Hello and welcome to Citi’s Fourth Quarter 2022 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. If you have any objections, please disconnect at this time. 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 will turn it over to Jane.

Thank you, Jen and Happy New Year to, everyone, joining us today. We are very much off and running as we start 2023. Today, I will share our perspective on the macro environment before recapping our performance in the fourth quarter. And then I will take a few minutes to reflect on our progress in 2022 and our strategic priorities for the coming year. The global macro environment played out largely as we anticipated during the second half of last year. As we enter 2023, environments have had better than we all expected for the time being at least, despite the aggressive tightening by Central Bank. In Europe, a warmer December reduced the stress on energy supplies and inflation is beginning to ease off its peak. That said, we still expect softening of economic conditions across the Eurozone this year given some of the structural challenges it is grappling with. In Asia, while the public health impact in China are unfortunately likely to be severe, the abrupt end of COVID Zero should begin to drive growth and improve sentiment generally. And here at home, the labor market remains strong and holiday spending was better than expected, in part because consumers have been dipping into their savings. The Fed remains resolute in tackling core inflation however and therefore, we continue to see the U.S. entering into a mild recession in the second half of the year. Now turning to how we performed. For the fourth quarter, we reported net income of $2.5 billion and EPS of $1.16. Our full year revenue growth of 3% ex-divestitures was in line with the guidance we gave you at Investor Day as was the case with our expenses. We delivered an ROTCE of nearly 9% and a CET1 ratio of 13%. This quarter, our businesses…

Thanks, Jane and good morning, everyone. We have a lot to cover on today’s call. I am going to start with the fourth quarter and full year financial results, focusing on year-over-year comparisons, unless I indicate otherwise. I will also discuss our progress against our medium-term KPI targets and end with our guidance for 2023. On Slide 6, we show financial results for the full firm. In the fourth quarter, we reported net income of approximately $2.5 billion and an EPS of $1.16 and an ROTCE of 5.8% on $18 billion of revenue. Embedded in these results are pre-tax divestiture-related impacts of approximately $192 million, largely driven by gains on divestitures. Excluding these items, EPS was $1.10 with an ROTCE of approximately 5.5%. In the quarter, total revenues increased by 6% or 5% excluding divestiture-related impacts, as strength across services, market and U.S. Personal Banking was partially offset by declines in investment banking, wealth and the revenue reduction from the closed exit. Our results include expenses of $13 billion, a decrease of 4% versus the prior year. Excluding divestiture-related costs from both the fourth quarter of this year and last year, expenses increased by 5%, largely driven by investments in our transformation, business-led investments and higher volume-related expenses partially offset by productivity savings and the expense reduction from the exit. Cost of credit was approximately $1.8 billion, primarily driven by the continued normalization in card net credit losses, particularly in retail services and an ACL build of $645 million, largely related to growth in cards and some deterioration in macroeconomic assumptions. And on a full year basis, we delivered $14.8 billion of net income and an ROTCE [Technical Difficulty]. Now turning to the full year revenue walk on Slide 7. In 2022, we reported revenue of approximately $75 billion, up…

Thank you. [Operator Instructions] Thank you. Our first question will come from Glenn Schorr with Evercore. Your line is now open.

Thanks so much, and definitely appreciate all these outlooks. They are very helpful. So my question on the outlook is if you take a look at the current medium-sized return on tangible and getting to your target, I heard many comments about the path to getting there is on track. Is it the expense spend at the end of ‘24, that is the material step up from here to there, if you will, and/or is credit like a really big determinant in the process? So I’m trying to bridge the gap just in numbers from today’s return on tangible targets. Thanks.

Yes, sure. Good morning, Glenn, thanks for the question. So we did give you some guidance here we gave it to you both on the top line and the middle line for ‘23. And then importantly, when we talk about the medium term, it’s both the continued revenue growth, the 4% to 5% CAGR that I referenced, but it’s also bringing the expenses down from this ‘23 forecast. And I mentioned in the prepared remarks, the drivers of what’s going to bring these expenses down. The combination of the exit of the businesses and the expenses going away associated with that with the benefits that we start to generate from the transformation spend and then org simplification that this type of strategic restructuring, if you will, in exiting all these countries will create an opportunity for. And so it’s a combination of revenue growth, expense bending of that curve and coming down. The cost of credit is kind of as we’ve been talking about for some time now, which is it normalizes over the next couple of years at levels that are consistent with what we’ve seen kind of prior to this COVID cycle that we’ve been managing through.

I appreciate that. Thank you. Just one quick follow-up on poly, not my norm, but I normally try to respect this type of process. But Mark, we consider your super important part of this transformation. there has been news out there that you talking to one of my other companies, but would you be able to make any comments? You mentioned just some moment staying on – sorry to put you on the spot, but I think a lot of people care.

I appreciate that, Glenn, and Citi is an important firm. I’m the CFO of this firm and this strategy is something that I’m focused on with Jane, ensuring that we execute on right and in a way that creates shareholder value for our investors. And so we’re committed to getting that done.

Together.

Together.

Thank you. Our next question will come from John McDonald with Autonomous Research. Your line is now open.

Hi, Mark. I wanted to dig into the revenue outlook for 2023. You’ve got about the midpoint, it kind of implies about a 4% revenue growth this year, kind of consistent with what you talked about for that 4% to 5%. So for this year, the 2023 guide, it looks like the NII is guided to be up about 3.5%. And the markets you are assuming kind of flat. So what’s enabling you to get to the 4%? Where are the drivers that are above 4%? Is it some of those fee businesses? And just a little more color there would be helpful?

Sure. So let me make a comment first on the NII. Just keep in mind with that number that I’ve given on the page is both the growth that occurs in some of our important services businesses, and that really comes from both the annualization of rate increases that we saw in the back half of the year, but also expected continue increases, particularly outside of the U.S. And given the makeup of our franchise, we will – that will contribute to the NII growth. And then keep in mind that we’re growing over the legacy franchise reductions in NII that we would see in 2023. So underneath that is some real momentum in the NII, notwithstanding a slower pace, the fact that it would be a slower pace than what we saw in 2022. From an NIR point of view, I did mention that we do expect to see some normalization in market valuation. And that would play out both in banking, normalizing certainly relative to what we saw this year with while it’s down 50% to 60% as well as some normalization in wealth and those would hit the NIR line, as you point out.

Okay. And then – sorry, if this is clear already. But just in terms of the idea of the cost curve bending at the end of 2024. Is that going to mean that for the early part of 2024, expenses kind of rise above 2023 and then they kind of peak out plateau towards the back half of ‘24. Is that how we should envision it?

I’m not going to kind of get into ‘24 guidance. We will kind of get through ‘23, and I’m confident about our ability to get to that roughly 54 number that I put out for ‘23. I’m equally confident that we will bend this curve, and we will bring it down to the levels that it needs to be in order for us to get to the ROTCE target, but I’m not going to kind of get into, John, the specifics of 24 except to say that by the end of ‘24, we will see that curve bending.

Thank you. Our next question will come from Erika Najarian with UBS. Your line is now open.

Hi, good morning.

Good morning.

My first question is – again, thank you for all the clarification on the slide. Great job, Jane and Mark, obviously. But as we think about what it means to bend the curve, I think, your investors are appreciative that you are accelerating the investments relative to your transformation. As we think about when Citi can hit that medium-term ROTCE, how should we think about what’s bending the curve really means? And I’m not looking for guidance necessarily, but as we think about going past that hump, what’s the better way of measuring – should we – is it an efficiency ratio? I think you mentioned something like is it the 60% to 63% efficiency ratio against that 4% to 5% revenue CAGR that you think you’ll be able to hit by 2025? Can we think of it that way?

Yes. So at Investor Day, we did talk about it, and we remain consistent and committed to that. We talked about getting to an efficiency ratio that’s less than 60% in the medium-term period. And so that certainly will be part of the metric that we deliver on as we bring our costs down. I think the other thing I’d mention just you mentioned the how, and I think there are a couple of important aspects that the exits are obvious in terms of those costs going away, at least a portion of it is. The portion that’s tied to stranded cost, Jane has been very, very clear with our entire management team of the importance of rethinking the organization and ensuring that the potentially stranded costs go away, and that means rethinking the way we do business and the way we operate different parts of our operations. I think the third piece is that technology, right? And so right now, a lot of what we’re doing is manual. And as we continue to invest in technology and technology is up pretty significantly this year, 14% or so, we expect it to be up 5% next year. That technology build-out, if you will, will allow for us to reduce a lot of that manual activity, and that will bring down the operational cost for running the firm. And so those are a couple of examples, I hope, of the how. But I think importantly, you will start to see it in an improved operating efficiency over that period of time and getting to the target that we talked about at Investor Day.

And I would say you can get some confidence around the past on many of these by the urgency with which we’re executing the divestitures, for example, on getting those transactions closed. And we’ve also tried to provide you as much clarity as possible about the timing of when these will be closing and the speed of the wind-downs that we’re executing. So that will help. As Mark said, it’s three big structural drivers of what will be in that curve.

Thank you. And Mark, I’m sorry, for misspeaking. I was looking at the wrong borrowing efficiency. I have like 15 slides open in the computer.

That’s okay,

The second question and maybe this to you Jane, I think that your investors have appreciated your sense of urgency with regards to the divestitures. I think the elephant in the room continues to be I think investors sort of expected an announcement on Banamex right now. And I’m wondering if you’re still considering just selling Banamex or are you thinking about different options on the table, such as an IPO?

So we’re in active dialogue at the moment. So I’m obviously not going to comment in great detail here. We do continue to pursue a dual path as you’d expect, because both are very viable options here. And when we are in a position to give you clarity but we will do so. I think we’ve been fairly clear about the timing. We are also separating out the two franchises, our institutional franchise from the consumer franchise that we’re selling because we see the institutional franchise is a very important part of the global network. As you can imagine, in today’s environment, Mexico is key for many of our corporate clients around the world for their supply chains. And we play a very important role there. That is a lot of work in that separation. I’m extremely pleased with the progress that we’re making in that underlying work. But we are pursuing the dual tracks and when we have something to announce, we will be delighted to do so.

Thank you. Our next question will come from Mike Mayo with Wells Fargo Securities. Your line is now open.

Hi. I’m still trying to get over at this revenue and expense guidance. So you’re implying you’ll have at a minimum flat operating leverage or positive operating leverage for 2023? Am I reading that correctly? So on the one hand you are not bending the cost curve until late 2024. On the other hand, you’re guiding for positive operating leverage in 2023. Am I reading that correctly?

Mike, when you do the math, I don’t think it will get to the positive operating leverage in 2023. But we are, as you see on the slide, targeting a range that does reflect growth in the top line. That growth will likely be a little bit less than the growth that 54 number would – roughly 54 number would suggest but we are on the right track. And we are getting there in a way that’s consistent with the strategy that we talked about. And we do feel confident in our ability to deliver on the guidance that we’ve put out here similar to delivering on the guidance we gave last year, recognizing there are a lot of things going on in the broader environment.

Okay. And then a second follow-up – or a follow-up, and then I’ll requeue for my other question. Your CET1 ratio is 13% now. And I think that’s two quarters earlier than consensus had expected. You said it was up 70 basis points. So doesn’t that allow you to repurchase stock now? Or I understand that if you go ahead and sell Banamex, that could have a temporary negative capital hit. So I’m just thinking like don’t sell Banamex, don’t have that temporary capital hit, start buying back stock at a fraction of your tangible book value. So what’s wrong with my logic or what part of that can you comment on?

I’m going to jump in on the, don’t sell Banamex, Mike. As you could imagine, so we are selling the consumer franchise. It does not fit with the strategy that we laid out in Investor Day. It’s an emerging market consumer franchise, and we are clearly focused around the multinational clients and in institutions and high net worth individuals with cross-border needs as we laid out very clearly and businesses that have strong connectivity across the – between each other. So we are – we don’t see Banamex having strategic fit in the consumer franchises in that perspective. And when we run all the math, it is in the shareholders’ interest that we sell that franchise and deploy that capital to our shareholders or into some of the investments at higher returns. What you’re suggesting is a very short-term move. And I think as you can see from the actions we’re taking, we’re very focused on our medium and long-term and not taking the short-term path that we would regret in the medium and long-term.

Thank you. Our next question will come from Ebrahim Poonawala with Bank of America. Your line is now open.

Hey, good morning. I guess just one question as a follow-up on capital. As we think about post the second half of the year, let’s say, you’ve taken the hit from Banamex. But coming out of this test-test, any sense, Mark, if there is any reason why Citi would have an outsized negative impact from the Basel end game reforms. Just give us a sense, I’m just wondering hopefully, we don’t get another disappointment as we get our hopes it for buybacks in the back half and there is something idiosyncratic about the business mix that could come back to hurt the bank? Would love any perspective there?

Yes. So look, as we pointed out, we’ve built a significant amount of capital over the course of the year. We are ahead of the target we set for the middle of the year, middle of the year. We do have some exits that will have a temporary impact on that CET1 ratio. And we do obviously have a DFAST that’s in front of us that we will have to see what the outcome is of that work. I think, look, the Basel end game and final views and decisions on that are still outstanding. And I think we will have to take those into consideration when they become available. That is an industry dynamic that will play out however it plays out. And similar to SACR, we will get after it in a very significant way to make sure that we’re able to handle whatever headwinds or tailwinds may come along with that. But it really is difficult at this point to opine on exactly what that means for the industry in light of the fact that there aren’t final rules out just yet.

Got it. And just back to your medium-term targets. I guess if we hit that bending the curve at the end of ‘24, it implies that this company should have an earnings power north of $10 by 25%, even at the lower end of the guidance. Am I missing anything there? Or like does that make sense?

The only thing I’d point out is what we’ve described – what I’ve described, what Jane described is the medium term is ‘24 through 2026. And – we’ve given you guidance for ‘23. We intend to get to those return targets in the medium term. I haven’t given you specific guidance on any of those individual years, and we will kind of take that year by year. And so just factor in. I think what’s important is you’ve got a view on ‘23, and I think we’ve given you additional clarity on how we intend to get to that medium term, and I think that’s important.

Thank you. Our next question will come from Betsy Graseck with Morgan Stanley. Your line is now open.

Hi, good morning.

Good morning.

Hi, Betsy.

I did want to ask a little bit about the strategy with Personal and Wealth Management. I know Jane, earlier you talked about the fact that – which you have announced looking for a new had to move that business forward. Could you just give us a sense as to where you think the opportunity sets are greatest within that franchise for growth because there is a bunch of different pieces, some on the advice channel, some of the more fee channels, some of the more balance sheet piece. And you already indicated U.S. as an opportunity to expand into. So I’d just like to understand, from your perspective, which pieces are the most important to execute on. And that could help us understand how you’re planning on shaping this business going forward? Thank you.

Great question, Betsy. And Mark and I are both smiling here because I think the answer is all of the above. So if we break it down, where do we see the various elements of upside? There is an important recovery that’s going to occur in Asia. And you can see from our results last year, and across the board with other competitors with an Asian bent, that was materially impacted by COVID in China and the lockdowns and a slower pulling out of COVID in that market compared broadly in Asia compared to the U.S. So we see some exciting growth opportunities there from the pure fundamentals in Asia across the board. Absolutely you are right in the U.S., we start from a smaller scale there. We’ve been bringing the different parts of that business together. The wealth of work franchises, one that’s had particularly pleasing growth in it. And we’ve also been seeing some good growth as we pulled a comprehensive offering together for our customers. The biggest upside there is the investment product. And I think we’ve got a strong balance sheet franchise as it were, particularly the deposits, some of the margin lending and the like mortgages, but this is really about the investment offering in the state. Then finally, I’d say there is also tremendous opportunity in the synergies, and we’ve been showing you this in terms of linkages between our commercial bank, our banking franchise, the referrals up from the U.S. Personal Banking. We’ve had about 60,000 referrals this year in the U.S. alone. From that, market also provides important results and even TTS. So the client referrals, there are business synergies between them common platforms. So we really see an opportunity for these multidimensional growth drivers in wealth over and above the recovery in the investment space that everybody in the market should be able to benefit from. And we will continue investing in – appropriately in building out that front line as well. So, this is a very important part of our strategy. We are excited about it. It’s the key pillar of the shift in business mix as we go forward as well, looking at the medium-term. And we are looking forward to the next phase of growth and focus here.

And would you say that the investment spend required to execute on those revenue opportunities is likely to accelerate from here, or you have already done that investment spend and the investment is more sideways as opposed to accelerating?

I think look, in this current environment, as we have said – Mark and I have both said since the – really, the middle of last year, this is something that we are pacing, but we are continuing to invest behind you. And you can see that growth in our client advisors. And remember that net growth in client advisors, it includes the divestiture we made in Uruguay, for example. So, it’s pretty strong. We don’t have a huge amount that we need to invest because we have many pieces of the platform in place and it’s more been a story of integrating them, and then making sure that we are putting the right digital and other investments behind it, but it’s not such a large one in order to achieve the upside in the business. And we will pace that as appropriate with market conditions. Mark, anything to add?

Only thing I would add – Betsy, you know this is – in a normal part of the cycle, this is a high margin, high returning business. And we have seen that in the past. And so we want to be well positioned for as the market turns, having brought on client advisors, having brought in new clients through client acquisitions, which were up 24% in 2022. And so I think we are well positioned for that. But as Jane mentioned, given where we are, we want to be smart about how we deploy the dollars. And so we will replace that as necessary, but ensure that we are ready for when things turn.

And I would just add, it was a couple of years ago that we put – we announced the strategy and started executing on it. So, we have the benefit of the historic investments that we are seeing the drivers playing out well. And as I say, well, we should be well positioned when the market turns here.

Thank you. Our next question will come from Matt O’Connor with Deutsche Bank. Your line is now open. Matt O’Connor: Hi. I just want to follow-up on the comments about markets to be relatively flat in ‘23. Obviously, a very good 4Q. And I know I was concerned about some of the RWA management and FICC in the recent quarters. And I think going back not to be an issue as you think about leadership and revenue. But as you think about ‘23, like the wallets have been strong in recent years. And to your point, your leadership was strong this year. How confident are you in kind of that flat market? And maybe what’s driving that view? Thank you.

It’s a market business, right. And so you know very well kind of the volatility that can come with any markets business. With that said, we have got a very, very strong FICC franchise. We had a very good year, a very good year this year. I think we are well positioned with the client base, and we are well positioned to maintain our number one position as we go into 2023. Now, how that market and market wallet moves, I think is it was going to predicate on a number of things, including how the macro continues to evolve and how central bank activity continues to evolve and how currencies move and the like. But again, I feel like we are well positioned to hold our position, if not gain more share as that plays out. And so I think flat relative to a year that we have had up as significantly as it is, is a reasonable call based on what we know now.

We have also seen some depression of areas of strength in this business as well. So, equity derivatives, for example, the real strength, this was an equity derivative year. So, there is some and the corporate world with the volatility that’s out there from a macro geopolitical environment is another real strength of ours. And for better or for worse, we are expecting that strength to continue, certainly things so far. Matt O’Connor: Okay. Thank you.

Thank you. Our next question will come from Jim Mitchell with Seaport Global. Your line is now open.

Hey, good morning or good afternoon.

Good afternoon.

Mark, maybe just digging into NII a little bit, if you look at 4Q annualized, you have a decent step down. But when you take a look at your deposit franchise, your mix of business, versus your peers, where they are seeing probably lagging retail deposits in the U.S., pricing that’s going to hurt second half NII. Look, you guys, you already have high betas, mostly institutional. You mentioned the benefit from non-U.S. rates and you are growing deposits. So, why sort of the – a similar trend in NII versus peers when you have a pretty different dynamic going on? Just trying to think that through because it doesn’t look like the legacy drag is very big in your chart?

Similar dynamics you say in ‘23 or you are talking about fourth quarter. I am not sure I followed.

No, I am just trying to talk about versus peers, some have guided similarly to down from 4Q annualized run rates, but you have a very different dynamic in terms of deposit growth, benefits from non-U.S. rates and a much higher beta.

Yes. So, I think – I mean I think I would point to a couple of things on the NII side, just as it relates to us. One, importantly, that I mentioned in and you point out is when you think about our mix of deposits, we have got about 65% or so are in ICG and the balance, 35% in our PBWM business. We certainly skew to U.S. dollar, but we have got a 30% or so that is a non-U.S. dollar. And when I think about the potential or the forward curves and how rates will likely move next year, we will get the benefit of further rate increases on the non-U.S. side, right. And so if I think about our international presence, the betas tend to not be as high as they are here in the U.S. with our Corporate Clients segment. And so I think there are some re-pricing opportunities that we will continue to actively manage as we did here in the U.S. And so I do think it’s that international footprint, the globality of our franchise that plays to our strength in 2023. The other thing that is apparent to us as we forecast this out is the continued growth from a volume point of view. And that volume growth, you have seen the momentum already pick up on the card side with significant growth in interest-earning balances. And we would expect that to continue, particularly as we see NCLs normalize and as we see payment rates start to temper. And so I think those things will be two major contributors. Mix is obviously a factor. As you point out, we will be growing over some of the drag or reduction from legacy, but is that active management of the client engagement that we have across both portfolios, that I think will be important factors to us delivering the growth that I talked about.

That’s all fair. But I guess maybe I didn’t phrase my question right, but I felt it ex-markets, I think your forecast for 2013 would be less than the 4Q run rate ex-markets and yet you just...

Sorry, finish your question. I am sorry.

Well, just you shared a bunch of reasons why you have sort of a differentiated franchise. So, I am just trying to get a sense of what’s driving the decline from 4Q levels.

I think the thing you have got to pick up is really the legacy franchise and the NII. A large part of the legacy franchise revenues are NII revenues when you look at the mix of the products and the clients that we cover there. And so I think that’s the important element here that we haven’t quantified to a dollar amount, but that is explaining why it seems like muted growth relative to what you would have seen in the fourth quarter. Obviously, there is other factors, but that’s important.

Thank you. Our next question will come from Gerard Cassidy with RBC Capital Markets. Your line is now open.

I am Mark Hernandez [ph].

Good afternoon.

Hi. Go ahead.

Mark, can you share with us on your comments regarding and this is true for your peers as well. The normalization of credit losses going forward since the industry has experienced incredibly low levels of credit losses. So, when you look at branded cards or retail sales, or retail services, how do you see that progressing through ‘23? One of your peers pointed out that they think that by the end of ‘23 they may be at that normalization rate that they look to for their numbers. But I am just trying to see what the trajectory is for what you guys are thinking?

Yes. Let me jump in and then I will hand it on to Mark. But I think we are expecting under the current trajectory to see the loss rates to reach the pre-COVID levels more at the year-end, early ‘24 level. If you think of branded cards, if I was to quantify sort of 20% of the way there now, CRS, we are about 40% of the way there now. Obviously, we have the benefit in CRS of sharing of the loss sharing with our partners that helps us. But I hope that gives you a sense around it. Probably the most important driver that we have been worried about it was very certain with what was happening with payment rates. And I think we have got much more clarity as they started that normalization path. So, that’s driving a fair amount of more certainty around what the direction is happening there. Frankly, the big question more what’s happening with spending than it is with the normalization right now. It’s a bigger uncertainty. But Mark, any other observations?

The only thing I would add is that, Gerard, you could see just depending on how this plays out. You could see kind of NCL rates tick up above normal levels and then come back down to normal levels in the timeline that Jane described. Again, just depending on how the macro factors continue to play out. But again, we – as we sit here and talk about these NPL rates, it’s important to point out as well that we are very well reserved across all of these portfolios. And so to some extent, if you put macro assumptions aside and volumes aside, the NPLs kind of get funded by the reserves that have been established. But the trend line is exactly as Jane described, just recognizing that you could see a tick up above normal levels and then it come back down.

Also this is such an unusual market in the sense that you have got such strong labor market driven by frankly, supply shortage over as much as demand. And we have also got the consumers with still very high savings that they are dipping into, and we are seeing a bit more of the movements happening at the bottom end of all of this. But this is not going to be like a normal recession. It’s why you are ticking here as that others will be about the manageability and the mildness of that likely if we do have one.

And what kind of unemployment rates, are you guys assuming going into that kind of trajectory? Is it – we get the 5% unemployment by first quarter ‘24?

I think a couple of things. So one, our base case scenario, if you think about what we just talked about includes kind of a mild recession in it, just and as we forecasted it, the downside would be something a bit more severe than that. I would say we are reserved for approximately a 5% unemployment rate, just kind of overall when you look at – when you average across the different scenarios that we have.

Thank you. Our next question will come from Ken Usdin with Jefferies. Your line is now open.

Hi. Thanks. Just two quick questions here. First one, just on card, the card NIM has been kind of flattish. And I know that obviously, it has to do with just how you internally allocate the funding towards it. But can you just kind of talk us through what’s happening either with rewards or either incremental rates on some of the new relationships? And should we see the card NIM expand from here?

Yes. I am not going to get into Ken, kind of guidance on NIM. What I will say is that we have seen good traction in the early part of the year as it relates to acquisitions on the card side. We have made very good traction. And Jane, you may want to comment on kind of the relationships that we have with some of the partners and with American. And we have also launched a number of new products that I think is helping to fuel the growth that we have seen on the heels of those investments and some of the increase that we have seen in spend rates as well as some of the average interest-earning balance and loan growth that we have seen. But I really don’t want to get into the NIM guidance at the card level or the aggregate at this point.

Yes. I mean we have a fabulous cards franchise. And when we look at strong track record in the digital, the other innovations that are driving growth, driving the profitability, driving the returns both in our proprietary products as well as our partners, and we are really seeing all of those drivers performing very, very strongly at the moment. From custom cash, it was 28% of new accounts acquisition. So, an important new product refresh that’s driving things 80% of customers engaging digitally. Innovations like America is just a fantastic partner of us, really taking that to the next level. And you can see that with the growth in spend in the category. So, I think there is a lot of reasons to be pretty excited about the growth in the return and the margins and the other trajectories here, and as I say, a prime portfolio, which is always a good thing.

Great. Thanks. And my second question was, there was an article about changing management up in the wealth management business this week. And I just wonder if you can talk about that, but also just about the progress that you are making inside the wealth management relative to your – the KPIs and the goals that you have discussed at Analyst Day. Thanks.

Well, sure. I mean 2 years ago, I asked MacDonald to put the wealth business together from the various components that we had around the firm. And now as we move to the next phase, but as we have said, strategically important business. I thought it was the right time to change the leadership also because Jim is going to play an important role moving forward, supporting Paco with the ICG strategy that we laid out at Investor Day. He has got a lot of relationships with investors, family offices, private equity, sovereign wealth funds. And he is going to be helping drive those along with other investors to make sure we bring the firm’s full capabilities to these clients. So, I felt the time was right to make the move. And we will be, as indicated, strictly moving to go out and have a look for our next leader of that business. And in the meantime, business as usual as we grow and follow the strategy that we have, and we are looking forward to the market turning, as I am sure everyone is and feel that we are well positioned to do so.

Thank you. Our next question will come from Steven Chubak with Wolfe Research. Your line is now open.

Hi. Good afternoon. This is actually Sheng Wang filling in for Steven. Just on the topic of credit, one of your peers noted this morning that they would expect to see an incremental $6 billion or so of reserves if they assume 6% unemployment under CECL. Can you – just wondering if you could provide some similar sensitivity to reserve levels and how should we think about the provision trajectory versus the 4Q base based on your macro outlook and potential growth math headwinds?

Yes. Thank you. I will go ahead and I will take that. I am not going to kind of do sensitivity scenarios with you here on the fly. What I will say is that as we build these reserves, we are building them against three scenarios. That base scenario that I mentioned, the downside scenario and upside scenario, and we weight those scenarios. And the base that we used this quarter built in a mild recession. And in that baseline, unemployment was, call it, 4.4% or so in terms of the unemployment assumption. We also had a downside scenario. Unemployment in the downside scenario got to a 6.9% or so. And then we had an upside scenario. The weighted average across the quarters was about the 5.1% that I mentioned. And those were factors that went into the reserve that we established in the in the quarter. And largely, when you think about the weightings we have put on those scenarios, the weighting skew towards that base and that downside. The reserve we built this quarter was largely in the consumer business, PBWM and specifically around cards. And that really had to do the change quarter-over-quarter with the change in HPI. But what I would say is that it also reflects, as I have mentioned earlier, a cards portfolio that remains of a very good quality and with loss rates that are well below what they would be in a normal cycle. And it does pick up the fact that there is volume growth that we saw in the quarter there. So, I am not going to kind of run scenarios for you, but hopefully, that gives you some perspective as to what’s underneath the models that we have used to establish these reserves. And obviously, we do that on a quarter-by-quarter basis.

I would also just jump in one of the areas that sometimes gets mis-put about the firm, is on the corporate credit side. When we look at our corporate client portfolio don’t equate where we take credit risk with the global footprint. When I look internationally, 90% of our international exposure with multinational firms and their subsidiaries, and these are – this is investment grade. So, I think that’s another area where as we look at the quality of the corporate loan portfolio, as you saw with Russia and others, we will be conservative in the reserving we take. But I think important to understand the nature of where we take that corporate credit risk.

That’s really helpful. Thanks. And then as a follow-up, it seems like a part of your revenue targets for 2023 depends on some improvement in the environment. For example, stabilizing equity markets, IB rebound? And Jane, you also noted that the medium-term targets are designed to be achievable in different environments. So, if the revenue backdrop continues to be challenged like we saw in 2022, can you just talk about some of the levers you might be able to pull that might provide an offset?

Well, it kind of depends on what the drivers are of a different environment, right. Because you could have – I don’t anticipate this, but you could have continued pressure in investment banking, but you could also have continued volatility in rates or currencies and that could mean more upside than flat for the markets business. So, there are a lot of puts and takes that one can scenario out. I think what’s really important is that we have a diversified portfolio of businesses that have strategic connectivity to them. And so what that allows for is that as the environment shifts in some way that we may not have predicted that we were often able to still drive significant performance as we did this year. And so without calling exactly how it vary from what’s here, that’s what gives us the confidence to – around the guidance and really to remain steadfast on the strategy that we have talked about and really push execution, and that’s exactly what we are doing.

And an important part of ‘23, it’s not just the impact of the cycle, but also you will see the impact of the different investments that we have been making. And you have certainly seen that. For example, in services this year, and we have been very transparent around the 70 basis points increase. We have seen in wallet share in the 12 months leading up to the third quarter. So, you have not only got drivers here in terms of what’s happening in the market, but you have also got the strategic drivers, also kicking in more and more together, as Mark referred to the synergies.

It’s a great point, Jane, because it may not always show up in the top line, which is why we put those KPIs out there. There are often indicators of some of the upside that’s on the come as the market evolves.

Thank you. Our last question will come from Mike Mayo with Wells Fargo Securities. Your line is now open.

Hello. Hey Mike.

Yes. So, one question and one follow-up. So, you have a – your slide says you have a CET1 target of 13% by midyear, but you are already there. And I guess if we go back to the Banamex thing, I guess is that kind of assuming potential capital impact from divestitures or why would you have a target six months out when you have already met it?

Yes. Mike, I have to tell you that I am surprised that you are asking about Mexico, just given our history together, but I understand it. And what I would say is that a couple of things. One, we clearly see where we trade, right. And we are not happy about where we trade. And we think our strategy warrants us trading better than where we trade today. So, if we could buy back, right, we could do buybacks as soon as we are able to do buybacks, we will, right. I mean that is part of the way we deliver value for our shareholders. The second thing I would say is we did get to the 13% sooner. And that was, again, in accordance with executing against our strategy. And our parts of our business, particularly the markets business has done a really good job at delivering against the metric we put out of revenue to RWA. And we have been able to get there without damaging the franchise, which is what you see in the continued strength and performance in that business, particularly in fixed income. What’s ahead of us, as you rightfully pointed out, is that we have got a number of exits that have to take place, puts and takes across many of them, but Mexico in particular, will have a temporary impact on our CET1 ratio. And so we want to be mindful of that as we manage over the next two quarters, so that we can absorb that. And we also want to make sure that we are positioned to continue to serve our clients over the next couple of quarters and always, but certainly over the next couple of quarters, while we manage the headwind, temporary headwind from that exit. So, hopefully that gives you a better sense for it, but we are actively managing this. And we have not lost focus on the importance of returning capital to shareholders.

Yes. I want to reiterate that as well. I mean it’s very important to us. And as Mark says, we know where we trade. We have made a number of moves to align ourselves to our shareholders’ interest in compensation and management interest, all these various dimensions. And we just want to make sure that we hit what we say we are going to do and continue delivering against what we say we are going to be delivering. And with the CPA impact essentially in Mexico, we want to make sure that we are taking that into account.

Alright. That’s very clear. And then lastly, your NII guide, excluding markets related is higher for 2023, but I think that implies a little step down from the fourth quarter level, not as much as JPMorgan was guiding down 10% from the fourth quarter level. I was thinking there might be some delayed benefits from being outside the U.S. What are some of the ins and outs there?

Yes. You got a couple of points here. So, one is we won’t see NII momentum as we have seen in 2022, just as betas start to increase on the ICG side and get to terminal levels, that’s obviously going to slow or put pressure on the pricing as we go into ‘23. But some of the other important drivers of the growth will be the annualization of the rate hikes that happened late in the year. And so that will be a plus in 2023. You will also see, as I mentioned earlier, some of the rate increases that we anticipate outside of the U.S. and given our mix, that will benefit us in 2023. And then there will be a volume will contribute to that NII growth, particularly as we continue to see good momentum, which we anticipate on the card side, the offset will be that the legacy franchise, right. And so as those exits occur as the wind downs continue, as I mentioned earlier, that revenue mix does skew towards NII. And so we will have to grow over that and we will grow over that to kind of get to the target that we have set. So, those are the puts and takes.

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

Thank you everyone for joining us today. If you have any follow-up questions, please reach out to IR. Have a great day. Thank you.

This does conclude the Citi fourth quarter 2022 earnings review call. You may now disconnect.