All right, if everybody could take their seats, we're going to get started with the next presentation. I am delighted to welcome Citigroup to the stage. Mark needs no introduction. He has been CFO of Citigroup since 2019 and has attended this conference every year as CFO, and we greatly appreciate your support. As many of you know, this is Mark's last time presenting as Citigroup's CFO. Mark has been a tremendous CFO at Citigroup.
Thank you.
But I think he's also played a critical role in what I think is shaping up to be one of the most impressive transformations in the banking industry over the last decade. So I think I speak for everybody in the room when I say, Mark, we will miss you next year, and we want to wish you all the very best.
Thank you, Richard.
For the next chapter of your career.
Thank you.
We're also joined by Gonzalo Luchetti, who's head of U.S. Personal Banking, overseeing retail banking and the U.S. card business, I think 70 million clients, I think, give or take.
He is also the incoming CFO, effective from March. I have been fortunate to spend some time with Gonzalo, very much looking forward to you and very much welcome you to what I hope will be the first of many presentations at this conference going forward. So great to have you as well.
Thank you.
So Mark, maybe we can start off with you. And I think this is the first time that you've spoken publicly since the announcement of the transition. You've obviously seen the firm through a period of change, obviously significant progress over the time that you've been CFO. So why is this the right time for you to make this transition?
Yeah. Well, first of all, thank you, Richard, for having me. It's great to be here, and it's great to be here with so many investors. It's a great question. And I have to just kind of reflect on the fact that I've been at Citi for 25 years, and I've been CFO for almost seven years. And I show up to this company every day wearing the One Citi hat, One Citi jersey. And I highlight that because I grew up not believing in silos. And I think that is what, in fact, differentiates Citi when we show up for our clients and when we execute on the strategy that we have in place. And so I reflected on that before taking this decision. And there were two things that were important to me.
One was that I leave the company, and I leave the finance function in a better condition than which I found it. And the progress that we've been making as a firm gave me confidence that I was doing that. And the second thing was that I transition out of the role in a way that can ensure Citi's continued momentum on the commitments that we've made to our investors, to our shareholders, including the 10%-11% return next year and that being a waypoint to higher returns.
And so those two things being very important as I sat down with Jane to talk about my decision that now is a time, I gained increasing confidence that with her selection and Gonzalo, with a transition agreement that we worked on in terms of me staying through signing of the K and through Investor Day and through 2026 to help her with some strategic initiatives, all gave me increased confidence that I could deliver on those two objectives. I'd make one final point, Richard, which is, as I was thinking through this, I thought it would be incredibly awkward and inconsistent with the credibility we've been trying to build with investors to stand on stage in May, on May 7th of next year, and talk about the go-forward strategy of the firm, knowing that I wasn't going to still be here.
And so consistent with our desire to build trust and transparency, and my confidence in my ability to deliver on those two objectives is how I got to this decision. And I'm really, really excited about the trajectory that this firm is on. We still have a lot more to do, but the momentum, I think, is significant, and I'm confident that it'll continue.
Okay. Great. So Gonzalo, maybe you can just give us a sense of your background. I know you've been a longstanding employee at Citigroup. You've done a number of different things. So maybe you can talk a little bit about your experience, but also talk about what you're looking to bring to the CFO role.
First of all, thank you for having me here, Richard. It's great to be here. The first thing I'd say is that if you're wondering about the name, I'm Argentine American, which means I have a pretty decent hedge between the Olympics and the World Cup. That's how I see it, at least. I've been at Citi for almost 20 years in a variety of roles, from running businesses to being in the finance function and in strategy. I've also worked and/or lived in the U.S., five years and a half in Singapore, overseeing Asia, EMEA, and Latin America. I've been around in terms of our regions. I'm really excited about the opportunity, number one, to really secure that path to our targets in 2026 and making that execution that will deliver the 10%-11% returns.
I am equally as excited about being part of laying the foundation for the next phase at Investor Day in terms of our targets for increased returns and, more importantly, more energized and actually making those real through execution. In terms of what to expect or my approach to things, what I would say is a couple of things. First, I think you can expect continuity and stability. I am super grateful not only to Jane, but also to Mark. He has been incredibly kind and generous already, and I have been having a lot of support from him as well. So I think you can expect that. Secondly, I am very focused on results delivery. I have always been, and on accountability. Doing what we say we are going to do is very important to me.
The power of results being louder than actions and actions being louder than words is also important to me. When Mark and Jane in Q1 of 2024 said U.S. Personal Banking should be in the range of mid to high teens returns, and last year we were at 5.5%, and this year, year to date, we're at 12.9%. In Q3, we did 14.5%, starting to edge inside that window on the lower end of the range. That was super important to us that we actually did what we had said. Third thing I would say is durability is important to me, the fact that we don't do one-hit wonders. So durability to me comes from strong balance sheet management, liquidity management, risk and control management, and that's what will make the results stick and be consistent for a period of time.
Even in USPB, in our trajectory, we worked quite hard to make sure that the 12 quarters of consecutive positive operating leverage are there, all the way from our operating efficiency being 57% in 2022, down to 53%, down to 49% last year. Year to date is 46%. Q3 was 44%. That was really important to us that we're able to provide that continuity of results. Then the last piece I'd say, even if I've done some things for some period of time, the importance of the Japanese have this word called Shoshin, which means looking at things as a neophyte or as an apprentice. I like that philosophy of approaching even old problems in new ways.
We did that with American Airlines a year ago when we not only extended our agreement and also consolidated their relationship, but also found ways of trying to unlock growth at the same time that we were accessing better returns. A big thank you to Mark, but that's what I think we'll be focused on.
Look, just a quick follow-up, because as part of the CFO transition, you also did announce a change to U.S. Personal Banking. So can you speak to the strategic rationale of moving the Retail Bank into Wealth and having the card business as a standalone business? What are you looking to achieve with that change?
Thank you. I think a lot of it was, well, first of all, it's an evolution, not a revolution of how we're structured, because when you think about maybe from both lenses, from the first lens in terms of the Retail Bank and Wealth, as probably many of you know, we have a footprint that is very affluent-leaning. So we have the highest level of deposits per branch. We operate in six urban centers across 650 branches, and those urban centers are accessing about a third of the high net-worth households in the U.S., and so our footprint is designed that way. You don't need to believe me only. In our Retail Bank, year- to- date alone, we've upgraded about $12 billion of customers and their deposits into the Wealth business. So those synergies of customer footprint and platform we have seen and touched for the last several years.
So for us, that contact point was very strong, and we felt that that made a lot of sense. The second lens is when you look at our card businesses, and we are kind of a full-spectrum provider of card services, right, all the way from proprietary to co-branded cards to private label cards. And we have this significant scale with $600 billion plus of spend, $160 billion plus of outstanding, serving the 70 million customers that you referenced before in an $18 billion plus business. When we look at how customers and partners are seeing the market evolve, there's definitely a convergence towards universal cards and co-branded cards.
We think that this is an opportunity of bringing the businesses even more closely together that were part of USPB, but even more closely together to be able to accelerate that transition right into the pockets of the market that are thriving.
Okay. Great. So Mark, maybe we can talk about the macroeconomic outlook. I know it's always complex, and you don't just have to talk about the U.S. You've got to talk about globally. So what are you thinking about the economic outlook, and what are you hearing from corporate clients specifically?
Yeah. I think if I had to summarize it in a word, I think the global economy continues to be resilient, right? And look, we're all here waiting for additional data out of the last couple of months that got caught up in the shutdown, and we'll see what that tells us. But I think generally we're likely to see that the fourth quarter GDP growth has slowed a bit, that my expectation, our expectation is that 2026 probably has a continued slowing of growth at a moderate level. I suspect we'll get a rate cut tomorrow. I suspect that next year, at least our economists are looking at maybe two to three more rate cuts. When you look around the globe, I think central banks have acted appropriately in a responsive way with monetary actions that needed to have been taken to contain inflation.
There's still a fair amount of uncertainty out there around tariffs and what that ultimately means for the consumer and how much kind of gets pushed out versus retained by corporate clients. So that's part of the dialogue, for sure. And what ultimately happens with unemployment is a rich part of the dialogue, too, particularly in a business like ours when we have a big consumer portfolio. Look, the client sentiment and dialogues around all of those things and AI, everything related to AI, whether it's data centers or energy or productivity out of companies that are investing in it or how to think about the return on investment. This is a hot thematic topic, including valuations and whether they're overvalued or not. The capital markets are wide open to some extent. We're seeing a lot of investment grade activity. We're seeing good leveraged finance activity.
Despite the shutdown, equity volumes and IPO volumes have held up. And so I put all of that together, Richard, and I'd say the global economies at large have generally been resilient despite continued bouts of uncertainty. And I think net-net, that's a good thing. Balance sheets are strong, and I think that's a good thing. There are going to be pockets, obviously, within the corporate sector, and there's a consumer side to it as well, which.
Yeah, so Gonzalo, I was going to ask you on the consumer side. I mean, if you look at what you're seeing in the card business through the lens of what it tells you about the economy and the trajectory heading into next year, what's your take?
Yeah. I think consistent with what Mark was saying, we've seen continued resilience from U.S. consumers. They're more discerning in terms of their spend, but at the same time, we continue to see in terms of spend, we continue to see solid growth through October and November. You still have that two-lane distinction between the affluent driving a fair amount of the growth, but there's stability on the other side, and then in terms of categories, we've seen travel, we've seen dining, we've seen discretionary retail be relatively strong even through the holiday season and Thanksgiving. We also saw good momentum, a lot of it driven through online. When you think about the resilience part, and we've seen customers be pretty adept at financial management so far, and that's a continuation. On the credit side, we see stability so far.
Of course, we're looking out for the shifts in the labor market to the persistence of inflation, uncertainties in terms of trade as well. Some of those things could derail this picture. So there's definitely those two vectors of the hard data on consumers is still robust and resilient, and there's an element of uncertainty. So very important for us and folks to not be complacent, the element of being proactive, being alert. Of course, when we get to look at our delinquencies, you've seen this in the third quarter. You look at our Branded Cards business, the 30+, the 90+, and the net credit losses. And the same is true for our Retail Services franchise. All three of those measures across both of our businesses down year on year for the first time in a few years. And therefore, you kind of see that stability coming through.
Of course, it's related to our risk appetite and the fact that we have an 85%+ prime lean into credit, but also the work we've been doing continuously to manage actions for a couple of years in terms of managing credit appropriately, being operationally ready in case there's a weather pattern that is rainier than we think, and so managing through that uncertainty with a proactive alert approach.
Okay. Great. So let's talk about the nearer term. So fourth quarter, what are you seeing in terms of Investment Banking activity? Obviously, the government shutdown has had an impact, but what are you seeing in Markets? And is there anything else that we should be aware of for the quarter? And I think it would also be useful to put that in the context of what it means for the full year guidance that you've given.
Sure. So first of all, we've been, I think, delivering really strong performance through the year. And you've seen the third quarter numbers, but the top-line momentum year to date up 7% with positive operating leverage across all five segments. And we see continued strength in each of the segments as we look at the fourth quarter. To get to the specifics of your question, on the market side, I gave some guidance at the third quarter earnings. What we're seeing is generally consistent with that, which pretty much equates to Markets revenues down kind of low to mid single digits year- over- year on the heels of a strong fourth quarter last year. So good market activity, but again, some seasonality that you'd expect third to fourth quarter and year over that year down low to mid single digits.
On the Investment Banking side, we're seeing continued momentum, particularly in M&A. And when we look at the quarter and where it's likely to end, we're probably looking at revenues up or Investment Banking fees up in the mid-20s year- over- year. So good, healthy growth there as well. Feel good about that. Vis has been doing a nice job with new talent and focused across many of the sectors that we have there. Expenses or operating efficiency is probably worth mentioning. I gave some guidance around that. As we look at the quarter and the year coming to an end, we're probably looking at operating efficiency a little bit better than 63.5%. That's better than the guidance I gave last time, by the way. And that'll include probably a couple of hundred million dollars of additional severance charge or cost in the quarter and more than I expected.
We're including that in that better than 63.5%.
Okay. So maybe moving to next year, what are the puts and takes around the continued growth in NII ex-Markets, especially in the context of some of the uncertainty around the number of rate cuts that we could potentially see?
Yeah. And it's probably worth mentioning for 2025, NII ex-M arkets, we're still looking at around 5.5%, up 5.5% year over year. So think about that as 2.5. As we go into 2026, I would expect to see continued growth in NII ex-Markets, not at the same pace per se, but continued growth. I think there are a couple of tailwinds and headwinds that contribute to that. So one is I would expect to see continued growth in our operating deposits, particularly in our TTS franchise, both with existing clients, the large multinationals that we cover, but also with middle market clients. I'd expect to see continued growth in trade lending activity, trade finance. And we've seen some of that through this year. Despite tariffs, we've seen good momentum there, and I'd expect that to continue. I'd expect to see good loan growth on the card side, particularly on Branded Cards.
So that'll be an important factor as well. And then we also have the investment portfolio that we've talked about in the past, which, as it's been maturing, we've had the opportunity to redeploy that into higher-yielding earning assets, whether that's cash, loans, or other securities. And so that too will be a tailwind for us as we look into 2026. There obviously will be rate cuts. We're estimating somewhere around 2-3 cuts, but we think that'll largely be offset by some of the pricing discipline that we have across the portfolio.
And then the efficiency ratio for next year. I mean, you previously talked about an efficiency ratio below 60%. So does that still hold? And then maybe you can talk a little bit about the drivers from the 63.5% that you just talked about down to the 60%.
Sure. And yes, it does still hold. So less than 60%, that's a full-year operating efficiency target that we'd set for ourselves back when we did the last Investor Day. We talked about by the time we got to the medium term operating at less than 60%. So that would be in 2026. There'll be a number of drivers, obviously the top-line drivers, and will be revenue, both NII growth as well as NIR growth. And then there's obviously the expense piece. And the expense piece has a couple of components to it. So we still have stranded cost, about $1 billion-$2 billion or so of stranded costs. We'll look to bring that down as we go into 2026. We have the transformation spend that we've talked about in the past, which went up this year to a little bit less than $3.5 billion.
So we'll look to bring that down, particularly given that you've heard us say we're roughly two-thirds at or near completion in the way of achieving some of those target states. So we'll look to see that cost come down. And then there are other productivity savings that we'd expect to get on the heels of both technology investments and some of the transformation investments that we've made. So those are a number of the contributing factors to bringing costs down and contributing to that. But I'd be remiss not to highlight the importance of us continuing to invest as well. Right? And the investment is important not just to drive the top-line momentum that we see or expect to see in 2026, but to drive continued momentum beyond that so that we can deliver on returns that are north of 10%-11% post-2026.
The thing I didn't mention that I should mention is that we've also talked about severance charges, right, and those coming down to a more normalized level. You just heard me mention a little while ago that we're taking those up this year. So I would expect the severance charges next year to come down. They may not reach the normal level, but they should come down versus what we're spending this year for sure.
So just a couple of questions, I guess, one for each of you. You mentioned two-thirds of the way through the transformation. What's left to do? And then I think, Gonzalo, for you, a question is maybe you can talk about how transformation has impacted the way your business operates. And I understand you've been in charge of some of the firm-wide AI initiatives. So maybe you can speak to some of the progress and use cases there. But maybe on the transformation side first, what's left?
Sure. First of all, again, I think a significant amount of progress that we've made. You heard us mention about two-thirds of the efforts are at or near completion or close to target state. That includes progress in risk and compliance controls as well. We've standardized controls across the globe for many of the activities that we have. In many instances, we're on par with peers as it relates to the controls that we have in place. We're monitoring both automated controls that we put in place versus manual as well as preventive controls. I think the area where we're still really pushing for continued progress would be around data and specifically as it relates to regulatory reporting. You've heard us talk about that in the past over the last 12 months. We really leaned in on that.
In fact, some of the increased investment in investments went specifically towards data and regulatory reporting. I tell you, in just inside of 12 months, we've made meaningful progress. That's measurable progress in the regulatory reports that we produce on a monthly and quarterly basis and being able to measure the accuracy of the data that is hitting those reports that we then kind of send off to our regulators. So I'm very pleased with the approach that we've taken towards centralizing that oversight and responsibility and being able to drive execution using AI tools and other technology in order to accelerate the outcomes of those reports. There's more work that we need to do around there.
That would be an area that I'd say we will have continued focus as we go through 2026 and try to continue to deliver on the progress there.
Okay. So, Gonzalo, impact of transformation, AI. And maybe you can talk about AI in the overall context of, I think, just process re-engineering, which I think is kind of accelerating that, so.
Yeah. No, thank you. I think a couple of thoughts. In terms of U.S. Personal Banking and how we've been living the transformation, I think we're very much microcosm of what Mark was talking about. So we've definitely seen the marked improvements in our automated controls and preventative controls shifting more from detective to preventative. We've seen kind of end-to-end compliance risk management, upgrading how we do look horizontally at the risk. Actually, on data, to Mark's point, I actually have an example that you can fact-check as well. So that is not only you have to believe me category.
Some of the work we've done on loan origination data has led, if you look at the last few years in our DFAST results from the Fed, you would see that our junior and HELOCs, the stress capital losses, were the stress losses, sorry, were at 19%, and then they went down to 5.1% between one year and the next. In first mortgages, they went from 3.7% to 3.1%. That was a direct result of the loan origination data improvement, and that has very much green dollars in terms of the stress capital buffer. We can touch and feel the impact of what Mark was talking about at the enterprise level, right, in every corner of the firm. In terms of AI, and I'm glad you brought in the concept of process because process is really the lens that we take.
I would say our approach to AI is probably twofold. We think that it's important to have a top-down and a bottom-up approach. By bottom-up, what I mean is that you really want to empower all of the employees to be able to, in their sometimes very narrow specific use cases, extract the maximum amount of productivity, and that's what we did by launching Stylus, which is our internal tool to 180,000 people in 80 countries, and we're seeing benefits, whether it's in small finance journeys or legal or HR or credit report writing, etc., but then you also want to complement that, I think, within some areas where you have very large boosts that you can have scale impact, you really want the resourcing, the prioritization, the acceleration that can come with a big enterprise effort, so examples there would be technology, right, and coding.
And the fact that we've been able to done, I think, year to date, a million automated code checks. And that has released about 100,000 hours per week of coding. That gives us 9% productivity on the coding front. Or in customer service in my business, in U.S. Personal Banking, right, we receive 17 million calls a month. And not only can we increase the self-service ratio, which we're already seeing and doing with our GenAI, but in addition, we're able to assist real-time those calls that end up with a human, and they can be more productive. They can talk to the clients about their issues as opposed to having to do 50 things in the surround system.
So we can touch and feel it, and it is that combination of you want to enable innovation everywhere in the firm and at the same time really turbocharge the big scale efforts that give you the biggest payback.
Okay. So maybe we can talk about credit quality. Maybe we could start with corporate credit, NBFI or NDFI, I guess, depending on what's been a focus in the last few months. How do you think about Citigroup's exposure, and how are you thinking about risk in that space in particular, and has it changed relative to the stock?
Yeah, I was just going to say our risk appetite framework in many ways has not changed, right, in the sense that, as you know, we focus on the large multinationals, investment-grade names. We've been very disciplined about that. Many of these clients we've been working with for many, many, many years around the world in serving their needs. And the lending that we do is either to them or to their subsidiaries, which give us a strong sense for the protection around the exposure that we have. I would say when you look at the losses, they've been benign, right? And even any increase in NALs have been idiosyncratic in terms of the exposures that we have. So we feel very good about the exposure that we have there. The NBFI work that we've done with clients, we've been very selective with the asset managers that we work with.
It's largely in our Markets business that we've done that activity. In that selectiveness, we're obviously looking through to the underlying collateral. We're making sure that there are attachment points that make sense and give us comfort in the way of that exposure. And so I would say, do we have exposure? Yes. Is it material in the scheme of aggregate exposure? It's not. Is it an area that we are continuing to focus on selectively? We absolutely are, but I feel very good about our approach because it's consistent with that risk appetite framework and the discipline that we put around the structuring for these underlying types of exposures.
And then briefly, outside of corporate credit, anything else that you're monitoring, anything you're seeing in early delinquencies?
No. No.
Okay. Great.
Gonzalo spoke to the consumer side, and on the corporate side, there's nothing that we're seeing that's outside of the norm.
Okay, so let's talk about capital. How are you thinking about the trajectory for reaching your 12.8% CET1, both from an opportunity to invest in the business versus capital return standpoint?
Yeah. Sure. So I guess a couple of things. So one, you've heard me talk about bringing down our CET1 ratio, first closer to the 13.1%. And then after a second year now of having a stress capital buffer that's come down, we're targeting the 12.8%, which is the average of the past two years. I'd expect that we'd get there over the next couple of quarters, two or three quarters, that we'd kind of start to bring that down into 2026. I am pleased with what we're hearing out of DC and some of the proposals or re-proposals that have been put on the table, including some of the recent information that's come out around the models that they're using, the coefficients that they're using. It's consistent with the rhetoric around seeing a reduction in capital requirements.
There's a question of timing and when all of that plays out and whether it impacts the next CCAR cycle or not, but I think it's directionally favorable towards capital requirements for the industry, which is a good thing. I would expect and hope for clarity on averaging, clarity on Basel III Endgame and G-SIB, all of which I think will be value-added for the industry and for Citi, and I think that one of the things that we will be managing towards is how to think about that deployment of capital, as you point out. And for us, it's going to be a balancing act. It's going to be deploying it where we can capture growth and accretive returns and continuing to return it to shareholders. We announced this year a $20 billion buyback program. We've done $9 billion year- to- date. We'll continue to work towards that.
Obviously, the stock's up and is trading a lot closer to where price to book is. That trade-off becomes really, really important in the sense of how do we get the returns higher than 10-11? Some of that is going to be ensuring that we're fueling the growth for opportunities with clients that are accretive to that return profile and continuing to buy back shares.
Okay. So we've got a couple of minutes left. So I think what would be really helpful is if you could take a step back, maybe talk a little bit about the progress that you've made since the last Investor Day, which I think was 2022?
Yeah. Yeah.
Time flies. And obviously, another one coming up next year. But also just talk a little bit about the priorities for both of you for 2026.
Sure. I'll start, and I'll try to be brief. But look, we've made a significant amount of progress. That's not to say there isn't a lot left to do. But if you think back to 2022 when we did that Investor Day, we could not have predicted the series of events that have occurred over the past four or five years. And I think if nothing else, it proves that our model is resilient. We announced exiting 14 consumer businesses. We got out of nine rather quickly. We continue to make progress on the remaining ones. Just this year, we announced Poland. We announced, obviously, the first tranche of Banamex in Mexico with 25% sale. And by the way, on that one, that is progressing very nicely from signing. I would expect that to close very soon. I talked about next year.
I can envision it closing even sooner than that. I think that's a testament to the partner that we selected, as well as the focus that we've put on making progress and exiting that. So progress on the exits. Jane has accelerated the org simplification that we did, which I think was really important, brought in additional management or new management for some of the key segments. And here we are with all five of those segments, as I mentioned earlier, with top-line momentum, positive operating leverage. We're making measurable progress on the transformation. We're returning more capital. Our returns are improving versus last year. We've got a clear line of sight to 10%-11%. I feel like we've made significant progress since our last Investor Day. And as I mentioned, I'm excited about what the future holds beyond that.
Okay, and then priorities, perhaps, Gonzalo, for you for next year?
Yes. Two thoughts. First, on the progress we've made since the last time, just from the lens of running one of the five businesses. To me, that delayering, that increasing accountability across each of the five businesses have been, to me, has changed a lot the way we make decisions, the speed at which we make decisions, the ability to design once and apply many, right, where we used to have to do that across a number of businesses. So that, to me, has been a big change, not only cultural, but just in terms of the operating model. And that's why you're seeing, I think, a lot of the building blocks that Mark was talking about.
And then priorities for 2026: execution, execution, execution, right. Really delivering that waypoint of 10-11 so that we can go and, with purpose, say, this is the next hill we want to go after and really drive those increased returns and be able to create long-term share value.
Okay. I think with that, we're out of time, so thank you so much for joining us, and we'll see you next year.
Thank you.