker 2

That is simply not the bank we are today. So we're aligning the organizational model with that simpler business mix and strategy. But what's truly different We're changing how we run the bank. And these are permanent changes that will be driven all the way down through the organization. So let me give you some examples to bring it alive.

Speaker 2

We talked about delayering the first 2 or 3 layers of the bank. That will continue through the organization, through the spans and theirs, particularly getting rid of aggregator roles. And let me give you an example. HR. We had HR in a region.

Speaker 2

You had the region head. You had the institutional client group head. You had the banking head. In addition, you had a North Asia head and a South Asia head. We're just going to have the North Asia head and the South Asia head.

Speaker 2

And all of those roles collapse into those 2. We're eliminating activities in the geographies But we just don't need anymore because we are no longer running local consumer franchises in them. So, let's take The financial reporting sorry, the management reporting that Mark and I referred to in the opening remarks, We can reduce our management reports by about 50%, that's a 1,000 reports. What does that mean? Shadow P and Ls by country, quarterly outlooks, monthly performance updates, all the associated tracking and reconciliations over there That are effectively for a shadow P and L rather than the one that matters to our shareholders.

Speaker 2

And so That greatly declutters. It also means we can eliminate processes for our transformation where we're looking at how do we automate those Processes, automate those controls. If they're a duplicative process, we're getting rid of them, so you don't need to do that anymore, and it will Accelerate the work on transformation. We're taking activities out of some of the businesses and centralizing them. A lot of the client activities that will go embedded into a business and we move that up to centralized utilities That the whole firm can benefit from and that will get scale economies, these strategy teams, marketing teams, many of the little cottage industries that build up over time.

Speaker 2

We can speed up decision making with fewer committee layers. We'll take down the number of layers And drive that from some places 13. We're looking to get into 8 in as many places as we possibly can. We're giving clarity of decision rights and changing decision rights from 2 or more people to just 1, So much more single points of accountability, again, more aligned with our shareholder interest because those points of accountability are more sitting in the products. And the types of metrics we're looking at to help us measure this spans, Leyers, revenues, producers and non producer, great mixes, synergies that we're realizing, voice of the client.

Speaker 2

But I'd say that our expectations and our execution of the business strategy is also at the heart of what we're trying to drive here. Our strength is our global network. I don't want our geographies focused on the full monty of management processes that are a duplication of what's in the product organization. I want them focused on delivering to our clients, engaging with our clients And also managing their responsibilities of the legal entities. The same way for our banking organization, Putting the Investment Bank, the Corporate Bank and Commercial Bank together will really make it easier for us to realize the synergies across them.

Speaker 2

So the cross sell or the movement of a commercial mid market company up to a corporate lending company and a corporate banking company, Much easier when they're all in the same organization or selling our banking product suite Into that commercial bank customer and other examples. So it's really changing decision making, Freeing up people to focus on clients and transformation, much greater transparency, changing decision making and rights, driving synergies. We put a huge amount of work all the way through the summer in design as to how do we want the organization to work. That is now getting driven down into the designing in detail and in-depth all of these types of activities through the 2nd and third layers at the moment into the 4th and then until we finish at the end of the first quarter. So it's very different.

Speaker 2

You'll get more flavor of it in the Q4 earnings call, but I hope that gives you a sense of why this is really different. This is how we're running the place. It's not just an org restructuring. Both are necessary.

Operator

And our next question comes from Glenn Schorr with Evercore.

Speaker 6

So I'm curious, you mentioned that you're still marching towards the 11%, 12%, which is good because everyone was going to ask that. My question is a little bit different of with the denominator going up 25%, Where is your comp in other words, a lot of things are working towards the transformation, but they threw a curve ball in there with Upping is dominated by 25%. So you seem to be a beneficiary of Hire For Longer for sure. And You also mentioned you're working on mitigation as we speak. So maybe you could talk about what are the offsets that we don't see that give you confidence still working towards that because The top line stuff is working.

Speaker 4

Yes. So let me good morning, Glenn. It's good to hear from you. Let me make a couple of comments on that and then James feel free to chime in If you'd like. The first thing is that when I talked about this at the last conference we attended, I mentioned that analysts were somewhere in the 16% and 19% range in terms of a capital increase and we're likely to be inside of that range assuming the Basel III proposal As it's structured, as it's written, and obviously, that's not the final.

Speaker 4

There's a period of review that's going on now. What I'd say is a couple of things, Glenn. One, we haven't fully executed against the strategy that Jane has just described. And obviously continuing to simplify the business, managing through the transformation, changing that business mix that we have to something that's more Consistent and predictable and repeatable as it relates to PPNR, those things matter and impact the SCB. We talked about The exiting of our business, the international consumer businesses, that will be a factor in what our balance sheet looks like and what stress losses might look like, As well as lowering the expense base, which we know is an important factor in that PPNR math as well.

Speaker 4

And so those things help, I think, to Reduce the amount of capital that might be required as we get into that medium term period. Importantly, as you point out, There are other elements of the proposal that are going to require that we take a hard look at as well and identify mitigating To the extent that they make it into the final, so think about the increase in operational risk and the fact that some of that's already included in TB is something of a point of advocacy, but that's obviously a big headwind that we'll have to kind of work through. The FRTB and the enhancement of models, Now there's a global market shock as well, but again another point of advocacy that we need to work through the equity investments. And now that they go from 100 percent risk weighting to 400 And risk weighting, I think we're going to take a hard look at whether those are worth keeping in light of the higher capital associated with them. That's going to challenge the returns.

Speaker 4

That's going to force us to look at those through a different strategic lens, and we're going to do that. And then that's not to even mention the credit Component that impacts both corporates and consumers, as it relates to unfunded commitments, for example. And so as we've done with SACR And other types of reg changes, we're going to have to look at what it means for our product mix, the returns associated with Those, whether there are opportunities to pull levers like pricing or whether we have to take other decisions around those. And so that's what I mean by the mitigating actions that We're dimensioning and putting on paper and working through, but again, want to be thoughtful because the rule is not final yet And there are more discussions to be had around those important elements that I mentioned already.

Operator

And our next question comes from Erika Najarian with UBS.

Speaker 3

Good morning. You've talked a lot about defense, as I like to call it, in terms of The transformation that Jane had outlined

Speaker 2

and bending the expense curve, What I'm

Speaker 3

wondering for both Jen and Mark, if you could sort of address what I think is probably the most Debated part of your target, which is that revenue taker of 5%. You put up a very nice quarter in terms of revenues, Both the net interest income and fees, maybe help us sort of Look underneath the surface in terms of that momentum and maybe break it down in terms of what's really going Well, I think TTS continues to surprise to the upside. It's going to take are we going to be 2 years from now, we're like, oh, well, TTS is continuing to doing well. So what are the businesses that's really sort of strong secular momentum that you feel as being under recognized versus how you could position cyclically and higher For longer and

Speaker 2

what is still to come as we

Speaker 3

think about that path to at least enumerate that ROTCE Target.

Speaker 2

I love this question, Erica. Because I am really I have I'm really excited about our strategy and the potential it has. And it is, as you say, this is about the revenue Potential of the firm and really how do we continue to unlock it. So there's a couple of unstoppable trends That we're going to be riding in the next I think it's decade long. The corporate Client of today, Andy, you can see that it has to build resiliency.

Speaker 2

The multinational client is on a long term trend of building resiliency, Be it because of green, be it because of geopolitics, be it because of regulatory, whatever the different reasons may be, and there are multiple, They're having to build resiliency into supply chains, into their own operations, as they operate around the world. We, the Bank, is absolutely there for them. And I think you've seen that in TTS where we've had such strong drivers of growth in the last few years At the beginning of this trend. So that is an important one. Wherever the clients want to go, we are there.

Speaker 2

We have been there for decades. We understand the risk. We understand the And the client base, we understand the opportunities there at that micro level and local level that if Someone who's flying in with a suitcase can't possibly deliver and it's connected globally. So this thing is just a thing of beauty. Linked into it is what I think of as a hidden gem amongst our crown jewels is security services.

Speaker 2

It's equally in custody, has this extraordinary global network, the connectivity everywhere. We have been investing behind this business. We've been growing our market share in North America in Asset Managers, where we've been underweight with a number of material marquee wins. You can see the share gain that we're getting in this business, The pipeline of deals that we've already won as well as the new pipelines going forward, Very high return. We're investing both in terms of our cloud, our data, our client experience.

Speaker 2

And this is in a way, let's say, I do view this as a hidden gem with extremely We have quite a long way to run here. So similar story to TTS, Slightly different client base, competitively advantaged because you've got both the you've got the pre trade and the post trade. We connect the 2 Huge efficiencies for clients, that's going to matter. Next trend that's unstoppable, global wealth creation. And there is just going to be massive global wealth creation.

Speaker 2

I can't tell you how excited Andy Sieg is now that he's in the building And there's a way to his desk, and all the floors his people are on. He's about to hit the road globally. We are so well positioned to deliver against that. And as you can see, we've not been happy with our performance the last couple of years, But this is going to be a very important driver for us. We'll see the recovery in banking wallet eventually.

Speaker 2

None of us are calling when that will sustainably happen. That will be another driver. And I'd say cards continuing to go from strength to strength, Particularly, I think as we look forward, playing to our lending led model there. And finally, the other one I do love, which is our commercial bank. We serve these entrepreneurs all over the world who are going to be the drivers of many industries going forward.

Speaker 2

And we're serving them, helping them go international for the first step, tap them into global supply chains and the like. It's almost by definition the fastest growing of the mid market companies are the ones that tap into what we can offer them. We build great relationships with them and then our private bankers call on them and then our investment bankers call on them. We have our capital market teams calling on them And we help them grow and succeed, and that is going to be a big engine in the medium term of new client acquisition feeding us. So Deeper client relationships, more growth in terms of new clients that fit with our proposition fairly uniquely, And some great mega trends that we are going to be riding and pretty uniquely positioned on.

Speaker 2

And we'll keep investing To make sure that we're at we know where areas we're behind, we get into the forefront of and the areas we are crushing it in, Like our win rates, 82% in TTS, we're going to make sure that we continue to do so and innovate that way. So Sorry to be so excited about this, but this is a the 4% to 5% just feels very, very doable to Mark and I.

Operator

And our next question comes from Jim Mitchell with Seaport Global.

Speaker 7

Hey, good morning. Mark, maybe on the revenue discussion there, let's talk about NII a little bit. You guys have a very unique Deposit base, a lot smaller footprint in low cost consumer. Betas have been already been high, so it doesn't seem like there's as much Beta catch up risk for you, it's 50% non U. S.

Speaker 7

Roughly. How do you think about the trajectory of NII Do you think it stabilizes next year before rate cuts? How do we think about the puts and takes on your NII into next year?

Speaker 4

Yes. Thanks for the question. Look, I'm not going to give guidance for 2024. We'll do that obviously at the 4th quarter 23 earnings, but I think it's reasonable to expect that some of the trends that we've seen so far will continue. So If you think about what's underneath this, we'll continue to benefit from higher rates across currencies.

Speaker 4

I think we'll continue to see benefits through Card interest earning balance growth. Recall that when you look at our U. S. Dollar, IRE position, it's relatively neutral at this point. And interest earning balance growth is expected to be driven by continued card And lower payment rates.

Speaker 4

And so, I think what's important to remember as it relates to our business is that it's global That we've got, while you're right in that on the U. S. Dollar side, we've seen betas kind of reach, particularly for our corporate clients reach Terminal levels at the end of last year, on the non U. S. Dollar side betas run lower, they lag And there's still upside there because it's a different rate curve and a different pace of increases.

Speaker 4

And so those will be some of the puts and takes to think about volumes, the rates, the speed of the curve moves and then how betas evolve That will kind of factor in. And then the final thing to remember is that in our NII, we show it both with and without markets. On the ex markets, We'll have the impact of the drag from the exits of the countries that kind of play out. So we just exited Taiwan. That's going to impact obviously the next quarters NII.

Speaker 4

So just a couple of factors to think about and obviously I'll give you more detail on 2024 and at the 4th quarter earnings call.

Operator

And our next question comes from Ryan Kenny with Morgan Stanley.

Speaker 7

Hey, good morning. Good morning. On the Capital Markets side, heard the comments around it being hard to predict when deal activity will sustainably rebound. Just give us an update or more color on how CEOs are thinking about bringing deals live across M and A, ECM and DCM? And does the market and rate volatility over the last few weeks have any significant impact on bringing deals to completion or on the pipeline?

Speaker 2

Well, I think a couple of pieces. I actually start with Q3 is the 7th quarter of the Current IB downturn. So since 2000 downturns, if downturns have tended not to last longer than 7 quarters, because that's often how long it takes For pricing expectations to fully adjust to new realities. And we're starting to see that, Particularly in the debt capital markets, investment grade markets, where the expectation of no longer how high, but how long for rates, We've seen clients that get off the sidelines and just bite the bullet and get into the debt capital markets in a more meaningful way. And no longer waiting on that.

Speaker 2

We still think that how a recovery and return to normal wallet plays out When you talk to CEOs, it's largely dependent on the macro environment. That's the main piece for them. ECM, we're seeing increased interest and activity on ECM. We obviously had several IPOs coming to market in September, big one 3 big ones that we're involved in. But the market is still somewhat fragile.

Speaker 2

We're watching Closely. And quite a few questions in Q4, things may move to Q1. We just have to see how that unfolds. But there's a good pipeline. I mean, there's a lot of pent up demand here.

Speaker 2

In debt, we had a big pickup in DCM. We feel confident that the gradual recovery in DCM and the beginnings of that LEVFIN1 will continue. You're certainly going to see us more active In the levfin space in the right situations for our key clients. And then in M and A, a healthy M and A Sell side pipeline, a lot of companies with their industries as transforming are really wanting to think big. I think we'll see that unlocking when sentiment improves further.

Speaker 2

Companies do accept the new pricing reality, which will be helped by a rebound in equity markets. That obviously from our end takes quite a few quarters to materialize into revenue, just given the nature of the product. So It's there, but I think just given where everything is geopolitically and particularly from the macro, no one's going to make that call as to when we're going to see that Sustainable term in banking at this point.

Operator

And our next question comes from Steven Chubak with Wolfe Research.

Speaker 8

Hi, good morning. Good morning. So Mark, I recognize and Jane, I do recognize you'll provide a more fulsome update on expense actions next quarter. But one of the things I was hoping Was that you could frame the expense opportunity in the context of your headcount trends. And prior to COVID As well as the consent order, mind you, Citi was running with 200,000 direct staff.

Speaker 8

That number is closer to 240,000 today. It's an increase of 20% even with multiple divestitures that you've consummated. So how should we think about an appropriate Target or an optimal level of headcount per Citi versus that pre COVID baseline of 200,000 And whether the consent order would impact the timing or magnitude of such headcount actions?

Speaker 4

Yes. So look, I'm not going to give you Headcount guidance, but what I will say is James talked before about Appreciate it with the divestitures that are underway. And obviously, as we continue to progress in those divestitures, we've made a lot of progress already, we'll see those heads come down. It's also important to point out that as part of our effort there's been in sourcing and so we captured the extended workforce In the headcount that we have here. And then I think the final point is that as we continue to execute against the transformation work And as we implement the org simplification that we've just announced, undoubtedly the technology investment, the automation that we're putting in place, Straight through processing that occurs, the fewer reconciliations that are required, the streamlining from all of those layers that Jay mentioned we'll be eliminating.

Speaker 4

All of those things will also work to reduce headcount as well. And so while we're investing and hiring on the front end to capture the upside As markets turn, but also as we position ourselves to grow with clients, we're also going to realize efficiencies that come out of Headcount reduction. One additional point is that, you've heard me mention before that we've taken probably about $600,000,000 or so Year to date in repositioning charges. And with that will come roughly 7,000 or so Headcount coming down associated with those repositioning charges. And so and we'll continue to do that, by the way.

Speaker 4

We haven't even begun to take Repositioning charges associated with the org simplification that's underway. That will come in the Q4 and in the Q1 of next year. And so we will see heads Continue to evolve through this process, but keep in mind that there are puts and takes associated with that As we look at where we need to in source versus use external parties.

Operator

And our next question comes from Ebrahim Poonawala with Bank of America.

Speaker 9

Good morning. Just maybe Mark following up on that, as we think about bending the curve through the end of next year, Maybe if you can talk to around as we think about the puts and takes between investments and expense saves, how much of that Cost save or bending the curve is going to happen in legacy versus PBWM and ICG, like just how do you break, how should we think about that As we think about bending the curve and where the savings are coming from?

Speaker 4

Well, look, next year, we talked about expenses coming down from 3rd quarter to 4th quarter. And as we think about that, you'll have some of the benefits of the costs going away from the exits that we would have announced. You have some of the benefit from further reduction in stranded costs, which we've been keenly focused on as we've exited each of these. And then I think as we get to the medium term, you will start to see some of the benefits from the transformation spend and investments that we would have made Start to play out, as well as efficiencies that we start to get in a lower structural cost But again, that's in that medium term period. So all of those things will be drivers to getting to bending of the curve.

Speaker 4

I'm not I haven't broken down I'm not going to break down here on this call how much comes from each of the pieces, but all are important factors to achieving that.

Operator

And our next question comes from Matt O'Connor with Deutsche Bank.

Speaker 5

Hi. There were some quotes, I think, in the media, Jane, from you talking about some signs of pressure among the lower end of the consumer. And I appreciate the pie chart that you have in the deck showing it's not a huge percent of the card portfolio. But Could you elaborate on that? And then also just address the, you mentioned directionally how the payment rates in cohort are coming down.

Speaker 5

But if we look at The growth in spend versus the growth in loans, it is kind of a little disproportionate. I think spend is up a couple percent year over year and the loans are 11%. So As we think about being kind of later cycle, is that something that you're paying attention to as a potential sign of further weakness And credit. Thank you.

Speaker 2

Yes. Look, I think most of the pressure in the lower FICO, we don't have a lot of customers in lower FICO. So we're seeing it Out in the market, we've got we obviously have some in the retail services business. We also have to say have the benefit of that loss sharing agreement that really makes a difference there because we are having to We're fully for that, but we get it back on the revenue line, as you know. But as we look at the off us book, as we look at some of the pressures in the market, as we look at spending, we can certainly see Some of that pressure for the lower FICO, whereas when I think about the cards business, It's very much driven by the affluent customer.

Speaker 2

So the affluent is Counting for almost all the spending growth that we're seeing. And that's similar to the numbers that we saw from coming out of the Fed. From the deposit side, the excess savings are sitting there, now primarily with households with over $150,000 Of income. And it's down in the rest. So these are things we're keeping an eye on.

Speaker 2

I want to be very clear. I'm not that worried about it for Citi, given the prime nature of our card portfolio And then the rest of our PBWM exposure is obviously very affluent. But when I look out at the market, I talk to our corporate clients. That's where we tend to see them being more nervous about the softness in the consumer. And just I'd call it they're much more mindful about where they're spending, right?

Speaker 2

So you're seeing them moving down within a category. They're certainly looking More on the bargain front. We've been hearing that from our retail partners. We've been hearing that across the board. And so Growth of card loans is good.

Speaker 2

Spend is up, but less than loans, I think It's softening, but it's not worrying.

Speaker 4

Yes. I think that's spot on, Jen. The only thing I'd add is that when you look at the payment rates, payment rates in branded cards, While they've started to come down, they're still above the pre COVID level. And we obviously have invested in this business. So the other thing that's driving this is the new account acquisitions Obviously important drivers of that spend volume and ultimately that loan growth.

Speaker 4

But again, there's nothing that we see outside of what we were expecting in terms of how this portfolio is normalizing. In terms of how this portfolio is normalizing.

Operator

Our next question comes from Gerard Cassidy with RBC.

Speaker 6

Good morning, Jane. Good morning, Mark. Good

Speaker 2

morning, Gerard.

Speaker 6

Jane, as you pointed out, you're very excited about the opportunities in TTS. You're winning some new mandates in the custody business. Can you hear on this, is it because the competition is struggling with other issues, what gives you because Citi has always been well regarded in this area. So what gives you that added excitement that this is even getting better?

Speaker 2

Look, I think the added excitement is a lot of it's coming from the investments that we've been making So that we're if you look at it in terms of Payment Express, which is live in the U. S, it's Thailand is on track for 3 more markets. That is really a very differentiating capability. The momentum we have in 20 fourseven clearing That's being put in place. We've had over $1,000,000,000 processed year to date, putting our commercial bank clients onto CitiDirect, So they have seamless access to our whole TTS network globally.

Speaker 2

You had us talking about Citi Token Services. You can see us innovating with the Fed in new capabilities. So really across the board, It's that innovation in cutting edge, 1st in the market type of capabilities, but you're putting that On top of a network that's just unprecedented in terms of its presence, its local capabilities, its payroll, Cash management, liquidity management, its collections, its receivables, all sitting on one platform connected Globally. And what that gives a client in terms of efficiency saves, insights on data, What they can do in terms of risk management and how to really optimize their treasury capabilities. I mean this thing is a thing of beauty and it's very, very hard.

Speaker 2

It's very sticky to extricate from this because it's embedded in How our clients do business, it's that critical and into their technology systems. So When you look at where the world's headed and what's going on in the world, volatility, these other elements, it's hard not to see Opportunities and its opportunities as well with our markets business LinkedIn. One of our really differentiating As Andy Morton talks about all the time is his partnership with TTS, the fact that one of our major client bases Corporates, and they have a different profile, let's say, to an asset manager Or a hedge fund, and we uniquely conserve them. So that's the piece. It's that combination and trends we see.

Speaker 4

The only thing I think that's spot on, Jen. The only thing I'd add is that the middle market commercial space is a huge opportunity for us, as you said earlier, Leveraging that TTS platform. And then on the Security Services side, the reality is that we're finally seeing real traction in North America, Right. We've always had kind of strength in many of the other regions, but we're really winning some major mandates here in North America, which I think It's enough to get really excited about.

Speaker 2

And I think that to me is what then drives a lot of the strategy and what we're trying to do in terms of get to that High quality of earnings, better earnings mix and other pieces that will help us get to that medium term return target that we are so focused on.

Operator

And our next question comes from Vivek Juneja with JPMorgan.

Speaker 10

Hi, Jane. Hi, Mark.

Speaker 2

Hey, Vivek.

Speaker 10

I want to just clarify the reorganization a little bit. So, Jen, I heard you say, you're keeping North Asia and South Asia heads. So did you just get rid of the Asia head And a getter of the product heads where product heads in each country were reporting to a regional product head. So Is that dotted line is no longer there? What's going on there?

Speaker 10

And when

Speaker 5

you get rid of all

Speaker 10

the monthly management reporting, What are you planning to replace that with from your management, your MIS perspective?

Speaker 2

So Let me take the second one first. I'm not planning on replacing it with anything. We don't need them. We're no longer running consumer Franchises in the countries. Instead, we've got global businesses that are operating very consistently in the individual geographies.

Speaker 2

So we just don't need To replace them. And it enables us just to have the legal entity, financial management that we need. And then our internal Reports get greatly simplified, same as they get greatly simplified by taking out ICG and PBWM Is another eliminating that layer also eliminates a lot of different reports. So the wonderful answer is Nothing. A simpler city.

Speaker 2

The first question was about, okay, help you understand what we've done. So on the geography front, We have done 2 main things already. One is we've put we've eliminated the regions And I've just put a single international head reporting to me. So that makes it much simpler for me. I have one international head and then he will help us Manage the geographies collectively.

Speaker 2

The second piece is we've really narrowed the mandate of geography to delivering to our clients And covering our clients in their countries. And secondly, the legal entity management. And otherwise, before, we had a Huge amount of management on shadow P and Ls and different a lot of very heavy committee structure That was necessary because the business was still very local. The retail bank, a local credit card business, a local onshore wealth business, They've gone. It's just serving multinationals, the subsidiaries of multinationals and in some markets the investors And the wealth clients in some markets.

Speaker 2

And that's a much simpler business to manage. So we could get rid of the regional layer, and we just jump straight down to the clusters that we have today, But they too have less of a mandate than they had before, a much more focused one. And the bit that I'm excited about it is not just yes, This makes it much simpler to manage, but it also helps us really focus on the global network. Now our geographies And our banking organizations sitting together on the same management structure are collectively accountable for serving and delivering against our core client base and they're in one team to do it. It just makes it much easier.

Speaker 2

Does that give you a feel? What else, Mark?

Speaker 4

The other thing Vivek that I think is important here is, we really want to spend a little bit more investment and time on the client lens In terms of the financial reporting, right, because as Jane talked about, we talked about the synergies across the franchise that we can capture, The ability to leverage the offering we have for those different client segments. So looking at that P and L, looking at those returns, looking at that growth opportunity Through that client lens will be something where we want to enhance the metrics that we have already around that so that we can capture that upside.

Speaker 2

And around the other piece that I think is also just an important point. Globalization is changing it. We're seeing these lanes all changing, Food, trade, financial flows, etcetera, by actually having a single international organization and then the different Plus there's North and South Asia, Europe, UK, LatAm, Middle East, Africa. The connection points between them Are really changing at the moment. And so this makes us much more agile in our delivery of the global network Because, I think it's much more in line with how the world is operating today.

Operator

And our next question comes from Saul Martinez with HSBC.

Speaker 11

Hi there. So I wanted to continue on the threat of normalization of credit losses. And You guys have I guess, your guidance is implying that branded cards and retail services get back 2 more normalized levels by year end, which is a decent sized uptick over the levels you had in The Q3, so I kind of want to know what's driving that view, but more importantly, I guess, what does that imply Going forward, does it imply that we get to more something more like above trend losses? Because I would think we still have some seasoning to go on the late 2021 2022 vintages. And not only that, we're talking about this In an environment where we still have pretty extraordinary labor market.

Speaker 11

So if you could just give us a little bit more color On just your expectations on credit losses and whether there's maybe a little bit more risk And we're thinking in terms of losses trending to something that is a bit higher than what we normally what are more normalized levels?

Speaker 4

Yes. So let me start and that and Jane if you want to chime in that's fine. I think, what I'd point you to is Page 24 In the deck that we have, because it gives you a nice snapshot of how both the loss rates have been trending, but also how the delinquencies have been trending. And you can see that the delinquencies have been trending up and that kind of gives us a good indication of where loss rates are likely to trend in the next Quarter or so. And so at $2.72 on Branded Cards and $4.53 on Retail Services, we can see that we're likely to end up At about that normalized rate by the end of the year, getting up to the 3 to 3.25%, 5% to 5.5% pre COVID normalized NCL rates.

Speaker 4

Our expectation is that as we go into 2024, to the point that you've made, depending on the macro environment, we're likely to see this tick up above those Pre COVID normalized rates. As we see a slowdown in the economy, again subject to what the macro looks like, Before then kind of settling down at some point down the path. And so yes, we do see that tick up. This is again as Advertise, so to speak, as we would have expected. And, we have reserves significant reserves for both of these portfolios To account for those loss expectations, so in branded cards, we sit within ACL to loan reserve of 6.3 percent in Retail Services, we have 11%.

Speaker 4

Jay mentioned earlier that the losses in Retail Services ultimately get shared with Partners. And so while we would expect this to normalize and mature, so to speak, we feel very well reserved for what that might look like.

Speaker 2

And our portfolio is very prime. I mean, this is not the old city. It's very different in terms of our consumer credit exposure. And I think what you're hearing from us is, this should all be very manageable.

Speaker 6

Yes.

Speaker 2

We're not There's no alarm bells going off at Citi around this. We're being prudent. We're being conservative around pieces and responsible on it, but there's no alarm bells ringing. And I think There may be a bit of a disconnect from some of the questions out there versus how we're feeling. We're just not seeing the data that It's overly concerning.

Speaker 2

It's manageable. This is all very manageable and we're being prudent about it as you'd expect us to be.

Operator

And our next question comes from Mike Mayo with Wells Fargo.

Speaker 5

Hi, thanks for the follow-up. From your initial answer, Jane, I hear you with the restructuring, deconstructing Citi to Global Lines, delayering of management and decluttering reporting. And when you add it all together, we'll get some numbers in January. As it relates to your return targets and efficiency targets for 20252026, consensus It's about 1 third below what you target. And frankly, I have not spoken to one investor who thinks you're going to get those targets and Maybe you would want to revise those lower in some way or maybe to be determined or what's your degree of conviction of getting to those Target or at least getting above your cost of capital.

Speaker 5

Thank you.

Speaker 2

Yes. Look, we remain Confident around our ability to hit this target. We've got you had me talk earlier around the revenue growth and what are some of The tailwinds that we've got behind us as well as the core strategy and the drivers that we're in control of And that we've been investing behind to achieve. So our strategy is unchanged. We're confident it will drive the revenue growth of 4% to 5%.

Speaker 2

It's not the primary purpose, but the AUG simplification is a 3rd driver of the expense reductions that we've talked about. And I would also say that when you look at revenue expenses And the targets we've laid out at Investor Day, we've certainly had plenty of headwinds in macro regulatory geopolitics in the last couple of years. We have delivered and we on what we said we would do in the revenue, in the expense guidance, on the strategy, we've made along the way as we've needed to, but I think that's the piece that we're also really trying to drive into the firm is a culture of we will do what we say we will do And we'll adapt accordingly to different areas. Mark talked about adapting to the capital requirements depending what they are. We have other levers that we can pull, capital allocation, management buffer, DTA.

Speaker 2

But my message To our investors is we're just building a proof point. This is a relentless execution. Look at that strategy scorecard page at the beginning of the deck there. We've achieved a lot and there is a lot going on and we're getting a lot done. We don't pretend we're at the end of the road there, we're there yet.

Speaker 2

But we're getting done what we said we do and building up those proof points so that you can see us achieve those return targets. Anything to add, Mark?

Speaker 4

As you said, building credibility and being transparent, right? So we're going to keep delivering on the proof points And we're going to be transparent about how and when and how we're going to achieve it.

Operator

And our next question comes from Gerard Cassidy with RBC.

Speaker 6

Thank you. Mark, you mentioned in the credit section that the delinquencies are rising and as a percentage of loans are still very low. I was just curious on the corporate loans in North America, there was an uptick. Again, I know relative to the portfolio, it's not that big. But anything in particular you can share with us in that area?

Speaker 4

On the corporate loans, we saw loss I think losses were $51,000,000 In the quarter, so a small amount. We did see an uptick, as you point out, in the reserves. That was Really driven by some country rating adjustments that were made. And then we did see an increase in the NALs, the non accrual loans. And that was really 1 or 2 names, 1 in North America, 1 in EMEA.

Speaker 4

Both of them are current, But they drove the uptick that we saw in the quarter there.

Operator

And there are no further questions in the queue. I will turn the call over to Jen Landis for closing remarks.

Speaker 1

Thank you all for joining us. If you have any follow-up questions, please contact IR. Thank you.

Operator

This concludes the Citi Third Quarter 2023 Earnings Call. You may now disconnect.

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Earnings Conference Call
Citigroup Q3 2023
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