The nation’s fourth-largest bank by assets, Citigroup (NYSE:C), has struggled in recent years due to a variety of issues and challenges. However, CEO Jane Fraser has pinpointed 2024 as a “turning point” for the company.
After posting disappointing fourth-quarter earnings on Jan. 12, Citigroup’s stock price has ticked up in recent days as plans for its turnaround came to light. Is this stock poised to rebound in 2024?
Big losses in Q4
The fourth-quarter earnings results were not great for Citigroup, as it missed earnings and revenue estimates with a net loss of $1.8 billion, amounting to losses of $1.16 per share.
A big drag on earnings was a $1.7 billion special assessment charged by the Federal Deposit Insurance Corp. (FDIC) to shore up its Deposit Insurance Fund after last spring’s banking crisis. However, that charge was anticipated, as all large banks were hit with that special assessment, although Citigroup had other big expenses as well, including a $1.3 billion reserve build tied to transfer risk in Russia and Argentina and a $780 million charge related to restructuring, among others.
It was a rocky end to what had been a decent year overall for Citigroup. For the full year, the bank’s revenue was up 4% to $78.5 billion, but its net income fell 38% to $9.2 billion, hurt by the net loss in the fourth quarter. Nonetheless, investors did see Citigroup’s stock price rise 18% in 2023. Even though that trailed the S&P 500’s gain, it was better than the returns of most banks in what was a challenging period for the industry.
More importantly, Fraser said in the fourth-quarter earnings report that the company had made strides in the reorganization and streamlining initiatives that she launched when she took over as CEO in 2021. Those efforts involved selling off underperforming assets, reducing expenses, and focusing on five core businesses: services (trading), markets (asset management), investment banking, consumer banking, and wealth management.
“Given how far we are down the path of our simplification and divestures [sic], 2024 will be a turning point as we’ll be able to completely focus on the performance of our five businesses and our transformation,” Fraser said in the earnings report.
Fraser has continued to streamline operations this year, announcing that the company would reduce its staff by 8% — or 20,000 workers — between now and the end of 2026. Some 5,000 cuts will come from managerial positions and 5,000 from selling off assets, while 10,000 will be culled from support staff, according to Reuters.
On the earnings call, Fraser said the company expects the reduction in staff to lower its expenses by $700 million to $1 billion in fiscal 2024. Over the medium term, the combination of organizational simplification, exiting markets and productivity savings will result in $2.5 billion to $2.8 billion in net run-rate savings.
Massive expense reduction plans
This is an ambitious plan that calls for a lot of pain and execution risk in carrying it out. In the earnings presentation, Citigroup projects expenses this year to be in the range of $53.5 billion to $53.8 billion, down from $54.3 billion in 2023, excluding divestitures. Ultimately, the medium-term goal is $51 billion to $53 billion in expenses.
Additionally, the outlook for revenue is $80 billion to $81 billion in fiscal 2024, which would be a 4% increase over 2023. The major revenue drivers are expected to be investment banking and wealth management, along with additional revenue from client wins and deepening relationships in the services business.
It was also reported last week that Fraser met with Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett, whose company is a major investor in Citigroup. According to Reuters, the billionaire investor offered Fraser his support for her reorganization plan.
Citigroup’s stock price has ticked up in the last few days and is now up by about 3% year to date. While the price-to-earnings ratio has climbed up to 12 from just over six in September, the stock is still cheap, trading below book value.
Fraser and Citigroup seem to be on the right path, but in an uncertain economic environment, the road still could be rocky in the near term. However, over the long term, 2024 could indeed wind up being the turning point for Citigroup, so keep this one on your radar.
