UPDATE: This article includes comments from an analyst at Moody’s Ratings as well as comments made during Citigroup’s earnings call.
Citigroup is feeling good about hitting a key profitability target by next year and setting itself up for higher, sustainable returns, even as progress toward reaching that target isn’t linear.
That was the message Tuesday from Citi executives, who touted the global bank’s largely positive second-quarter results and remained steadfast in their expectations that Citi’s return on tangible common equity, or ROTCE, would improve to 10%-11% next year, and then keep climbing.
“I feel very confident about our path forward,” CEO Jane Fraser told analysts during Citi’s quarterly earnings call. “I think you can see this quarter: The firm is firing on all cylinders.”
Fraser, who launched an ambitious turnaround plan when she became Citi’s CEO in 2021, reminded analysts and investors that the 10%-11% target is “a waypoint … not a destination.”
“The actions we have taken have set up Citi to succeed long-term, drive returns above that level and continue to create value for shareholders,” Fraser said during the call.
Still, there’s a gap to overcome in the next few quarters. Citi’s ROTCE for the second quarter, which ended June 30, was 8.7%, an improvement from 7.2% in the year-ago quarter, but down from the 9.1% reported in the first quarter of this year. ROTCE measures annualized net income available to common shareholders as a percentage of average tangible common equity.
Three years ago, Citi said it was aiming for 11%-12% ROTCE within three to five years. The bank lowered that target in January to the current 10-11%.
Citi had several bright spots during the quarter, including firmwide revenue growth of 8% year over year as well as improving profitability within each of its five lines of businesses, according to Warren Kornfeld, senior vice president of the financial institutions group at Moody’s Ratings.
Still, the bank’s overall profitability is “modest,” and any future uptick depends on top-line revenue growth as well as expense management, Kornfeld told American Banker.
The $2.6 trillion-asset bank has been grappling with higher expenses amid a years-long remediation effort to enhance its compliance risk management and internal systems. In 2020, the Federal Reserve and the Office of the Comptroller of the Currency slapped the bank with consent orders, directing it to clean up its systems after too many errors occurred.
Citi is still operating under those orders, as well as amended orders, issued by regulators last July, that accused the bank of not moving fast enough to make data-related improvements.
To cut costs and improve its profitability, Citi needs to make the regulators happy, Kornfeld said.
“If they continue where they’re going on top line, the real wild card will be the expense side, and that depends on satisfying regulators that they’re moving forward with the remediation efforts,” he said.
Last year, Citi spent about $3 billion on work related to the risk-management overhaul. Chief Financial Officer Mark Mason reiterated during Tuesday’s call that he expects “a meaningful increase in that spend in 2025.” He declined to say how much Citi spent during the second quarter, but said those costs should “come down in 2026 and beyond,” as the new “programs are completed and validated and proven to be sustainable and vetted by the regulators.”
The revamp is in good shape, Fraser added. She said the company is “now at or mostly at Citi’s target state for the majority of the programs” related to the overhaul work. Even the data quality management issue brought to light last year is “seeing good momentum,” she said.
Read more about Citigroup here: https://www.americanbanker.com/organization/citigroup
“Once you’re in the target state, you then have to ensure the programs run sustainably [and that] they deliver the desired reduction,” Fraser said. “That takes a bit of time before we then hand them over to the regulatory review process. … We’re pleased with where we’re headed.”
Overall, Citi’s second-quarter results topped expectations, due largely to revenue wins in each of its five businesses, including big gains in investment banking, markets and wealth.
Revenues in each segment rose by double digits year over year. Wealth topped the list, with revenues up 20% compared with the same quarter last year, furthering the momentum that’s been building in that segment in recent quarters. Revenues were up 24% from the prior quarter.
Meanwhile, investment banking revenue rose 18% year over year, and markets revenue rose 16%, driven by growth in fixed-income and equities markets revenues, the company reported.
Taken together, Citi’s second-quarter revenue came in at $21.7 billion, up 8% from the same quarter last year. Net income for the period that ended June 30 was $4 billion, up 25% year over year.
Earnings per share totaled $1.96, easily topping the average $1.61 per share that analysts polled by S&P Capital IQ had predicted.
On Tuesday, the bank tweaked some of the 2026 profitability targets it laid out in January, pushing its full-year revenue expectation to $84 billion, which reflects a slight revision to the $83.1 billion-$84.1 billion range that it initially shared at the beginning of the year.
It also revised its forecast for net interest income. The bank now predicts that NII, excluding markets, will grow about 4% for the whole year, up from the earlier 2%-3% growth it had previously predicted. Expenses, which had been forecast to total slightly below $53.4 billion, are now in line to be at that number.
Expenses were $13.6 billion during the second quarter, up 2% year over year, the bank said.
In a company press release Tuesday, Fraser said she’s “particularly pleased that the momentum across our franchise” includes the transformation initiative, “as we streamline processes, drive automation and deploy [artificial intelligence].”
On Monday, the day before its earnings release, Citi said it has begun rolling out agentic artificial intelligence to its developers to automate simple tasks like software patches and upgrades.
During Fraser’s five-year tenure as CEO, Citi has been trying to simplify itself. The bank has exited underperforming markets, reduced layers of management and realigned its businesses into the five core segments, which also include services and U.S. personal banking.
Read more about bank earnings here: https://www.americanbanker.com/earnings
During the second quarter, Citi announced that its Polish subsidiary, Citi Handlowy, agreed to sell its consumer banking business to Velobank. The deal is expected to close by mid-2026.
Citi has largely completed retail-related exits and wind-downs in overseas markets, leaving just one overseas market departure to finish. Last year, the bank separated its Mexican retail franchise, Banamex, from its corporate and investment banking business. Citi plans to take Banamex public with an initial public offering.
The IPO, the timing of which will be based on market conditions, is expected to take place by the end of this year, Fraser said.
