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Citigroup settles with 401(k) participants, will pay $6.9 million
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Jane Fraser Has a Plan to Remake Citigroup While Tormenting Rivals
One of Citigroup Inc.’s more serendipitous real estate investments turned out to be the roof deck is built into its newly renovated downtown New York headquarters. With sweeping views of the Hudson River, it’s a thoroughly ventilated space that investment bankers and traders can slip away to for some socializing or after-hours cocktails. Not a bad perk for those back in the office in the midst of the lingering pandemic.
Kicking back at a patio table, Jane Fraser, Citigroup’s newly installed chief executive officer, is discussing one of her first wins on the job. Early in the summer, she broke with a slew of rival bank CEOs who were cajoling workers back to their old desks just as the delta variant of Covid-19 was spreading, leading to infections that eventually forced them to revise their plans yet again. She’s taken a more relaxed approach, mostly letting employees decide when they want to return. This may sound warm and fuzzy, but it’s also a weapon for recruiting and retaining talent. Her team has been fielding inquiries recently from executives looking to defect from rivals including JPMorgan Chase & Co. and Goldman Sachs Group Inc.
“I want to crush the competition,” Fraser says, sipping her coffee. The first woman CEO of a top U.S. bank makes it easy to forget she’s assumed one of the toughest jobs in global finance right now. Citigroup’s stock price is languishing below the levels it notched just a bit over three years ago, even as some of its U.S. competitors’ shares sit near record highs. The Scotland-born 54-year-old says she has a plan to reshape the bank, starting with its wealth management and global consumer businesses.
Fraser is trying to turn around the original banking behemoth—one investor think has grown too complicated, with the wrong mix of businesses and a lot of baggage. Although it has roots going back 210 years, the modern Citigroup was bolted together in the 1990s by Sanford “Sandy” Weill, who persuaded Congress to repeal the Depression-era law that had separated federally insured deposit-taking banks from riskier Wall Street businesses. Then, in true Titanic fashion, Citigroup showed why that’s dangerous. Slammed by losses tied to bad mortgages and other distressed holdings in 2008, it required more U.S. taxpayer support than any other bank in the financial crisis. In 2009 its stock price dipped below $1. Even now, the shares trade is 86% lower than 15 years ago.
Of the six major Wall Street banks, Citigroup is the only one trading for less than the net value of its assets per share, a common measure of a bank’s worth. Even so, it’s a formidable player. It operates in more than 160 countries, moves $4 trillion in payments a day, and houses the world’s largest credit card issuer. Regulators deem it one of the three most systemically important banks on the planet, so it’s not only investors who have a stake in Fraser getting Citigroup’s house in order.
Citigroup former employee pension
Citigroup’s problem is that it doesn’t generate profits commensurate with its size. Fraser’s predecessors had to spend much of the decade after the crisis whittling down an $800 billion pile of bad and unwanted assets. By the late 2010s, Citigroup was “slowly but surely” catching up with its rivals in profitability, says Chris Kotowski, an analyst at Oppenheimer & Co. “Then Covid just knocked them back to square one again.” The bank’s credit card business has hindered results, for a counterintuitive reason: Thanks to government efforts to keep the economy alive, people were able to pay down balances even as lockdowns caused them to spend less. Citigroup also has a smaller branch network than JPMorgan and Bank of America, so it struggled to keep up as they soaked up deposits from consumers.
Wall Street’s gold standard for measuring how much a bank earns with every shareholder dollar, known as return on tangible common equity, was a mere 6.9% at Citigroup last year. JPMorgan achieved 14%. The No. 1 thing shareholders want to see, according to Fraser, is “closing the return gap with our peers and focusing more on higher-returning businesses.”
She has little room for error. The bank is in the midst of a years-long campaign to shore up its internal systems and data programs that will end up costing it billions. Last year the Office of the Comptroller of the Currency and the Federal Reserve singled out Citigroup for “longstanding” failures in its risk management and controls. In addition to fining the bank $400 million, they ordered it to take steps to fix the problems. The bank also has to seek approval from the OCC before making any acquisitions. Citigroup’s dysfunction was on display last year, when employees at the bank mistakenly sent almost $1 billion to Revlon Inc. creditors, an error that wasn’t cited by the regulators but has resulted in a lengthy and embarrassing public court battle to recover the funds.
Citigroup former employee pension
Like every CEO right now, Fraser also has to deal with the more immediate challenge of managing a totally disrupted workplace. The first inkling that Fraser might do that differently than other Wall Street bosses came just days after she took the job in March when she promised that most of the bank’s staff would be able to work from home at least two days a week on a permanent basis. The news sent shock waves through Wall Street. JPMorgan’s Jamie Dimon and Goldman Sachs’s David Solomon had been turning up the volume on their desire to see all of their workers return.
Fraser didn’t stop there. She’s also letting employees rewrite their schedules. It’s fine, she says, if people want to knock off early to pick up their kids from school and log on in the evening to finish their work. “Maybe see your kids or avoid a particular time of commuting that’s hellacious,” she says. That’s a huge shift for Wall Street, known for requiring 100-hour workweeks of its junior bankers and boisterous trading floors that have historically had mostly male staff. Citigroup is essentially embarking on the industry’s first case study to see whether a completely different approach will work—for everybody. “The number of dads that came up and said, ‘It’s so neat because I can work from home and therefore I can get to the kid’s school play.’”
The bank is closely monitoring how people respond, and so far there’s no sign they’re slacking off. “You can see from the output,” Fraser says. “It’s refreshing because you get rid of some old anachronistic cultures or ways of doing things and you unleash this energy.”
One place Citigroup hopes to see some new energy is in its wealth management business. Citigroup’s sale after the financial crisis of its Smith Barney brokerage to Morgan Stanley marked one of Wall Street’s most heralded transformations—for the buyer. “It’s unfortunate they had to sell Smith Barney,” says Kotowski. The deal launched rival Morgan Stanley’s ambitious expansion into wealth management and advice for affluent individuals, giving it a stream of steady revenue and sending its stock soaring; its recent purchase of Eaton Vance Corp. for its asset management business is an attempt to bolster that bet.