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Rapid departure of Citi CEO Corbat draws mixed analyst reaction

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Rapid departure of Citi CEO Corbat draws mixed analyst reaction

The timing of Citigroup Inc.'s announcement that Jane Fraser will succeed Michael Corbat as CEO in February caught analysts by surprise, with some saying investors hoped for a bigger change and others taking the move as a sign of the company's "bench strength."

Fraser, a 16-year veteran of the bank, was named president and became Corbat's heir apparent in October 2019. At the time, Corbat said he remained "committed to leading our firm in the coming years." Corbat's departure in February of 2021 would represent an interval of about a year and a half.

SNL ImageCitigroup President Jane Fraser will succeed Michael Corbat as CEO.
Source: Citigroup

Keefe Bruyette & Woods analyst Brian Kleinhanzl said in a note on Sept. 10 that he believed that Corbat's age, 59, "meant that he likely had a few years left as CEO." Kleinhanzl said he expected investors to react neutrally to the news, as "some investors were hoping for an outsider to come in and do a larger reorganization."

There is a case that Citi should take "more aggressive moves to get out of certain businesses or countries that may not be as profitable as others, or maybe not as high-growth as others," Kleinhanzl added in an interview. "It's also about increasing market share meaningfully in the geographies that you're in."

In a note on Sept. 10, Credit Suisse analyst Susan Katzke said the timing of the announcement was surprising, but that it could be the right moment for a leadership transition. "Investors will need to hear more from Jane, sooner rather than later," Katzke said. Citi CFO Mark Mason is scheduled to speak at an investor conference Sept. 14.

Fitch Ratings analysts Christopher Wolfe and Mark Narron said Citi had demonstrated "solid succession planning" and that the rating agency "views Fraser's record at Citi favorably along with her deep institutional knowledge." They expect a "smooth leadership transition," they said in a Sept. 10 note.

Before becoming Citi's president and CEO of global consumer banking, Fraser was CEO of the bank's Latin American unit, and before that as CEO of the bank's U.S. consumer and commercial banking and CitiMortgage. From 2007 to 2009, she was Citi's global head of strategy and mergers and acquisitions, when the company created a "bad bank" repository for poorly performing and unwanted assets and businesses. As someone who helped formulate and execute the strategy over the past decade, Fraser may be unlikely to take the bank in a radically new strategic direction.

"Jane led our corporate strategy and M&A group during the financial crisis and, in many ways, helped shape the company we are today," said Jennifer Lowney, the bank's head of corporate communications.

Citi has made progress since the financial crisis, posting a return on average equity of 9.92% in 2019, less than a percentage point behind peers Wells Fargo & Co. and Bank of America Corp., according to S&P Global Market Intelligence data. However, the COVID-19 crisis and large credit loss provisions forced the bank to back off its 2020 guidance for return on tangible common equity of 12% to 13%.

Kleinhanzl said there is a "structural" dimension to Citi's lagging performance, reflecting the relative profitability of its businesses and geographic markets. "Some of the businesses that peers are in, such as wealth management or asset management, are higher return businesses," he said.

Corbat's departure comes shortly after the bank became embroiled in a dispute with Revlon Inc. creditors. The bank mistakenly transferred $900 million as an administrative agent for a loan to the troubled cosmetics company. Citi has sued a number of lenders to recover the money.

Corbat was directly involved in the feud, according to The Wall Street Journal, making phone calls to fund managers to ask for the money back.

Lowney said Corbat's departure is not related to the erroneous Revlon payments.

Kleinhanzl said investors have generally looked past the Revlon errors because the direct monetary impact might be relatively modest.

However, the episode did renew questions about Citi's operational controls and whether it has sufficiently integrated processes across its far-flung franchise, Kleinhanzl said. "When these things happen," the tendency is to question whether Citi is "still trying to consolidate things that were bought years ago and ... all these disparate systems and companies."

Citi shares were down by about 0.7% at around 1:45 p.m. ET on Sept. 10.