Citigroup’s Profits Are Swiftly Sinking
Citigroup's profits are falling, and the next couple of years will determine if they can bounce back.
This article is more than 2 years old
Citigroup CEO Jane Fraser revealed some concerning news about the bank’s expected profitably over the course of this year in accordance with the bank’s new restructuring plans. Bloomberg reported that Citigroup’s intended business model shift will cause profits to swiftly fall. The bank’s tangible common equity is predicted to dip to between 11% and 12%, that’s a 1.4% fall compared to numbers from the year prior.
The good news is, is that the profit plummet is intentional as well as expected. The profitability dip is actually a part of Fraser’s strategy to give the underperforming bank a much-needed facelift. Fraser spoke about Citigroup’s current lackluster status on Wall Street “It’s frankly not a surprise that we’ve been outperformed by our peers and that we’ve failed to meet the expectations of our investors.” She went on to assert to investors that rethinking the way Citigroup operates is not only a good idea, it’s an absolute necessity.
Thankfully for Citigroup and the investors that back it, Fraser has outlined key changes that need to take place in the future. Over the next two years, Fraser is positioning Citigroup to pivot to focus more on areas like wealth management and investment growth. Fraser also highlighted that she intends to allocate company capital to investing in new banking technologies. Looking at technological investments could be particularly advantageous for the outdated banking behemoth.
For instance, the rise of decentralized cash flow has caused some of Citigroup’s competitors to already begin looking at ways to create a decentralized dollar backed by the Federal Reserve. In a rapidly evolving fiscal market, it’s encouraging to see Fraser’s fervor into looking into the emerging opportunities. However, at this point, she failed to specifically detail what those technology investments might constitute. However, she did allude to the fact that Citigroup is looking to pour money into “new-economy companies.”
Despite the company’s newly solidified future framework, they are still likely to meet many obstacles ahead. The company’s constant poor performance on Wall Street serves to be a good indicator of that. They have been sitting at the bottom of the S&P Financials index since the onset of the pandemic. Still, Citigroup’s executive spirits remain both positive and realistic. Citigroup CFO Mark Mason says he knows it’s going to be a tough road ahead but that “…we’re determined to drive that change.” CEO Jane Fraser likened the coming years to a journey that the company is embarking on.
At this point, it still remains unclear how investors will react to Citigroup’s revitalization and regrouping efforts. However, Evercore Inc. Market Analyst Glenn Schorrs said that “Investors will need to be patient and have a little faith…” This means that investors will have to understand that they have to play the long game if they want Citigroup to come out on the other side. They have to be willing to compromise on their own profitability for a little while in hopes of reaping a big reward when Citigroup reaches its intended goals. The good news is that Citigroup has a decent handle on how they deviated from profitability in the first place and understands where they need to go and what they need to do in order to fix it. CFO Mark Mason reiterated “We’re executing a credible, sustainable plan that will allow us to improve our returns over time.”
