Citigroup Aims High With Profit, Capital-Return Targets

By Telis Demos Features Dow Jones Newswires

Citigroup Inc. led bank stocks higher Tuesday after telling investors it is aiming for $60 billion or more in capital returns to shareholders through 2020 and that it hopes in coming years to earn $20 billion annually.

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Executives laid out those targets during the bank's first summit for investors in nearly a decade. The presentation marked an effort by Chief Executive Michael Corbat to open a new chapter for Citigroup following years of restructuring in the wake of the bank's near-death experience during the financial crisis.

The franchise has "been refocused and it's been restructured," Mr. Corbat said during the meeting. "We're firmly on track to improve the return on, and the return of, capital."

Citigroup's shares jumped nearly 3% in response, one of the stock's best single-day performances this year. Other big banks also rose, with Bank of America Corp. up about 2.4% and J.P. Morgan Chase & Co. up around 1.7%. The KBW Nasdaq Bank index gained around 1.3% as the yield on the 10-year U.S. Treasury rose to 2.33%.

Citigroup shares are the best performing of the six biggest U.S. banks so far this year, up around 15%. The stock got a lift in June after the Federal Reserve approved Citigroup's $19 billion capital-return plan.

During presentations Tuesday, Citigroup executives said the bank could generate annual net income of $20 billion by 2020, up by around a third from today's level. The bank is also aiming to boost its return on tangible common equity from less than 8% in the past year to 11% by 2020.

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Doing so would involve returning at least $20 billion a year to shareholders in the form of dividends and buybacks over the next three years.

Executives added that with a typical earnings multiple, Citigroup's share price could be $100 by 2020, up from around $68 today. Even so, that would still leave the stock around 80% lower than its precrisis peak, when adjusted for a reverse share split.

Underpinning Citigroup's drive to improve its financial performance is a renewed focus on consumer banking. The bank plans to boost this business through new wealth services, cards and digital offerings, ending a yearslong period in which it shrunk the number of branches and products it offered.

Consumer banking has been the bank's sore spot, generating returns of 13% on tangible common equity in the past year against a long-term target of 20%.

The bank's head of global consumer banking, Stephen Bird, told investors that between cards and retail banking, Citigroup's consumer operations can achieve a 19% return on tangible common equity by 2020.

That would partly be a result of higher interest rates, but also through adding more U.S. customers to its highest tier of bank account, called Citigold. Such customers generate 25 times the revenue of a typical account. The bank also aims to serve more people through inexpensive digital channels like mobile apps.

"We want to have better and deeper relationships, and when we do that we earn superior economics," Mr. Bird said.

Jud Linville, the bank's global head of credit cards, said that better-than-anticipated growth in demand for cards the bank issues with Costco Wholesale Inc. will help to drive nearly 50% pretax net income growth in its branded cards by 2020, from $2.2 billion in the past 12 months to $3 billion.

He cautioned, though, that credit losses and transaction costs may creep higher, especially as more people use their cards without carrying a balance.

Technology was also touted as a driver of better returns. Finance chief John Gerspach said automation and mobile computing will help slash $1 billion in costs by 2020. For example, the bank will have more than 200 robotic processes by the end of this year, doing the work of 1,000 people.

Write to Telis Demos at telis.demos@wsj.com

(END) Dow Jones Newswires

July 25, 2017 17:45 ET (21:45 GMT)