Wall Street analysts are betting that Citigroup will miss a critical long-term target, increasing pressure on Chief Executive Jane Fraser to prove that her sweeping overhaul will succeed in transforming one of America's largest banks.
Analysts expect City To reach a return on tangible common equity – a closely watched measure of profitability – of just over 9 per cent next year, well below Fraser's 2022 target of reaching 11 per cent to 12 per cent by 2026. , FactSet data shows.
The Gulf highlights how to reform Freezer Since taking over as CEO four years ago, he has yet to revive the third-largest U.S. bank by assets, which has struggled to find its footing since coming close to collapse at the height of the 2008 financial crisis.
“We believe that if (Fraser) doesn't show real progress relatively soon, she will be forced to give way to someone who can,” Chris Kotowski, an analyst at Oppenheimer, wrote in a note to clients on Friday.
Doubts about whether Citi can boost revenues and cut costs enough to meet its profitability target have left its shares, even after rising by more than a third last year, trading at about 30 per cent below book value. This compares to an average premium of 40 percent for the 24 large banks that make up the KBW Bank Index.
Citi will announce fourth-quarter earnings next week. The bank is expected to turn profitable from a loss in the last three months of 2023, but the bank's return on tangible equity is expected to be only 5.6 percent. Citi declined to comment on analysts' expectations.
While analysts expect Citi's return on tangible common stock to rise to 9.4 percent by the end of 2026, rivals JPMorgan Chase, Bank of America and Wells Fargo are expected to record 17 percent, 15 percent and 14 percent, respectively, according to FactSet. . Although Citibank lags behind its rivals in terms of return to tangible stocks, about 70 percent of Wall Street analysts gave the bank a “buy” rating.
“The implications for Jane are as broad as they can get,” said Mike Mayo, an analyst at Wells Fargo, who recently predicted that Citi would reach its return on its tangible equity target, but not before 2027.
“If Citigroup can't achieve a double-digit return, it is a failed CEO, but if it gets there, it will be viewed as a turnaround legend on Wall Street.”
James Hollier, whose firm Silver Beech Capital sold its entire stake in Citi in early 2024, said Citi's share price — now just over $73 — suggests investors have lost confidence in Fraser's plan.
“The market is in the 'show me' camp with Citi at about $70 a share,” Hollier said. The stock “will be above $100 if investors believe Jane's goals.”
“There will be a greater focus on results in 2025,” said Brian Mulberry, portfolio manager at Zacks Investment Management, which owns Citi shares.
He added: “I don't think it's just one goal, but if there's a series of goals that City miss, I think Fraser will have a problem.”
Fraser, a Citi veteran and former McKinsey partner, sought to achieve a profitability goal by streamlining the sprawling bank. Citi has exited consumer banking in 13 countries, including China, India and the UK.
Fraser also flattened Citibank's management structure, reducing seniority levels from 13 to eight. It refocused the bank around five core businesses, as well as its mission to attract the world's largest companies and wealthiest individuals to become clients.
“We're on a deliberate path,” Fraser told analysts on an October earnings call. “We are making the progress we need and we are actually very excited.”
