Hello, and welcome to Citi's Fourth Quarter 2021 Earnings Review with the Chief Executive Officer, Jane Fraser; and Chief Financial Officer, Mark Mason. Today's call will be hosted by Jen Landis, Head of Citi Investor Relations. [Operator Instructions] Also, as a reminder, this conference is being recorded today. [Operator Instructions] Ms. Landis, you may begin.

Thank you, operator. Good morning, and thank you all for joining us. 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 SEC filings. With that, I'll turn it over to Jane.

Thanks, Jen, and happy New Year, everyone. I am delighted to join you again today. Well, we've been busy, and we have a lot to talk about today. I'm going to start with an update on our strategy refresh. Then I'll share my thoughts on our fourth quarter and end on all the progress that we've made against our major priorities. As you saw earlier this week, we announced that we intend to focus our franchise in Mexico solely on our institutional and wealth management businesses, and therefore, to exit the consumer small business and middle-market banking operations there. This was not a decision we took lightly. We took a clinical look at our franchise in Mexico, and we drew the hard conclusion that the noninstitutional businesses do not fit our new strategic direction. Now to be clear, these are terrific, they're scaled, high returning franchises. But our strategic goal is to invest in businesses that are fully aligned with our core strengths and to simplify our firm. As we did the work, it was also clear that there continues to be a tremendous opportunity for our Institutional Clients Group in Mexico. Citi is Mexico's leading institutional bank. We've served corporate clients and investors there for almost a century, and that isn't going to change. Mexico has a bright future, and we are committed to playing an important role in building it. We expect Mexico will be a major recipient of global investment and trade flows in the years ahead. Therefore, we plan to maintain a significant, locally licensed bank there and invest to capture growth in a core and high-returning hub of our institutional network. This won't be a simple transaction. We have spent the last several months working through how to get the best results for our shareholders…

Thanks, Jane, and good morning, everyone. We have a lot to cover on today's call. I'm going to start by walking you through the financial reporting changes we plan on making in more detail. Then I'm going to walk you through the 2021 financial impact from the 13 Asia market exits as well as Mexico, and changes we are making to our financial disclosure. And then finally, the quarterly results. As part of our strategy refresh, we've started to make changes to better align with our vision and strategy. We refreshed our earnings presentation and included additional metrics and key drivers for the ICG businesses. Our goal is to simplify our financial reporting to make it much easier for our investors to understand our performance and our key assets. Turning to Slide 4, we lay out the details of the changes in the financial reporting that Jane mentioned. First, we intend to move the consumer, small business and middle market banking operations of Citi Banamex, and the 13 Asia consumer exits under a new segment called Legacy Franchises. This will allow you to better understand the financials of the remaining company that will exist post these exits. We've experienced managing businesses being divested and are putting a dedicated team in place to manage the new segment. This will free up the management teams of the go-forward businesses to fully focus on executing on the firm's strategy. Second, we are reorganizing our reporting units to help you better understand the financials of our businesses and the value they bring to Citi. Starting with ICG, we will move TTS and security services to a reporting unit called Services. These businesses are foundational for us as they have a unique position given their global footprint and full suite product offering. Markets will, therefore,…

[Operator Instructions] Your first question is from the line of John McDonald with Autonomous Research.

Good morning. Mark, thanks for the - all the detail there, and Jane, for the strategic update. Mark, I wanted to ask if you could just go over the restatement of the net interest income sensitivity. Just want to make sure we caught that. What's the difference that's driving the new presentation there? And just what are the key drivers for your net interest income outlook this year? You might not have to give a number, but kind of when you think about trading and then core NII card growth, maybe some of the thoughts there. Thanks.

Sure. Thank you, and good morning, John. So on Slide 9 is where I kind of covered that. You will recall, John, that historically, we have looked in our disclosure at a run-off balance sheet. And that obviously has deposits running off as they term out, that has loans running off as they mature. Others take an approach where they look at a static balance sheet, right? And so we've run the analysis around assuming a static balance sheet and assuming a 100 basis point parallel shift in a rising rate environment, obviously, across all currencies. We obviously have a mix of U.S. dollar and foreign currencies as well. And when we run that analysis, now assuming that the balance sheet is static, that is the deposit levels, loan levels, et cetera, that delivers 3x more than what we disclosed in the Q -- in the third quarter. So that's the $2.5 billion to $3 billion of net interest income. So obviously, retaining -- or assuming that the deposit levels stay the same, allow us to generate more net interest income and that's a major driver in the number range or the range that I provided. In terms of…

Got it.

Sorry?

Yes. That’s helpful.

Great. In terms of the forward look, I'm not going to give you guidance, as you mentioned. But I think there are a couple of things that are important to keep in mind that we're looking at for 2022. One is the drivers that we mentioned earlier. So a lot of the underlying drivers in our franchise look very strong and are driving healthy fee revenue growth. And I would expect with an outlook for positive GDP that, that's going to continue to play to our advantage in 2022. The second thing I'd point out is the assumptions around interest rate hikes in 2022. I have many as three or four depending on the economists' view that you listen to. And that obviously is going to play to our favor as well when you think about the number of accrual businesses that we have, whether it's our TTS franchise, or our private bank, et cetera, et cetera. So those are important factors that impact the top line, and that we expect to help contribute to some growth coming out of 2022. I mentioned the loan growth on the branded cards portfolio. For cards, it's really going to be about payment rates. I mean, how they taper off – hopefully, taper off. They've been stubbornly high through all of 2021. So hopefully, we start to see some of that taper off and we get a little bit of growth in average interest-earning balances in the back half of the year, but those are important factors that need to play through into 2022.

Okay. Great. And then just as a follow-up, as you're managing capital, you mentioned you'll return to some level of buybacks this quarter, and you've got a lot of capital that you expect to free up in transactions that haven't happened yet. So I guess, how are you kind of thinking about that, that future capital is something that you'll deploy as you get it? It's part of your long-term thinking, but you're not planning on using that throughout this year, I assume?

Yes. So obviously, we look at capital planning with a -- in the context of our strategy and our ability to actually deploy that capital, but to return as much excess capital as we can to our shareholders. And so as we think about the divestitures, which are underway as that capital frees up, we're going to factor that into the capital plan for the year and the quarter. And where we can, we're going to return that to shareholders. So a number of deals are scheduled to close in 2022. That will be part of our plan, and we'll be looking forward to taking those actions in the outer part of the year.

Your next question is from the line of Mike Mayo with Wells Fargo Securities.

Hi. For you, Jane, and I'm going to re-queue after my two questions, I got so many. But thank you for the new presentation. But the biggest question that I and, I think, many investors have, is when all is said and done, who is Citigroup? What's the most simple statement you can give on who and what Citigroup represents?

All right. I love that question. So I would say that our vision for Citi is to be the preeminent bank for institutions with cross-border needs. We'll be a leader in -- global leader in wealth, a major player in consumer payments and lending in the home market. And that is future Citi and our vision for it. It's simplified, more focused. It's much better connected. It's certainly simpler to operate, characterized by culture of excellence and accountability. And I think as I hope we've shown today, one that should be easier for everybody to understand and fully aligned with our shareholders' interest.

And along those lines, are you freeing up what, about $11 billion of capital now? And intentions -- Mark, I always hear you say you're going to invest in the business, you're going to do supply for growth and then you're going to buy back stock. But in terms of a stock price that's this low, I mean, the stock price relative to the financial index is one of the all-time lows. Wouldn't you move buybacks up in the priority order? Or what else can you do or say to show that shareholders matter? Jane, I mean, you've done so much on the E side. You certainly have done a lot on the S side. But the G in ESG, when it relates to shareholders, shareholders have been left back for so long. Just seeing what else you might be able to do or say as it relates to recognizing shareholders and their desire to have a stock price that does better?

Our shareholders are an enormous priority for us. And Mike, I know we need to make the bank more shareholder-aligned and friendly, and we are doing so. So let me give you four examples. Our strategy will generate and we will return excess capital to shareholders. And as you say, given where the stock is trading, it makes buybacks highly attractive. Second, we're taking the structure and strategic decisions to put the bank in the best position to drive shareholder value. And you can see we're executing and we are delivering with urgency, and we're very driven to get the valuation in a far higher place than it is today. Third, we're changing many elements of the financial reporting that's easier for our shareholders to understand the bank, and we're going to be as transparent as possible, so you can measure our progress and results. And I think the structure that Mark laid out and I gave a high level on, it will make that job much easier. And then finally, and a topic I know you've been quite vocal around, we are also making changes to compensation. So more of our senior business leaders will be on the PSUs for this coming year. We've moved to 100% deferred stock versus a mix of stock and cash in the geographies that we're permitted to do so. And we're increasing the importance of returns in determining performance evaluations. There is a myriad and rounds of different actions that we're taking because our shareholders matter to us. And we want to get our valuation up to one that we think has -- realizes its full potential

Your next question is from the line of Glenn Schorr with Evercore.

I'm going to turn on just for the sake of your answer. I personally love the management teams are buried in the stock that they asked investors to invest in. To be a leader in all those areas that you want to be in [indiscernible] question, you spend a lot to keep up. And so my question is, how do you balance doing all that and both in profitability gap with spending enough and feeding your franchises to the leaders and yet to be extensive front, it seems like so hard of just what the [indiscernible] you thought.

I have to apologize. You broke up through much of that question. Would you mind just repeating the tail end of it. There's a lot of static on the line here. Say a little bit more. We're getting a lot of static, should we come back?

Sure thing.

Your next question is from the line of Betsy Graseck with Morgan Stanley.

So a couple of questions. One, just thinking through the walk from where you are today in CET1 until end of the year when you mentioned you'd be ending the year at 12%. You have some businesses that are exiting, which should reduce RWAs, I would think. But then you've got the buybacks as well coming through. And at the same time, I would expect that you'd probably want to grow your RWAs? I know your RWAs were down 5% Q2 and maybe that was part of the reason why [SACR] was a little light. So could you help me understand just how we should think about that trajectory and the drivers of that CET1 change, because it will have some impact on how we're thinking about the rev growth in the markets business.

Yes. Good question. So we are looking at, obviously, how we continue to invest in the franchise, particularly where there are areas of growth. At the same time, ensure that we're delivering buybacks or share -- return to shareholders. As I look at the CET1 ratio, we're ending the year at about 12.2%. As you know, SACR kicks in -- or has kicked in on January 1. We're ending therefore, on January 1 at roughly around where our target is. And over the course of the year, we'll be able to absorb growth in the businesses where there is a need to do that while continuing to identify offsets to both SACR but also low-returning assets that we may have and ridding ourselves of those and generating income as well as the capital from the divestitures that we will be able to close throughout the course of the year. And so as we look at that plan, the start of the year, which is close to our target, towards the end of 2022 we will have to build that back up to about 12% in order to absorb the GCIB headwind, assuming there's no relief provided to that, which then kicks in at the beginning of 2023. And so through the course of the year, we'll utilize through RWA, we'll free up capital and return capital to shareholders. We'll generate more earnings. But at the end of the year, we'll need to kind of end on the higher end or towards that 12%.

Do you have a sense as to how much the benefit to like GCIB or SCB should be from all the divestitures you're doing? I was actually thinking when I saw the Mexico news this week that maybe that was one of the reasons why you decided to put -- to exit the Mexico consumer business is potentially the pickup that you get since you mentioned it makes you a simpler company and that should feed into CB, I would think. .

It's not a major driver as to the decision, as Jane has kind of framed out. But it is -- but it does factor into the points that you've raised. So from a GCIB point of view, there's, I don't know, $31 billion or so of deposits that are tied to our Mexico consumer business. That would drive about 10 basis points or so, or 10 points I should say, on the GCIB score. The total for the divestitures that were -- that we've earmarked, it's about $85 billion in deposits. And so you can do the math that we'd get some benefit from that. You're right, and I don't have numbers that I would share at this point, but -- and in part because the Fed has to run their analysis. But you're right, from a CCAR point of view, when you think about the stress capital buffer, there's an impact to PPNR, but more importantly, to stress losses that will play through as well. As you know, that impact as well as the deposit impact won't really come into play until we've closed on these transactions. But it certainly is a factor to how we think about the longer-term capital planning. And it certainly is something that I'm going to talk more about at Investor Day on March 2.

Okay. And the low-returning assets that you were talking about exiting, is that like that's basically something like rates and the fixed income business? And should we expect some impact there? Or again, I'm just trying to tie together the 5% decline in RWAs in the comment that fixed income business was a little light this quarter. .

Yes. Yes. There's -- I'm not looking to be specific on where the low-returning assets we're getting out, but we're certainly looking at our markets franchise to see where those low-returning assets exist, as well as to see where their client relationships that are single product and don't necessarily link across the franchise. And so this is something that Jane and I, along with Paco are keenly focused on. We realized that while we've seen growth in markets and in FIC, it has come with growth in the balance sheet, and we want to make sure that we're optimizing the use of the capital.

Your next question is from the line of Erika Najarian with UBS.

My first question is for Mark, please. And by the way, thank you so much for this new way of disclosing financials, I think this will be very helpful, and the NII sensitivity as well. I know we're going to get a lot more detail in March. But as we think about the expense base that would be remaining post the exits you've identified, could you help us get a sense of how much more growth would there be left in the remediation-related expenses, how aggressive do you plan to be in terms of investment spend in 2022? And do you think you've identified enough inefficient expenses within the franchise to help fund some of those -- both initiatives?

Yes, great question. I'm not going to give guidance on 2022, but let me try and frame out how we're thinking about it because I think it is important. Both Jane and I recognize that we've got -- a lot of static we're getting, excuse me. So in terms of the expenses, we obviously have a large expense base. We've seen growth play out this year. But I think there's some real opportunities over time to attack the expense base, and that's exactly what we intend to do. So if you think about the divestitures, I'll stop here for a second. There's some $6.8 billion of expenses tied to divestitures. As those divestitures get closed out, some of that will naturally go away. The balance of that, which tends to be referred to as stranded cost, we are already putting in place a team to focus on attacking and driving out that stranded cost. The second point that I'll bring up around this is the transformation. The transformation has driven 3 percentage points of growth this year. I do expect that there's more growth associated with that, particularly since we're still doing more hiring. There's more tech spend that will be required. But the transformation over time will deliver efficiencies, will reduce the manual touch points, will drive straight-through processing and therefore, will allow for us to bring our expenses down. And the final piece that I'll mention is the strategy. And so Jane mentioned in our strategy, a focus on core businesses. And that's going to allow for us to look at the organizational structure and identify more simplification opportunities in the way we manage and run the firm. We do about $300 million to $400 million of productivity savings a quarter. That's not enough. We think there's more opportunity for efficiencies than that. And it's those opportunities that we're going to chase down in order to fund some of this investment spend that we expect in the next couple of years. More on that at Investor Day.

Thank you for framing that. Jane, this next question is for you. When you responded to Mike's question about your vision of Citi, you led with your vision of Citi as the world's corporate bank, if I could rephrase. How has your vision of Citi -- what does it include in terms of your funding base? There's a lot of conversation, particularly in the beginning of a rising rate environment about the natural gap that you have to your largest U.S. peers with regard to your naturally higher rate deposits, right? And so how do you envision your funding base evolving over time? And do you have any interest in significantly building out your U.S. retail deposit franchise?

So Erika, we've got a pretty diverse funding base. When we look at it from the institutional side, we've got the #1 TTS franchise globally. And that has material funding from our -- for our -- from our cash management and dominant position in cash management there. Our wealth franchise, both from the ultra high net worth down to the affluent clients is also a source of material and very attractive deposits and funding for us. Obviously, we are making the exits on the international consumer banking front. And we've been focused in the retail bank in the U.S. in driving digital deposit growth and continuing to make sure that, that business generates a stable, low-cost funding for the firm here in the U.S. And we'll expect to continue growing that going forward.

Your next question is from the line of Mike Mayo with Wells Fargo Securities.

It was sooner than I expected. Just a follow-up on the compensation changes. Yes, that's good news that people are paying in stock instead of just cash and stock. But you had the new bonus arrangement. I did not think that was finalized. But as part of the new bonus arrangement based on the next 3-year financial targets, is that still all cash? Or is that cash and stock? Or is that stock?

I assume you're referring to the transformation award. Is that correct, Mike?

Yes.

Yes. So that one, it's -- while it's paid in cash for the first 2 pieces, the last 50% is pegged to our 3-year stock performance. And we felt that, that was the appropriate balance here. As we said, transformation is our highest priority. We need to successfully address the concerns raised, and that's 100% in our shareholders' interest. One of the pieces that's important in that is that we need to have collective accountability to succeed in addressing these concerns. The shift in our culture -- and this award is one that is therefore dependent upon shared success versus individual incentives here. So it's an important part of delivering. And of course, if we fail to deliver, the outcomes of the transformation and they're not successful in the execution, there will be no award.

And when will we -- I guess we'll find out about those targets at Investor Day, so answering that question. As it relates to PSUs, how much was given in stock cash before? And how many people will this apply to versus where it was before?

The PSUs are given to the executive management team, and now we're extending that to the broader operating team, which includes the leaders of our major businesses. And you'll see that information delivered in the proxy when we issue that in March. So you'll get all of that information at roughly at the same time.

Your next question is from the line of Ken Usdin with Jefferies.

Mark, I was wondering if you could just talk a little bit about the card business in aggregate, definitely starting to see a little bit of that balance. But I wonder if you could touch on, number one, like just how you're expecting that balance trajectory to go; number two, spend versus lend and how much you're seeing in that? And then three, just the losses are obviously just amazingly low, and how you would anticipate card normalization?

Yes, sure. So -- as I've mentioned before, I mean when you look at what's going on with cards across the board, we are seeing increases in spend volume. So branded card spend volume is up 24%. Retail services spend volume is up 16%. So very healthy spend volume. People are using our cards, which is a good thing. In terms of the liquidity that's still out there in the market, even though savings rates have started to normalize, there's still a significant amount of liquidity that's out there in the market. And that's showing up in payment rates in both branded cards and retail services and, frankly, in some of the international card businesses as well. And that has not subsided. And so we did start to see growth in branded cards loans. Average loans are up 3%, branded cards. The end-of-period loans were up 5%. What matters a lot when you come out of a crisis like this is how you reinvest. And so we've spent a lot of time focused on targeting new customers and driving new account acquisitions. Our new account acquisitions are up 43% in branded cards. And we've been also driving that just generally across the board in retail services as well. So getting a good -- a very good response in terms of new accounts coming on board. We've also been focused on how we drive installment lending activity, just kind of to broaden the lending that we're doing with this customer base, and we've seen significant growth in our Flex Loan and Flex Pay products as we've targeted customers who have historically been transactors to really move them onto that product. So very good growth there. In fact, in 2021, we've not only gotten the growth just in aggregate. But if I look at kind of installment lending, we've got 90% of the total installment sales are in digital sales, which is another kind of low-cost acquisition approach that we've taken. So good underlying indicators there. But again, it's not until payment rates start to subside we would expect, hope that, that would start to show up towards the back half of 2022. In terms of the losses, which was the other part of your question, very low loss levels. You heard me mention the delinquency rates earlier. When I look at -- well, the loss rates earlier, when I look at delinquency trends, there's really nothing to focus on there. They remain quite low. And we don't see any signs or any areas of concern, I would say. But I would imagine those 2 would start to normalize as payment rates start to come down.

Great, Mark. And then just a follow-up. You mentioned the record -- or the strongest quarter in advisory in a while. I was just wondering if you could just comment broadly on investment banking pipelines across the product groups.

Yes. The investment banking pipeline looks very strong. We ended the year with significant growth in advisory, up 146% year-over-year, well above the wallet. We've grown share there. ECM was up about 16%, again above the wallet. And really that, reflecting some of the fees coming from SPAC activity. So very good growth. EMEA and North America are both up year-over-year due to continued momentum in M&A. So we feel very good about it. We think the pipeline still looks very strong. We think the investments that we've made and bringing on bankers in some of the sectors we needed to beef up, sectors such as health care, technology, sponsors group, those investments are certainly starting to pay off. So we feel good about it.

Your next question is from the line of Glenn Schorr with Evercore.

So I think we have a good long-term process in motion and measured in more than 1 year. But what do you think of the sort of -- it feels like returns have to go down before they go up. I know you have the overall goal to close the gap to peers. But between the capital that gets freed up, the GCIB buffer and the denominator, the capital markets partially normalizing some stranded expenses on sole franchises and then continuing to execute on these transformations, is it okay and is it normal? I think it's partially in our models that we go down first and then rise up?

Yes. So thank you, Glenn. So look, if you look at 2021 with a 13.4% RoTCE and reserve releases that get close to $9 billion, I'd have to say yes, right? Because those reserve releases drive a considerable amount of that. Now it's important to compare that to 2020, where we had the opposite effect because we were building meaningful reserves. But as I -- as we look at the forward look, which we'll take you through in more detail, as Jane mentioned we're focused on core parts of the franchise that show the opportunity for growth and the promise for higher returns. And we'll -- that's where our energies are going to be focused, and we think that's what's going to help to drive improved returns over time.

Fair enough, the reserve at least have a big impact. Okay, and then in terms of that growth, I think a couple of questions danced around this, so it will be short. But given your answer to what Citi is and wants to be in terms of premier franchise and all those industries or business lines, I should say, how do you balance the -- doing what's right for stockholders in the near term, drive stock return versus making sure you invest for the future? Because each one of those is super competitive. Each one of them has competitors as early as today or as recent as today, spending a ton of money to compete in those spaces. How do you balance that -- invest for the long term, be great versus improve the stock short term?

Yes. So let me start and then Jane feel free to add in if you'd like. So the first thing that I think's important to remember is the focus that we're trying to put on these core franchises that drive returns over time. So we're prioritizing how we're going to allocate our resources and our investments in part through the divestiture activity. The second thing I'd say is that we are investing in the franchise for the long term, right, as opposed to trying to hit some short-term metric. And so that does involve us putting that money to work where there is client demand and where it leverages the competitive advantages that we have developed. And so that is the way we approach this with, again, an eye towards ensuring that we're clear and transparent with our investors. And that if there's excess, that we're returning that to our shareholders, so that is not just sitting on the sidelines and not generating returns that they would expect of us.

I'd also just jump in when you look at the different businesses that we are investing in, as Mark said, they're high returning ones. So our services businesses are much capital lighter, high return. Wealth management, the same. I think the opportunities that we've been seeing to continually increase share in investment banking, another high returning business. So that will certainly be helping us over time on that mix that you're talking about. And not everything needs an enormous investment. If I look at wealth, for example, you put the different pieces together that we've already got, and we're putting them into a single integrated business and proposition, it's not things that we're starting from scratch. So a lot of this is incremental.

[Operator Instructions] Your next question is from the line of Vivek Juneja with JPMorgan.

Jane, Mark, a quick one firstly. Now that you're exiting Mexico, Singapore and Hong Kong were not part of the exits when you announced the exit from the 13 markets in the consumer business. Are you going to stay on with the consumer business in those markets, or meaning a traditional consumer business as you've had for years? Or is that going to change?

No, we find the franchises we have in Singapore and Hong Kong, just given the nature of them, are really naturally tight to the wealth franchise that we are building and investing in there of our existing very strong platform, as you say. So we expect to continue to provide the range of different services and capabilities that we have because they are so complementary and help support our wealth business in 2 of the most major wealth hubs in the world.

Okay, great. And a follow-up question, if I may have. The NII change, Mark, that you made, what deposit beta are you assuming there? And how much of the change is coming from U.S. net interest income versus the rest of the currencies?

Yes. So we haven't shared our deposit betas. But as you would imagine, the betas tend to be higher on the institutional side than on the retail side. And so that piece -- and I'm sorry, the second part of your question was what? Vivek?

The second part was how much of the change in net interest income from the interest rate sensitivity change, Mark, that you're making? How much is it U.S. net interest income versus the rest of the currencies?

The increase is roughly -- roughly skewed towards the international. So I'd say of a $3 billion increase, I'd say, about 2/3, 1/3 international.

Okay. And that's because that's where you were assuming that runoff?

Sorry?

That's where you were assuming more of the balance sheet runoff.

Yes.

Your next question is from the line of Charles Peabody with Portales.

Yes. A question regarding the regulatory and political risk to share buybacks. And I asked that because earlier this week in the Powell renomination hearings, you listened to the last 2 minutes of that testimony. Sherrod Brown went on a rail against buybacks in the banking industry. And then last year, I think President Biden had 2 speeches in which he spoke out against buybacks. So I'm trying to understand, is there -- I mean a transaction tax isn't going to stop you guys from doing buybacks. But are there other things being discussed out there other than just moral suasion to discourage buybacks?

We're going to do the right thing for our shareholders. And right now, particularly given where the stock is trading, buybacks are a very, very important and probably top of the stack for us action that we take. So no, we're very clear in terms of the importance of giving our shareholders back our excess capital.

No, I understand that you want to. I'm just trying to understand what the risk to your desires are from the regulatory or political side?

I don't believe there is one. We're extremely well capitalized. I think we've heard it consistently from Washington, the confidence in the capitalization of the banks both coming into and coming out of the pandemic, and we're not overly concerned on that front.

We'll obviously adhere to regulatory guidelines as they exist or however they evolve, but that's exactly right.

All right. And then as a follow-up, just on that subject. Assuming these regulators are just getting into their seat, they're probably not going to be able to do anything this year on buybacks, but I'm assuming that they'll try and do something on buying backs next year. So you want to do as much buyback short term as you can, and you've talked about getting back to like a $3 billion pace here in the first quarter. How sustainable is that $3 billion pace?

Yes. So look, I mean, it's -- first of all, with the SCB framework, we take decisions on the capital actions on a quarter-by-quarter basis. Obviously, there's another CCAR run that will all go through, that will determine at least part of the capital stack. And then obviously, there's the GCIB that's coming into play. So we factor all of those things in. In our case, as we develop the capital plan, we also will take a look at the divestitures. In some instances, the divestitures will generate TCE for us to return to shareholders. There may be other impacts from divestitures that are temporary in nature that need to be factored in. But it's part of an entire annual capital planning process that we go through that factors all of those things in.

Your next question is from the line of Gerard Cassidy with RBC.

Can you guys share with us, when you think about the strategy refresh that is underway, are we 75% complete, 80% complete? Mark, you alluded to maybe some of the markets businesses that may not have the return as you want. It could be some area. But where are you there? And by the Investor Day, can we assume that will be completed?

In terms of the time line for this one, this particular exercise is drawing to a close in terms of what I call the big step back as a new CEO. So we said this is the last major structural decision that we're taking in Mexico, and we're now focused on pulling together everything from Investor Day. And that's where the new reporting structure, I think, that we've announced today, is also a very important foundation for that. So I'm confident that we've made the right big structural decisions and that we're looking forward to Investor Day, laying out the vision, the strategies and the plan for going forward.

And let me be clear, Gerard, just in case I wasn't. I'm not suggesting we're exiting parts of our Markets business. That is not what I'm suggesting at all. What I'm suggesting is that as we would always do, we're constantly looking for opportunities to optimize the way we use our balance sheet, capital, RWA, et cetera, and where we identify the need to rid ourselves of low-returning and assets that we have, we do that, right? And so with rule changes like SACR and the like, either pricing will adjust or we'll have to take a hard look at some of those assets to see if it still makes sense. And that's more of what I meant than ever suggesting we were exiting part of the Markets business.

No, they're very clear. And just as a quick follow-up. Obviously, some of the businesses you're committed to in the TSS and the investment banking area you guys clearly are players there, you have economies of scale. When you look at the other businesses that you're committed to stay in, where is the heavy lifting going to come from where you really kind of step it up to get those economies of scale similar to the ones that are quite obvious?

Yes, you're right. We have a number of businesses that are already extremely scaled in both markets. If we look at TTS, we are moving $4 trillion of volume daily there. So those are ones where the investments are much more around digitization, around data. And in terms of where are we looking at getting more to -- of increasing our scale, commercial bank is obviously one where we have commercial banking presence in 30 different markets around the world. And they're very focused on the same target market I talked about in the vision, which are those mid-market companies with global needs or multi-market needs. And then the other areas in terms of wealth, where we've already begun, as you can see from our earlier remarks, building out our frontline scale on the back of the platforms and other investments that we're making.

And to your point, Jane, Commercial Bank this year, a huge opportunity to leverage more of the TTS offering that we have. We're already seeing diversification in the commercial bank in terms of CMO and other markets products, and the revenue this year was up 12% year-over-year, and similar strength in acquisition of new clients in wealth, but those are 2 key areas. I agree.

[Operator Instructions] Your next question is from the line of Ebrahim Poonawala with Bank of America.

Just quick couple of follow-ups. Mark, on the capital return, I just want to make sure we hear you correctly. When we think about the $3 billion piece you're going to get back to in 1Q, moving forward, is there more upside risk to that $3 billion? Or could that be actually lower? I just want to make sure we have that right in terms of expectations.

Yes. I'm not giving expectations for the quarter-by-quarter capital buyback decisions, n part because, as I mentioned, with the new SCB rule, we're able to look at it on a quarterly basis. So I'm not giving guidance beyond that. We'll talk more about the capital plan on March 2 broadly, right?

And just, I guess, going back, Jane, on U.S., I think the question is, is there something more meaningful that we should expect at the Investor Day? And it's fine if you want to hold it till then. Because if I recall correctly, you were a partner with Google. That didn't play out. The big question that investors have is, is there a better definition to the U.S. retail franchise? And I'm just wondering, will we get that at the March Investor Day or there's nothing radical that you have in store, at least in the near term as far as U.S. retail is concerned?

You'll be certainly hearing directly from Anand, who is responsible for that business on Investor Day. And he'll lay out all of our U.S. personal banking strategy of what we're looking at, both from our top 2 cards franchise and what we're doing in personal lending, as well as what we're doing in wealth. And then obviously, the retail bank and the supporting role it is playing for those 2 core drivers of growth for us in the States. So yes.

Your next question is from the line of Jim Mitchell with Seaport Research.

Mark, maybe on just the expenses, I appreciate all the moving parts with the divestitures and you're not going to give us a full year expense guidance number. But can you help on the jumping off point in the first quarter we had? Compensation was up about $1 billion quarter-over-quarter. How much of that was just sort of the comp changes? Or is that a good run rate to think about? So if you could just help us, just the jumping off point for first quarter, it would be helpful.

Yes. You know what? I'm not going to be able to give you kind of more guidance on that. I mean what I would say is, again, you've got a couple of things that played through 2021 that will be important factors in 2022. One, the hiring that we've done, we're going to get a full year impact of that, at least for part of that in 2022. So that's going to play out. Some of the -- if you think about the mix for the transformation spend, which is a mix of both hires, third-party spend as well as technology, that mix will start to shift over time away from third party for sure and towards the others. And so we're going to have some of that dynamic start to play out in 2022. In terms of the comps, specifically in the fourth quarter, we obviously tie -- the comp performance for the full year is tied to revenues. And so as we would expect to see some forward growth based on the drivers I mentioned earlier, we would expect to see comp related to that play out over the course of 2022. But I'd rather not get into the specifics here, given that we're going to give you a better sense for it in early March.

Okay. Just maybe as a follow-up on that, just so I understand the sequential drivers, so you're saying it's mostly incentive comp? Or was that more new hires or both, just on 3Q to 4Q change?

Yes. In 3Q to 4Q, you've got both hires as well as incentive comp.

Your next question is from the line of Matt O'Connor with Deutsche Bank.

I just wanted to follow up. You had said the sale of Mexico wouldn't be an easy transaction. And was just hoping you could elaborate on that. And then just related, you talked about the capital is allocated to the business being freed up. But any kind of initial thoughts on whether the transaction -- the exit of the business will generate a gain or loss as we think about the combined or total capital impact?

Why don't I kick that off and Mark jump in. I just said it won't be a simple transaction because we separate the bank into the institutional business from the businesses that we're exiting, and that's something that we kicked off yesterday, that process. And then we'll be looking to go to the market in the spring and be active with buyers, potential buyers in a few months' time. So it's more just the complexity of separating the bank. We've got good plans behind this. And as I said in my remarks, these are terrific, these are at scale. These are great franchises. And there was obviously a lot of speculation in the press, which really is too early to comment on. But we do think this is a jewel for someone. It's just not for us.

Yes, I agree. And I think it's premature to speculate on the structure of the deal and things of that sort. You're right, we do have about $4 billion of TCE allocated to the business. The other layer of complexity is around the CTA, and you've heard us spend some time on that when we talked about the Australia sale. And I introduced it as a complexity because there's an accounting treatment associated with the CTA that happens at signing, that is separate from the capital implication that happens at closing. So with a CTA, the capital impact flows through AOCI, but it's neutral once the deal is closed. And Mexico, the consumer business would have a DTA of a little bit less than $3 billion or so. And so that's another factor that's involved with the transaction.

CTA, not a DTA.

Did I say DTA? I'm sorry, CTA, currency translation adjustment. Thank you. CTA. Thank you very much, Jane.

Your next question is from the line of Steven Chubak with Wolfe Research.

Well, actually, even before asking my question, I just wanted to echo some of the earlier remarks, the new presentation, the additional detail, it's really helpful. So I appreciate the new disclosure. Mark, I was going to ask -- well, I guess technically one question, but it's really a 3-parter. You might need to grab a pen and paper. But I wanted to just unpack some of the comments you made on the NII sensitivity and reporting differences versus peers. You noted a more than 3x increase in NII, assuming a static balance sheet, but there's still a lot of investors that just question your rate sensitivity profile given the fairly modest NII growth that we saw in the last cycle. And the first question, I just wanted to start by asking, given your heavier institutional deposit gearing, wouldn't it be reasonable for us to expect that your deposit runoff would actually be greater than peers? Two, does the NII guidance contemplate liability sensitivity in the markets business? And could you help us size that potential drag? And then just lastly, it's more of a catch all. Any idiosyncratic factors that you could speak to that would support a better NII outcome or higher rate benefit versus what we saw in the last cycle?

Yes, sure. So look, we provided the sensitivity because we think comparability is important here. And you can see the magnitude of that difference is pretty sizable. There's still going to be a difference between us and peers, but that difference narrows when you put it on a comparable basis. We do have a skew towards institutional clients, and they do carry a higher beta associated with them. But we also have a skew towards international currencies and we make good spreads there as well. In terms of the impact through markets, the impact -- I think the market's impact can come in any number of ways. I think rate moves and other uncertainty and volatility in the market can drive broader markets revenues, which we would potentially see depending on how investors have to reposition their books. In terms of the last part of your question, I don't think there's anything else that I would point to. I mean, obviously, with the excess liquidity that we've seen and been carrying in the market, we've been putting that to work in investments. We've increased our investment portfolio by some $70 billion. We expanded the duration to about 2.85, and we still have significant dry powder to -- with the -- work with either client demand or in an increasing rate environment, which we expect.

Your next question is from the line of Jeff Harte with Piper Sandler.

I'm sorry, I thought I've taken myself out of the queue. My questions have been answered and you all must be getting tired. So I'm done.

Your final question is from the line of Mike Mayo with Wells Fargo Securities.

I have one more question. What's the hardest part of the cultural change?

Probably it's been breaking down some of the silos. And that -- the point on the principles we laid out, Mike, have connected is really a key piece of it. We've -- we rolled out some new leadership principles last year, and it's very much around how do we get the firm very well connected and really realize the full synergies. So breaking some of those old habits, I would say, the new structure is certainly helping as are the different initiatives we're taking.

And how long do you think that will take? Because you're breaking down a culture that's been ingrained for quite some time.

Yes. I would say I'm really happy with the progress. We've been -- one of the first things I did was lay the front 2 on our culture out when I took over, and we've got a terrific team of people been working at this for a year. So I'm very happy with the progress we make. I think everyone is clear. We want the culture to be one of accountability, of excellence and acting with urgency and part of that is well underway. But it will take a little bit longer.

There are no further questions. I will turn the call over to Jen Landis for closing remarks.

Thank you all for joining today's call. Please feel free to reach out to IR with any follow-up questions. Have a great day. Thank you.

This concludes Citi's fourth quarter earnings call. You may now disconnect.