One analyst called for the CEO's immediate resignation, another wondered if an asset cap could be in the offing and several others grilled Citigroup Inc. management over a recent regulatory fine for risk management deficiencies.
The bank on Oct. 13 reported EPS of $1.40, well ahead of the S&P Capital IQ consensus GAAP EPS estimate of 91 cents. But analysts were more interested in the regulatory consent order, unsuccessfully asking for estimates on the expected cost of resolution and how long it would take.
Wells Fargo Securities analyst Mike Mayo suggested CEO Michael Corbat should accelerate plans to hand over the top job to Jane Fraser. Mayo said there is a "collective sense of extreme disappointment" among investors in the bank's technology abilities, that problems exposed in the consent order were not transparent and that the company's returns were "worst in class."
"Where is the sense of urgency?" Mayo said. "Why not step aside now and have the new CEO, Jane Fraser, take over as a way to demonstrate the increased sense of urgency?"
Corbat responded that the board has taken the consent order issues seriously and that the company thought it important to provide a smooth transition period. He also mentioned a desire to close out the three-year plan announced in 2017. Corbat said the company has made significant progress in improving profitability, pushing return on tangible common equity to 12% from 5% while acknowledging that it remains below peers' returns.
"I don't think you accomplish those things without a sense of commitment and a sense of urgency," Corbat said.
Mayo was far from the only analyst to drill management about the consent order. Multiple analysts asked for expectations around the increased expenses that would be required to resolve the matter, but executives largely sidestepped the question, acknowledging that it will require elevated expenses without offering specific figures. CFO Mark Mason said the bank is still formulating its strategy for 2021, making it difficult to offer a specific forecast on expenses. Corbat noted that there will likely be some return on investment for the bank as it upgrades its processes.
BofA Securities analyst Erika Najarian also posed a difficult question for management by asking whether the bank could be on a similar path as Wells Fargo & Co., which has struggled for years to resolve a regulatory asset cap triggered by its unauthorized account scandal and other transgressions.
"Why isn't Citigroup the new Wells Fargo in terms of regulatory issues?" Najarian asked, noting that Wells Fargo's asset cap was issued two years after its initial consent order. "How can you reassure your current investors and prospective investors that you're not going down the same laborious regulatory remediation route as one of your peers?"
Corbat responded that Citigroup's issues do not suggest any indication of widespread customer harm and that the company did not profit from the activities. Corbat also said the bank has already worked on identifying areas of need when referencing the "gap analysis" regulators required as part of the consent order. The gap analysis calls on the bank to review its enterprise-wide risk management framework and internal controls systems to determine the required fixes.
"We've been asked to do the gap analysis. We've obviously been at this for a while, and we will obviously do a good, extensive gap analysis," he said. "But I think we've got a kind of reasonable idea. And again, we're open to the findings that come from that in terms of the things that need to be done."