Citigroup Earnings: Turnaround Remains Complex, Expense Management Is Promising

Key Morningstar Metrics for Citigroup

• Fair Value Estimate: $66.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium

What We Thought of Citigroup’s Earnings

Citigroup C posted disappointing numbers for the fourth quarter, with a loss of $1.8 billion, or $1.16 per share. This was primarily due to various nonrecurring charges, including $1.7 billion for an FDIC special assessment charge for uninsured deposits of certain failed institutions during last spring’s banking turmoil, $0.8 billion for restructuring charges related to organizational simplification, $0.9 billion to account for the impact of Argentina’s currency devaluation, and $1.3 billion in transfer risk related to Russia and Argentina. Citi’s earnings per share is estimated to be $0.84 after excluding the nonrecurring charges.

While the quarterly results were lackluster, 2024 guidance was encouraging. Management guided for 2024 revenue of $80 billion-$81 billion, up 4% from the full-year 2023 level. Management expects net interest income to be down modestly in 2024 due to lower interest rates. Management’s 2024 NII guidance assumes mid-single-digit loan growth driven by the card business and modest deposit growth. The noninterest income implied from the company guidance points to strong results in Treasury & Trade Solutions and a rebound in investment banking and wealth businesses.

The company has guided $53.5 billion-$53.8 billion in expenses for 2024, down around 1% from $54.3 billion in 2023. Citi’s management has also set a medium-term expense target of $51 billion-$53 billion, which we think is ambitious but achievable. Citi announced a program to reduce its headcount by 20,000 to reach its medium-term expense reduction target. For context, this is approximately 10% of its 2023 workforce. Expense reduction will continue to be a key deliverable for management, instrumental for achieving higher returns. Citi remains a complex turnaround story with substantial execution-related uncertainties. We do not plan to materially change our $66 fair value estimate as we incorporate fourth-quarter results.