Citigroup Inc. 2026 Q3 Earnings Call

Thank you, operator. Good morning, and thank you all for joining our third quarter 2026 earnings call. I am joined today by our Chair and Chief Executive Officer, Jane Fraser, and our Chief Financial Officer, Gonzalo Luchetti. I'd like to remind you that today's presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. With that, I'll turn it over to Jane.

Thank you, Margo, and good morning to everyone. This morning, we reported net income of $5.2 billion for the third quarter, with an EPS of $2.85 and an ROTCE of 11.5%. Our returns improved meaningfully in services, banking, wealth, and U.S. Consumer Cards. The firm's ROTCE grew by 180 basis points over last year, and our net income was up 17%. With revenues up 8% year-over-year, we delivered our best third quarter revenue in a decade, and we saw revenue growth in four out of our five businesses. As previously shared, we pulled some of our planned investments and severance into this quarter. We remain very intentional around our expenses and our investments in talent and technology. Even with this pull forward, we delivered positive operating leverage, holding expense growth to 3%, excluding last year's notable item.

Our overall performance continues to demonstrate the disciplined and consistent execution of our strategy. Now let's go through our five businesses. This was another standout quarter in services, with revenues up 15%. Growth was broad-based across every driver, from deposits to commercial card spend, and we saw continued momentum in trade loans and cross-border activity across the network. We continue to lead through innovation, bringing new real-time capabilities to our clients with the launch of Citi Token Services in the UAE and Japan and the introduction of Custody+. Assets under custody and administration grew by 16%, and we are laser-focused on winning and onboarding further new mandates. In markets, revenues were up 6%. Equities revenues were up 14%, driven by our performance in prime and in Asia, where we have been investing to gain share. FIC was up 4%. Rates was pressured by the trading environment, but we saw good growth in FX and spread products, both stable revenue streams.

In banking, revenues were up 6%. We performed particularly well in ECM, where we played meaningful roles in the six largest transactions of the quarter, including leading SK Hynix, the largest-ever IPO of an Asian-based issuer. In leverage finance, we led SoftBank's $11 billion high-yield offering, the largest ever of its kind. I am proud of these wins and how our client relationships and bankers, including the new talent we have attracted, allowed us to land these mandates. As you've seen this quarter, we are continuing to invest responsibly in high-quality talent to build on our strengths and fill identified gaps in our franchise. Wealth's performance continues to steadily improve, with growth across all three businesses. ROTCE was over 14%, significantly higher than last year.

We brought in $38 billion in net new investment assets this quarter, up over 100% from a year ago. We continue to launch new offerings, such as Premium Boost, to deepen client relationships and are seeing strong uptake of our wealth offering by our retail bank clients. In U.S. Consumer Cards, revenues were flat as a result of higher partner payments. At the same time, our general purpose portfolio drove 6% growth in total average loans. We're increasing investment in this business both through our deep relationships with key partners and differentiated rewards for our customers, as you saw with the acquisition of Kard. With returns of over 21% in the quarter, this is already a very attractive business and the benefits of our investments will continue to scale over time.

In legacy franchises, we closed on the sale of a 1.4% equity stake of Banamex, bringing the total amount divested so far to 49%. We're now busy preparing for Banamex's deconsolidation from Citi next year. The IPO would happen after that when market conditions allow and when the usual regulatory requirements are met. At that point, our international consumer divestitures will be nearly complete. Turning to capital, we returned over $4 billion to our shareholders this quarter, including $3 billion in share buybacks. We have also utilized about 900 million of our disallowed DTAs so far this year, slightly above the path we discussed at Investor Day in May. Our tangible book value per share rose 6% to $101.59. Our CET1 ratio stood at 12.8% and remains about 120 basis points above our current regulatory minimum.

Now, I know that the opportunities and risks that AI presents are on everyone's mind. Our transformation has modernized our core technology platform, giving us the foundation we need to implement AI firm-wide. As I've said before, we're approaching AI through four lenses. How it can help us grow, how we can deploy it to operate more efficiently, how we can teach our people to use these new capabilities, and how we can strengthen our defenses given the enhanced threat environment we and our clients face. I've talked frequently in the past about what we're doing on the first three, and we're excited about the top-line benefits and the efficiencies we are delivering, and the many opportunities to do more for our clients. But let me spend a minute on the fourth lens. Our cyber defense strategy is about being on the front foot, about moving fast and retaining trust.

We don't wait for risks to happen. We're constantly preparing and improving our defenses. We're in the business of managing risk every day, and this is no different. We've been hardening our systems and running challenging and disruptive scenarios to stress test our defenses and our responses. We then modify our playbooks based on what we've learned, so we're ready before an event occurs, not after. We're focused on our resilience and working with our peers and regulators on reducing systemic risk, even as we deploy AI to improve the performance of our firm. Finally, on the macro environment, conditions did soften a bit during the third quarter. While various headwinds, most recently higher energy prices and tighter monetary policies, have been challenging, the global economy has held up remarkably well.

In the U.S., whilst much has been made of the AI boom, the consumer is still driving much of the growth, the labor market is stable, and companies remain active. Our near-term economic outlook remains positive. China is seeing similar benefits from AI, but without the consumer spend needed for balanced growth, and so their economy leans heavily on exports. Europe remains structurally challenged. That backdrop is exactly why clients are leaning on our network. They're engaged, and they are healthy, as you will see from our credit numbers. They're open to strategic opportunities whilst being keenly aware that there could be more disruptions ahead. Our focus is on delivering our network and providing the intellectual firepower to help them compete more effectively, raise capital, or manage their supply chains. They know we will be at their side no matter what environment they face.

This quarter was another proof point of our consistent execution and delivery in the face of a dynamic environment. In terms of the journey ahead, as you know, we expect to exceed this year's ROTCE target of 10%-11%, even as we pull forward the investments to support our near-term target of 11%-13%. These are simply the next waypoints on our path to reach 14%-15% in a sustainable manner, which we will do. With that, let me turn it to Gonzalo, and then we would both be delighted to take your questions.

Thank you, Jane, and good morning, everyone. I'm going to start with the firm-wide financial results, focusing on year-over-year comparisons unless I indicate otherwise, and then review the performance of our businesses in greater detail. On slide 4, we show financial results for the full firm, which demonstrate the progress we've made and the momentum of our strategy. This quarter, we're reporting net income of $5.2 billion, EPS of $2.85, and ROTCE of 11.5% on $23.8 billion of revenues, generating positive operating leverage. Total revenues were up 8%, driven by growth in services, wealth, markets, and banking, partially offset by a decline in all other. Net interest income, excluding markets, which you can see on the bottom left side of the slide, was up 7%, driven by growth in services, wealth, and U.S. Consumer Cards, partially offset by declines in all other and banking.

Non-interest revenues, excluding markets, were up 12%, driven by growth in all other, services, banking, and wealth, partially offset by a decline in U.S. Consumer Cards. Total markets revenues were up 6%. Expenses of $14 billion were down 2% on a reported basis, with an efficiency ratio of 58.5%. Excluding the impact of the $726 million Banamex goodwill impairment notable item from the third quarter of last year, expenses were up 3%. Cost of credit was $2.6 billion, which included a firm-wide net reserve build of $369 million. Looking at the firm on a year-to-date basis, we generated positive operating leverage and an ROTCE of 12.6%. On slide five, we show the expense and efficiency trend over the past five quarters.

As I just mentioned, excluding the impact of the notable item last year, expenses were up 3%, primarily driven by higher transactional and product servicing, deposit insurance costs, and compensation and benefits, partially offset by lower professional services expenses. On a year-to-date basis, we have recognized over $1 billion of severance, largely across functions, technology, and operations as we continue to drive structural efficiencies and bring down transformation expenses and stranded costs to create capacity for business growth. On slide six, we show U.S. cards and corporate credit metrics. At the end of the quarter, we had over $22 billion in total reserves, with a reserve to funded loan ratio of 2.5%. Our reserves incorporate an eight-quarter weighted average unemployment rate of 5.3%, which includes a downside scenario average unemployment rate of nearly 7%.