Analysis-withdrawal Citigroup’s Russian roots remove one obstacle for the CEO, but difficulties remain.

New York CEO Janne Fraser, who has been at the helm of Citigroup Inc.For less than two years, has announced intentions to depart Russia in an effort to reduce hazardous assets and eliminate consumer businesses in 13 other countries in order to concentrate on global corporations and the rich.

Analysts and a significant investor agree that despite the company’s progress in the right direction, the first female CEO of a major Wall Street bank confronts a massive turnaround endeavour.

Two years ago, a transfer of about $900 million to the lenders of troubled cosmetics company Revlon went wrong. This makes it even more important for U.S. authorities to get Fraser to change how it handles risks.

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To increase medium-term returns, she must also streamline Citigroup’s business structure and capitalise on its competitive advantages with a core set of institutional and retail clients.

Analysts are worried that the bank may not be able to meet its short-term goals if it spends more on investments at a time when the economy is getting worse.

Nonetheless, some investors remain patient with Fraser’s aim to make the bank more agile by focusing on its Treasury and Wealth Management sections, which benefit from the company’s worldwide network. Fraser has said that she wants to grow the company’s business with international corporations that do business across borders as well as with wealthy people.

“We like Jane a lot. Joe Pittman, an analyst at activist investor Harris Associates, which is Citi’s sixth-largest shareholder, said, “We think she is a change agent who has laid out a very reasonable plan that we’re sure she can carry out over time.”

He stated, “The firm is tremendously undervalued.”

According to Refinitiv data, Citigroup shares trade at 0.5 times price-to-book on a forward 12-month basis, which is substantially below the banking sector average of 1.07 times. JPMorgan trades at a price of 1.24 while Bank of America  trades at a price of 1.04.

Citi wouldn’t say anything about its long-term plans other than to talk about Investor Day in March and other investor events.

When she took over from Michael Corbat, who managed the bank from 2012 to early 2021, Fraser faced a laundry list of long-standing difficulties. This year, economic sanctions against Russia forced Citi, the biggest Wall Street bank with a presence there, to wind down its operations there instead of selling them.

Mike Mayo, a banking analyst at Wells Fargo, said that Citi’s decision to leave Russia was “good riddance,” but he also pointed out that a buyer would have been better.

TURNAROUND

Fraser was a Citigroup star for a long time before she became CEO. As a former partner at the consulting firm McKinsey, she joined Citi in 2004 and helped the business recover from the 2008 financial crisis after it was bailed out for $45 billion. Fraser spent several years moving up the executive ladder. First, he was in charge of Citi’s private bank. Then, he was in charge of Citi’s business in Latin America and its business with consumers.

“You must now apply this turnaround expertise to Citi as a whole,” Barclays analyst Jason Goldberg advised . “This will not occur overnight.”

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Peter Nerby, senior vice president of the financial institutions group at Moody’s. Investors Service, who maintains a stable outlook for the bank, believes that Fraser’s focus on building a “simpler, more stable bank” makes sense for investors. “The capital ratios are going up, and they have as much money as any other bank in the U.S.; they are flush with cash,” Nerby said. “I think bondholders are patient,” he added.

U.S. banking authorities’ directives to reform the company’s risk management procedures may necessitate patience as one of the company’s greatest hurdles. In 2020, the Federal Reserve told Citi to fix “longstanding inadequacies” in its internal controls, and the Office of the Comptroller of the Currency (OCC) fined the bank $400 million.

A financial expert who didn’t want to be named said, “Not many institutions are going through this kind of trouble.”

Citi is increasing its expenditures on technologies it can employ to assess its risks and prevent future errors. Karen Peetz, who joined Citi in 2020, is the program’s leader. Last year, Citigroup presented its plan to regulators, outlining how it will fulfil the consent orders, which the firm announced in March. Peetz stated at the time that it was imperative to refine and execute the strategy swiftly. There are various tasks they must complete. These include complying with consent orders, which may be costly and time-consuming, increasing the ROTCE (return on tangible equity), and completing the divestitures, according to Goldberg of Barclays. The greatest danger would be a more difficult economic environment than expected. As the Fed raises interest rates to fight off too much inflation, Federal Reserve Chairman Jerome Powell said this week that Americans are in for a hard time with slow economic growth and possibly more people losing their jobs.

A faltering economy might present another obstacle for Fraser, who has demonstrated a willingness to confront issues head-on.

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During the second-quarter results call in July, Fraser stated, “When I think about Citi, we’re prepared for a wide range of possibilities.” “And what does it matter for a bank entering a recession? reserves, capital, liquidity, and credit quality. “And we are quite pleased with all four of them.”