Jane Fraser hits Refresh at Citigroup

But Citigroup, which was once the world’s largest financial services company, is struggling to keep up with rivals. While Goldman Sachs Group Inc.

and Morgan Stanley are reaching new highs in terms of market value, Citigroup’s is half of what it was in 2006. Its profits and revenues, once roughly double that of other major banks, have now been surpassed by JPMorgan Chase & Co. and Bank of America Corp And last fall, regulators ordered the overhaul of large systems underpinning its sprawling operations, raising new questions about the bank’s complexity.

Ms Fraser, the first woman to head a major U.S. bank, now needs to re-energize the $ 2.3 trillion giant.

It will have to juggle between responding to the concerns of regulators – an expensive, multi-year project – with a reassessment of the bank’s strategy. Already Ms. Fraser, 53, has launched a “refresh” that she hopes can simplify banking inside and out, making it easier to manage and improve.

Simplifying Citigroup is a similar path to what its predecessors, Michael Corbat and Vikram Pandit, both tried. But Ms. Fraser believes there is more to do.

“I’m not looking for what’s wrong,” Ms. Fraser said in an interview. “I’m looking for what Citi is going to be and what will work.”

What Citigroup is today is part of the problem.

The bank is a giant on Wall Street, serving multinationals and credit cards. It is the second tier of consumer banking services in the United States.

Yields tend to improve with the scale of consumer banking, and rivals Bank of America and JPMorgan have supercharged their retail operations with thousands of branches in cities across the country. Citigroup has fewer than 700 branches in a handful of cities, betting instead on a strongly digital banking future, including an upcoming partnership with Google.

Citigroup’s power comes from its global corporate bank. It operates in 96 countries, helping governments and businesses transfer money around the world. He is also a leader in the area of ​​corporate debt and its trading on Wall Street. But these companies are not generating as high returns as they once were, due to the regulations of the time of the crisis.

The combination underperformed rival mega-banks, which kept profits high with a better balance between their Wall Street and Main Street businesses. Analysts and investors have argued that Citigroup needs to restructure, with suggestions such as dropping all of its international consumer operations or buying a US bank. Activist investor ValueAct Capital called for changes to focus on institutional activities.

“There is no doubt that the two-decade experience of Citigroup has failed in every way,” said Mike Mayo, longtime banking analyst and Citigroup critic.

Ms Fraser has not telegraphed her plans, but executives have said the strategic review will bring about significant changes. Citigroup recently announced an expansion of wealth management operations. The bank is expected to abandon consumer activities in parts of Asia, including South Korea and Vietnam, people familiar with the matter said. He has no plans to leave institutional banking in any country, according to one of the people.

CFO Mark Mason said decisions won’t be based solely on the financial performance metrics that have driven the conversation around Citigroup for years.

“I think what our investors are listening to is, tell us how and why the strategy you have developed makes sense,” Mr. Mason said. “So tell us what that means in return.”

But it’s unclear whether the immediate plans will be enough to appease the critics. The regulatory consent order may preclude any significant acquisition at this time. And some investors and analysts want Citigroup to either abandon its consumer banking in Mexico or eliminate stock trading, which has not progressed as expected. Neither is likely at this time, according to people familiar with the bank’s plans.

Ms Fraser said the consumer bank of Mexico, which was dragged down by fraud allegations several years ago, has a “wonderful scale,” a key barometer for their review. Getting rid of the business would be costly because the unit is tied to part of the goodwill on Citigroup’s balance sheet. With stock trading, executives say the benefits to customer relationships are too great, even if investors can’t see it.

This may leave investors hoping for a second phase of restructuring soon.

Today’s Citigroup was formed in 1998, a merger of consumer-focused Citicorp and the highflying Wall Street bankers at Travelers Group. Executives envisioned a one-stop-shop mega-bank where businesses could manage their finances and travelers exploring the world could still find a Citi ATM.

But Citigroup’s business continued to operate in silos and the merger benefits did not materialize as hoped. The bank has repeatedly clashed with regulators. During the financial crisis, it almost collapsed under the weight of toxic mortgage-backed securities. She has since sold assets she deemed too risky or too incidental, such as a British music empire, a stake in a Mexican airline, a subprime lender and brokerage Smith Barney.

Ms. Fraser came to Citigroup in 2004 after working at Goldman Sachs and McKinsey & Co. During the financial crisis, she led the bank’s strategy division, helping to lay the foundations for asset sales.

She jumped from job to job, running Citigroup’s private bank for the ultrariche, the struggling mortgage unit, and outrageous operations in Latin America. This has allowed him to gain experience in many parts of the business, although some people say it has made it difficult to assess his operational success.

People who have worked with her have said that she makes decisions quickly and can think long-term strategically while running a business. Even when she cuts jobs, they say, she envelops her messages with empathy.

She is also known for her practical jokes. In January, when Mr. Mason logged in to the leadership team’s morning Zoom meeting, he found all of his colleagues sitting in front of a photo of him 20. It was his birthday at Citigroup. Ms. Fraser kept it as a background all day.

Citigroup announced in September that she would be CEO. Regulators were stepping up pressure on the bank’s risk management systems, and Mr Corbat decided to resign because he felt such a costly, multi-year project was best handed over to a successor.

Ms. Fraser said that the regulatory issue was her top priority. The bank delivered a February deadline to diagnose its risk issues, and executives said the relationship with regulators was productive. She called the work a “transformation,” an opportunity for the bank to make changes that are overdue and competitively significant.

For example, regulators had complained that the bank lacked clear customer data. Citigroup had never built a unifying customer identification system in all of its operations. Correcting this would both appease regulators and help bankers deepen their relationships with clients, executives said.

Ms Fraser said she knew the job would be a big job, but didn’t expect her first day as CEO to be any different. It is scheduled for a town hall, meeting with new employees and customer calls. She is also considering calling former colleagues and others to say thank you.

Write to David Benoit at [email protected]