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Citigroup Return Forecast Underwhelms Investors, Shares Slide

Kyle Grillot | Bloomberg via Getty Images
  • The company set a "medium term" target for return on tangible common equity, a key banking industry metric, for "~11 - 12%," according to slides released Wednesday.
  • Several analysts had expected Citigroup to aim slightly higher. For instance, Morgan Stanley's Betsy Graseck said in a recent note that she expected a ROTCE target of "at least 12%."
  • Analysts and investors have been anticipating a set of fresh financial targets and disclosures for the event, which went virtual after a pair of Citigroup executives caught the coronavirus.

Citigroup CEO Jane Fraser is setting the bar for her bank to improve its lagging performance – modestly so.

The company set a "medium term" target for return on tangible common equity, a key banking industry metric, for "~11 - 12%," according to slides released Wednesday.

Analysts and investors have been anticipating a set of fresh financial targets and disclosures for the event, which went virtual after a pair of Citigroup executives caught the coronavirus. Fraser took over at Citigroup, the third biggest U.S. bank by assets, almost exactly a year ago.

The most crucial is the return target. Last year, the bank posted a 13.4% return, thanks in part to releasing reserves set aside for bad loans and booming Wall Street markets. Even then, Citigroup had the lowest returns of the six biggest U.S. banks.

"It's frankly not a surprise that we've been outperformed by our peers and we failed to meet the expectations of our investors," Fraser said during her opening remarks. "Our maniacal focus right now is on getting to these medium-term targets and building credibility with you along the way."

Several analysts had expected Citigroup to aim slightly higher. For instance, Morgan Stanley's Betsy Graseck said in a recent note that she expected a ROTCE target of "at least 12%."

Shares of New York-based Citigroup recovered from losses earlier in Wednesday's session, when the stock dropped more than 4%, and were up 1.7%. Rival banks including Bank of America and Wells Fargo gained amid a broader rebound.

"We've been getting a ton of questions on Citi over the last few weeks as investors position for Citi's new CEO Jane Fraser to outline her strategy to grow the bank," Graseck wrote. "Most frequent question is how will Citi deliver a higher ROTCE and narrow the return gap to peers?"

Analysts have also been concerned about expense growth at Citigroup, which is dealing with demands from regulators to overhaul its risk-management controls. The bank said that expenses would jump 5% to 6% this year, excluding the costs from divesting non-U.S. businesses.

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