Citigroup sets new profitability targets in bid to win over investors

Citigroup Inc set new profitability targets on Wednesday at its first “investor day” in five years, aiming for a medium-term return on equity of 11% to 12%, an improvement from its recent performance.

Analysts had been looking for a medium-term return on tangible capital equity (RoTCE) goal of 12% along with details on how it can be achieved. The metric measures how well a bank uses shareholder money to produce profit.

The bank said it expects expenses to rise between 5% and 6% in 2022, excluding the impact of divestitures.

The third-biggest U.S. bank by assets said its expense efficiency ratio will improve to 60% to 63% in the near-term, compared to 65% in 2021. For the medium-term, that metric is expected to be less than 60%, the bank added.

In premarket trading, Citigroup (NYSE:C) shares were down 0.5% shortly after the presentation was posted.

The bank, which said its priority was to return capital, expected to return dividends of nearly $1 billion in the first quarter of 2022. It is looking to build to about 12% of Common Equity Tier 1 ratio.

Share repurchases in the quarter will be in line with prior guidance, the bank added.

When Fraser, 54, became CEO she was charged with transforming a business whose share price had lagged the two bigger U.S. banks, JPMorgan Chase & Co (NYSE:JPM) and Bank of America (NYSE:BAC), over her predecessor Michael Corbat’s eight years at the helm.

The Ukraine crisis and disruptions from the pandemic are adding to Fraser’s challenge of winning over skeptical investors who have been exhausted by years of turnaround plans falling short.

Citigroup said on Monday its total exposure to Russia amounted to nearly $10 billion, far higher than previously communicated. The new number took into account cash held at the Bank of Russia and other financial institutions, overnight loans and additional exposures to Russian counterparties.

On the same day, Fraser, who became CEO one year ago, had to switch the investor day event from being held in-person to virtual after her two top executives tested positive for COVID-19.

Citigroup said its outlook for the medium-term includes having revenue growth accelerate and increase at a 4-5% compounded annual rate, lead by gains in its corporate payments business, as well as global wealth management. The Wall Street bank defined “medium-term” as three to five years.

The bank also said it expects cost of credit to normalize in the near term.