(Bloomberg) -- Citigroup Inc. said costs for the year are now likely to be at the high end of the range it previously provided after the bank faced a series of regulatory penalties in recent months.
In the second quarter, Citigroup was able to whittle expenses down 2% to $13.35 billion, which was slightly better than the $13.4 billion average of analyst estimates compiled by Bloomberg.
Still, for the year, expenses are now likely to be at the higher end of the previously provided range of $53.5 billion to $53.8 billion, the New York-based bank said Friday. The bank recorded $56.4 billion in costs for 2023.
The tighter guidance is a sign that the bank’s attempts to reduce costs may not be as straightforward as many investors hoped as the bank pushes on with a major transformation plan under Chief Executive Officer Jane Fraser. That effort — which is partly in response to a pair of consent orders that it was saddled it with by the Federal Reserve and the Office of the Comptroller of the Currency in 2020 — has been hamstrung at times by regulatory issues and other operational missteps by Citigroup.
Citigroup earlier this month agreed to pay almost $136 million in fines to bank regulators for making “insufficient progress” on resolving those orders. The bank now has to complete a resource review plan for the OCC, which may require it to hire more staffers or invest in new technologies to ensure its on track to fulfill the requirements in the original consent orders.
“The transformation is critically important to our firm and Jane and I both reference it as our No. 1 priority,” Chief Financial Officer Mark Mason said on a conference call with journalists. “We’re going to do what is required to get that done and get that done the right way.”
The $136 million fine was the latest in a string of regulatory setbacks for the bank. Last month, the lender and three of its rivals were ordered to improve their blueprints for a hypothetical wind-down after top US regulators found weaknesses in their plans.
Citi said at the time it was “fully committed to addressing the issues identified by our regulators.”
The Wall Street giant was also fined £61.6 million ($79 million) by UK regulators in May for failures after a London staffer’s fat-finger trade caused a flash crash in European stocks in 2022. Weeks later, a unit of the bank was fined almost €13 million ($14 million) by Germany’s financial regulator over the same issue.
Citigroup’s shares fell 0.8% to $65.19 at 9:34 a.m. in New York. The stock has climbed 26% so far this year, making it the best performer in the 24-company KBW Bank Index.
Revenue Gains
In the second quarter, all five of Citigroup’s major divisions notched gains in revenue compared with the same period a year ago. That helped boost net income for the quarter to $3.2 billion, or $1.52 a share.
“Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” Fraser said in the statement.
The firm’s banking division outdid expectations in the second quarter, with revenue up 38% to $1.6 billion. Mason has previously said his firm’s investment bankers and capital markets teams have been helped by better prospects for merger advice and debt and equity underwriting.
In Citigroup’s markets division, the bank reported $5.1 billion of revenues. That came in higher than expected partly thanks to $400 million of gains the bank booked tied to a share exchange with Visa Inc. that also benefited rival banks.
Under Fraser, the bank has made senior external hires to help lift the standards in some of its less profitable divisions.
Viswas Raghavan joined Citigroup from JPMorgan Chase & Co. to turnaround the lender’s newly formed banking franchise, which includes investment banking along with commercial and corporate banking. The bank has long lagged rivals in areas like advisory.
Citigroup this week awarded the executive shares worth about $41 million at their current value. The award is to replace compensation Raghavan gave up when he left JPMorgan.
After Raghavan joined, Citigroup saw the departure of Tyler Dickson, who’d been overseeing investment banking globally and was seen as a top internal contender to run the broader banking division.
- The bank’s ailing wealth division also slightly surpassed expectations, pulling in $1.8 billion, driven by growth in its Citigold service for private clients.
- In the services division, which manages and moves money around the world for major multinationals and traders, the bank notched a 3% gain in revenue.
- The firm’s US personal banking arm, which includes branded cards, partnerships and retail banking, revenue rose 6%.
(Updates with CFO comment in sixth paragraph, shares in ninth.)
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