Citigroup's Corbat faces tense analyst questions as he approaches exit

[NEW YORK] CITIGROUP Inc's outgoing chief executive came under fire on Tuesday for mistakes that have led to regulatory penalties, with analysts questioning his pay and why he is not leaving immediately in a conference call to discuss quarterly results.

In unusually direct exchanges, analysts pressed chief executive Mike Corbat to explain what management is doing to fix technical and operational problems that have plagued Citigroup for years and led the bank to erroneously send US$900 million of its own funds to Revlon creditors in August.

That blunder led to costly litigation between Citigroup and the recipients, as well as regulatory consent orders, a US$400-million penalty and lots of embarrassment. Last month, Citigroup announced that Mr Corbat would retire earlier than expected, to be replaced in February by Jane Fraser.

Several analysts asked why Mr Corbat did not make more progress in overhauling creaky technology or generating better returns for shareholders during his tenure. They also criticised what they described as a lack of accountability, noting that executive compensation should be better tied to risk management and shareholder returns.

"Where is the sense of urgency?" Wells Fargo analyst Mike Mayo asked Corbat. "Why not step aside now?"

Mr Corbat described steps Citigroup is taking to repair issues identified by the Federal Reserve and Office of the Comptroller of the Currency, and defended the progress Citigroup has made since he took charge.

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When asked how much the overhaul might ultimately cost, chief financial officer Mark Mason said it would be "hard to pinpoint a number" beyond the US$1 billion Citigroup is spending this year.

Citigroup shares closed 5 per cent lower at US$43.68 on Tuesday. The stock is down more than 45 per cent so far this year while the KBW Bank Index has fallen 31 per cent. Earlier in the day, Citigroup detailed a 34 per cent decline in third-quarter profit as the coronavirus recession hurt its consumer bank. Its net income of US$3.2 billion, or US$1.40 per share, still topped analyst expectations of 93 US cents per share. But the results were weaker than crosstown rival

JPMorgan Chase & Co, whose quarterly profit rose, and Citigroup's management offered a bleaker outlook. "We are expecting a somewhat more muted and slower recovery in both unemployment and GDP through 2022," Mr Mason said.

Citigroup added about US$314 million to credit loss reserves in the quarter, compared to the US$15 billion it had set aside in the first half of the year. Revenue in North American branded cards, the growth engine for Citi's consumer bank going into the year, fell 12 per cent as its credit card customers closed accounts and spent less.

The bank, one of the largest credit card issuers globally, said end-of-period open accounts across its portfolio dropped by 4 per cent, or more than 5 million, and purchase sales slid 10 per cent. Citi's trading business was a bright spot, with a 16 per cent jump in revenue helping to offset consumer weakness.

Ms Fraser, who was not on the call, has said that overhauling risk management and internal controls will be her priority. Analysts will probably get a chance to engage with her on the next quarterly call, Mr Corbat said.

Regulators have curtailed Citigroup's ability to make significant acquisitions until its operational issues are fixed. Similar problems caused Citigroup to fail or barely pass its annual stress tests in prior years. Shareholders are concerned that the consent orders and US$400 million fine are only the beginning of regulatory fallout for Citigroup, said Bank of America analyst Erika Najarian. She likened the situation to scandal-plagued Wells Fargo & Co, which has faced a long series of fines, lawsuits and regulatory penalties since its phony-accounts scandal began unraveling in 2016.

Mr Corbat said the two situations were not comparable because, unlike Wells Fargo, Citigroup did not dupe customers or seek to profit from the Revlon error. Instead, it lost money. "No fraud, no customer harm, no benefit around that," he said.

REUTERS