Hello and welcome to Citi’s First Quarter 2023 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 hello to everyone joining us today. Well, 2023 is shaping up to be another interesting year. Given the tumultuous events of the last few weeks, I am going to share some observations and then we will turn to what was a good quarter. First, our banking system as a whole is very strong. While a small handful of institutions still have challenges to overcome, the U.S. financial system remains unmatched globally. And I feel confident saying that as someone who has worked in many different systems around the world. The U.S. system comprises a healthy mix of community banks, regional banks and larger global banks, including Citi. We all have important but different roles to play, serving different clients with different needs and on different scale. I would also point to the rapid response by state, federal and international regulators that help reinforce confidence in the system at a very critical juncture. I am pleased that Citi has been a source of stability for the financial system and a source of strength for our clients. That’s not an accident. We are in a position to play this role, because our strategy is delivering a simpler, more focused bank. We benefit from a diversified earnings base and resilient business model. This is reinforced by our robust balance sheet management, liquidity position and strong risk management frameworks. We are disciplined in how we run the firm from client selection to capital planning. And it’s also thanks to our people. And I want to express my pride in our colleagues around the world who worked tirelessly last month to serve clients as they turn to Citi as a port in the storm. Recent events have shown that prudent asset and liability management is absolutely paramount. While Mark is going…

Thanks, Jane and good morning everyone. I am going to start with the firm-wide financial results, focusing on year-over-year comparisons for the first quarter, unless I indicate otherwise; and spend a little more time on expenses, our balance sheet and capital; then I will turn to the results of each segment. On Slide 4, we show financial results for the full firm. In the first quarter, we reported net income of approximately $4.6 billion and an EPS of $2.19 and an ROTCE of nearly 11% on $21.4 billion of revenues. Embedded in these results are pretax divestiture-related impacts of approximately $950 million, largely driven by the gain on sale of the India Consumer business. Excluding these items, EPS was $1.86, with an ROTCE of over 9%. In the quarter, total revenues increased by 12% on a reported basis and increased 6%, excluding divestiture-related impacts, as strength across Services, Fixed Income and U.S. Personal Banking was partially offset by declines in Investment Banking, Equity Markets and Wealth as well as the revenue reduction from the closed exit and wind down. Our results include expenses of $13.3 billion, an increase of 1% versus the prior year. Excluding divestiture-related costs in the prior year, expenses increased 5%, largely driven by the transformation, other risk and control investments and inflation, partially offset by productivity savings and the expense reductions from the exit and wind downs. Cost of credit was approximately $2 billion, primarily driven by the continued normalization in car net credit losses and ACL and other provision build of approximately $700 million, largely related to a deterioration in macroeconomic assumptions and growth in card revolving balance. At the end of the quarter, we had nearly $20 billion in total reserves with a reserve to funded loan ratio of approximately 2.7%. On Slide 5,…

[Operator Instructions] And our first question will come from Glenn Schorr with Evercore. Your line is open.

Hi, thank you. Simple one. I appreciate the many, many moving parts, but your first quarter NII and revenue production was great. And if you just annualize it, you’re handily ahead of your full year guide. So I’m just curious on how you’re thinking about maintaining the guide but running ahead of schedule.

Yes. Thanks, Glenn. Good morning. I appreciate the question. Look, we did have a very solid first quarter. But as Jane mentioned in her prepared remarks, there are a number of things that are still out there in the global macro environment that are uncertain and unclear, including, frankly, as we contemplate the direction of rates and what’s required to tame inflation, let alone the uncertainty that we’ve seen in parts of the sector here through the quarter. And so when I think about that and I think about, frankly, how betas have evolved and the likelihood of a recession in the back half of the year, which we had built into our outlook, I remain comfortable with the guidance that we’ve set here. And as – and when you think about where that comes from, the strength in TTS, the strength in Securities Services, both benefiting from the rate hikes we saw last year, but also deepening relationships with new and existing clients, the card momentum, which is really about seeing more revolving activity as payment rates start to slow and the recovery in Investment Banking and Wealth is not as swift as we would like. And so we have to see how that plays out, too. So when I put those things together, there are certainly some puts and takes that speaks to the diversification of our business model, but it leaves me in a place where I’m comfortable with the guidance that we’ve set. And if that changes, we will certainly update you, but that’s where we are.

Well, I appreciate that. Maybe if I could follow-up on your comments and the previous ones on TTS and Securities Services. I tried to learn from all my mistakes, I make a lot of them. But in ‘08, we thought housing prices couldn’t go down much, and then they went down a lot, and we all adapt. The same thing in March, thought deposits couldn’t leave a bank so quickly, but they did. So Mark Slide 25 and 26 people should look at because they are great, and they show the stability of your deposit franchise. But I’m curious if history can change at all, meaning right now, those are cash and operating deposits that clients keep with you and they need you, and you’re fully integrated. But do you have client concentrations we should know about? Or how – are you thinking about any big changes that can happen in terms of client behavior relative to the past in terms of what they keep at any given bank? I know that’s a tough one.

Yes. Glenn, I’ll kick it off and pass it over to Mark. I feel very comfortable about how very well diversified our deposit bases across different countries, industries, clients and currencies. And it’s extremely strong in that respect. And as you say, the majority of the institutional deposits are integrated into the operating accounts all around the world to enable the clients to run their day-to-day operations, the payroll, the working capital, the supplier financing, etcetera. And I think what’s changed in the more digital world is, frankly, these have become even stickier because the amount of data, the extent of integration into the technology platforms and systems of the clients and the value that we extract and present back to the clients from the combination of our FX, trade, cash, etcetera, flows is incredibly important for their – and driving their efficiency, their risk management and their financial performance as well. So both the extent of that diversification and the increasing stickiness versus history is something that we’re certainly not complacent about, but I think is why you see some of the pages we put into the deck as well, including in the back, on just the consistency of this space. Mark, what would you add?

I think that’s exactly right, Jane. And Glenn, I’m glad you pointed out, Pages 25 and 26, which clearly lay out that diversification, but also the scale and stability of those deposits over an extended period of time. The only thing I’d add additional to that would be, obviously, we’re in an environment where there is quantitative tightening that’s occurring. That’s going to have a broad industry impact as we’ve started to see already. But we’re also in an environment where rates are increasing. We will see how that plays out through the balance of the year. That has an impact on betas, but we shouldn’t mistake price sensitivity or interest rate sensitivity with the stickiness of the deposits. And so we’ve obviously talked about betas increasing, particularly in our TTS portfolio, more so in the U.S. It obviously will continue to increase outside of the U.S., but we will work the relationship that we have with those clients and the breadth of services that we bring to influence and impact pricing. And more importantly, because of the operating nature of them, we do see them as very stable.

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

Hi, Jane, I challenged you a couple of earnings calls ago about the complexity created by being in so many countries. You said, TTS was your crown jewel. And here, it’s up almost one-third year-over-year. So, so far, so good under since your Investor Day. Can you talk about some of the fee growth? I mean we kind of understand the NII growth, but the fee growth is double digits also. So I guess that’s money in motion. And I think you described this as the world’s largest wholesale global payment system. What’s happening to give you double-digit top line growth there?

Thank you, Mike, and a great question. And I think one of the numbers I’m almost more happy about than the stellar revenue growth was the fee growth quarter-over-quarter here. Because, obviously, we’ve been benefiting in TTS from the rate environment, but we’ve also been benefiting from the drivers behind the franchise. And the fee revenues are coming from multiple different products and different offerings that we have here. And we’re typically looking and have consistently looked at growing our fee revenue as a percentage of the underlying growth in TTS. It got masked a bit when the rates environment was growing so much, but the different areas there around the world are making a big difference to just the strength of our earnings and the quality of our earnings in these areas.

Okay. And then as it relates to rates, generally, like what is it, like over 90% of your rate sensitivity is outside the U.S. And so shouldn’t you be benefiting more than you originally thought, given some of these rate hikes? And I guess, Mark, are you just sandbagging a little bit? I get the uncertainties in IB backlog pushout. And no, I mean, we want you to have a reasonable bar to jump over. And I’m just wondering if you set the bar high enough for yourself for this year.

Yes. So again, I think that there is certainly more opportunity in terms of how rates move and capturing NII. As you pointed out, outside of the U.S., we articulate our interest rate exposure for a parallel shift. And that mix at the end of last year was the 90-10 that you mentioned for non-U.S. As I sit here in March, it probably is going to skew a little bit less non-U.S. and a little bit more towards the U.S., and you’ll see that in the Q. With that said, I mentioned earlier, there is still a bit of uncertainty in terms of how rates continue to evolve here in the U.S. We will see how betas evolve. We reached terminal betas in the U.S. with our clients kind of at the end of last year. And so we will see kind of what happens in terms of pricing through the balance of 2023. And betas are not quite at terminal levels outside of the U.S. And so we will see the pacing of that, again, in light of how the interest rate curve may be evolving and frankly, in light of how we’ve seen the broader sector turmoil play out. That could, in fact, play to our benefit. But we are also, again, an environment where there is quantitative tightening that is still at play. And then the final point I’d make, Mike, that often people forget is that in that NII is legacy NII. And so as we continue with our wind downs, our divestitures, etcetera, that’s going to be a headwind that we will have to deal with.

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

Hi, good morning.

Good morning.

I know during the prepared remarks, you talked a bit about Andy Sieg coming on Board. And I just wanted to understand how to think about the outlook for what you’re doing with Wealth, not only in the U.S. but the non-U.S. locations, and also try to understand how much capital you think you could apply to that business relative to what you have today? Thanks.

Betsy, so we’re obviously delighted that Andy is joining as our new Global Head of Wealth around my table. He’s a tremendous leader with a great track record driving growth. He got deep product and digital expertise, proven people leader, and we will certainly be taking full advantage of his expertise and experience in the U.S. We’re not shifting our strategy in Wealth. Its mandate is consistent with the strategy we laid out at Investment Day. And that’s the day we see a lot of potential of growth in Asia as we fill in the coverage across the full wealth spectrum there. We will be scaling up in the U.S. by building out the investment offering and cross-selling into our existing and new clients across the country. We see tremendous potential of growth in our Private Bank and the family office franchise or really around the world. And there is a lot of synergies to be realized as we point out in the different KPIs and drivers, between the other four core businesses in terms of referrals and other business that we’re able to generate across the franchise. So the core of the strategy will not be changing with him coming on Board. Mark, what else would you add in?

One thing I’d add is that, look, we are, I think, well positioned for as the market recovers, and it plays towards Wealth. When you look at kind of the client advisers, as you know, we’ve been investing in bringing on new client advisers. We’ve been increasing the number of new clients that we’ve been onboarding as well. We’ve invested in some of the investment products that we have. And so I feel like we are positioning ourselves for when this turns. And as it relates to your question regarding capital, this, in a normal cycle, is a very healthy returning business. And as the market turns and as we recover, we would look to deploy capital appropriate with the growth and return prospects that we see in front of us. It’s also not as much of a capital-intensive business as other businesses. And so I think you’ve got to keep both of those things in mind.

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

Hi, good morning. And I think it’s remarkable that your first two questions were essentially saying that your revenues are too conservative. So that’s very notable for us. My first question is a follow-up to Betsy. I think everybody was certainly impressed, Jane, at the Andy Sieg hire. And clearly, he was running a much larger business that what Citi has today. And this is sort of a tricky question. Clearly, you’re still working through some of the transformation. There is still a consent order. But given your strength as a global player, could Citi participate in perhaps inorganic opportunities that could be out there, having a result perhaps of the liquidity crisis that we saw that could potentially enhance your Wealth Management footprint more quickly?

We see plenty of potential for organic growth potential. And I think that’s really where we’re going to be focusing, Erika, because I look at the Private Bank and the family office. There is so much wealth creation, supplemented by our commercial banking relationship with a lot of the enterprises and the owners of those enterprises who are really generating the new industry champions in country after country, and we’re extremely well positioned to capture that. I don’t see an inorganic play that would actually help us on it. We also benefit because we don’t have our own proprietary products and a sales force pushing those proprietary products were open architecture. And therefore, we’re a very desirable partner for many of our key partners on the institutional side of the business to be able to provide very interesting value propositions, investment opportunities and the like to our clients around the world. And finally, we can see certainly areas in interesting digital plays, different partnerships, areas like that, that are of interest. So I’ll never say never in the longer run. I’m sure if something very attractive comes up, we will be very interested in looking at it. But it’s not something right now that I think makes sense, given where we’re focused. And no consent to actually almost independent of the consent orders. I think where – what we’re looking at doing right now is getting this organic play right, and then we will see from there.

I think it’s pretty telling that we had 13,000 referrals from our retail bank.

Yes.

To the wealth space, right or to our wealth business. And so a lot of embedded opportunity and it really speaks to the integrated model that we’ve been talking about.

And I think the other bit I’d also just point to is I think one of the things we do benefit from is that we aren’t constrained by being dominated by a brokerage model in a particular way of doing Wealth. So part of the mandate for Andy and the ones that we’ve been working on to date is really looking at what is modern Wealth Management and making sure that we are really well positioned that way, because I do think that will be more of the way of the future.

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

Hey, good morning. Maybe just a question on capital. I appreciate the fact that the potential sale of the Mexico franchise would be a negative impact, but you’re sitting at a pretty comfortable cushion now above your target. Obviously, expected future retained earnings growth should be more than an offset. So how do we think about – how are you thinking about the timing of restarting buybacks with your stock as cheap as it is?

Yes. Thanks, Jim. Good morning. Look, we – as you point out, we grew capital pretty sizably this quarter, up to 13.4% from a CET1 ratio point of view and up significantly from a year ago, some 200 basis points or so. And a good portion of that, a significant portion of that was really net income earnings generation, which is important. Look, the way we think about it is at 13.4%, we certainly have well above what’s required from a reg point of view, and it includes our internal management buffer of about 100 basis points. But as we’ve said in the past, there is certainly the Mexico transaction, and that would be a temporary drag, if you will, to CET1 at signing, the difference between signing and closing, if it were a sale to take place. And then there are a couple of other factors that are out there as well. So think about the Basel III end game that’s out there and the capital requirements that could come out of that; think about the CCAR DFAST that is current – has been submitted and currently under review and what that might mean for stress capital buffers and; also think about just where we are in the broader economy and broader global macro environment that we’re playing in and needing to see how that kind of evolves. And so when I think about all those factors, we’re in a place where we will continue to take it quarter-by-quarter. But I’d end by saying our bias is kind of where yours is, which is given where we’re trading, all things being equal, we’d like to be buying back shares. But we have to be responsible about that and the timing of that.

I think we will have more clarity fairly soon around a number of the factors. So we will be able to give you better clarity on timing before too long.

Yes, all fair. And then maybe as a follow-up, just you mentioned increased macro assumptions embedded in reserves. Where are you now on the macro assumptions in the reserve book?

So in terms of the reserve – again remember, we have a couple of different scenarios that we run when we calculate the CECL reserves. Our current reserves are based on those three macroeconomic scenarios. It reflects a 5.1%-or-so unemployment rate on a weighted basis over eight quarters. So that’s relatively flat versus last quarter. The other point worth mentioning is that in this particular calculation for the quarter, we did skew a little bit more towards the downside in terms of the probability weighting than last quarter, again, in light of the macro environment and the combination of that as well as well as some normalization in the portfolio, including an increase in revolver activity contributed to the increase in reserves we saw. But to answer your question, unemployment at about 5.5 for be weighted – sorry, 5.1 for the weighted basis over the eight quarters.

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

Hi, good morning.

Good morning.

Good morning.

I wanted to start off with a question just on the IB trading outlook. On the trading side, just given some of the recent macro shocks, have you seen any evidence of that volatility? And are you still confident that you can sustain that mid-single-digit growth target? And just on the investment banking side, I wanted to see if there is any evidence of green shoots. It’s been a challenging backdrop, as you noted, Mark, but I was hoping you could offer some color just across some of the different product lines across M&A, ECM, DCM.

Why don’t I start and then, Jane, feel free to jump in. Look, we had a – we saw a better performance in the quarter in markets then when I talked at the conference earlier in the quarter. And really, that played through in our Fixed Income business, which was up about 4% year-over-year, driven largely by strength in rates. And we saw rate volatility in the back end of the quarter, and we were well positioned to take advantage of that and serve clients, and that aided getting us to the down four in aggregate across markets. What we talked about for the full year is kind of relatively flat performance. And I still think that based on what we see today and subject to how the macro continues to evolve, that we will be able to deliver on that. But as you know, volatility, in many instances, plays to the favor of markets businesses. And so there is a bit of an unknown as to how that evolves, but I feel confident in the guidance that we’ve given thus far on that. Jane, did you want...

Yes. I’d jump in before you turn to banking as well. I think one of the differences with our franchise compared to some others is that we are the go-to bank for corporate. And that provides a highly attractive, but pretty steady flow of activity. This is obviously in the volatile markets we’ve been seeing is, from our perspective, very good volatility because we’re able to support our clients in rates, FX, commodity hedging. And it makes our risk flows much more diversified than our competitors, particularly in volatile markets like this. We’re not taking positions. This is really attractive client flow business right at the heart of the global network. The other piece that I think is important in the mix here, too, is just the partnership with TTS cross-border payments. These are the elements that cornerstone of the FX franchise. So there is some pieces here of the volatility that one doesn’t usually think of this as being client, so client heavy, but that’s what’s differentiating on the Citi franchise. Mark, back to you.

Thanks. I think that’s exactly right in terms of the corporate client base there. Look, in Investment Banking, obviously, the wallets down – were down meaningfully last year. We saw some performance – good performance in debt capital markets this quarter, up 66% versus the prior quarter, particularly as we saw activity in investment-grade names, which is an area of strength for us for sure. And I think there was a bit of momentum behind a bit more clarity on the direction of rates. And so we will see how that continues to evolve and play out. The other thing I would add is that we continue to have very good dialogue with clients as they manage through the environment and try to anticipate what the balance of the year looks like. And at some point, it’s clear that clients are going to need to get back into the markets. But that trajectory is going to largely depend on the geopolitical and macro environment and how we all manage and navigate that uncertainty. So, very engaged, healthy pipeline, but subject to how the environment continues to evolve.

That’s great. And for my follow-up, just on PWM fee income trends. I am not going to ask you about the broader wealth strategy, but we are big fans of Andy here, so congrats on the hire. The one thing I did want to get a better sense of is how much of the sequential improvement that we saw in fees is a function of just partner payments being higher as credit continues to normalize. And how we should be thinking about the trajectory and fees within PBWM over the remainder of this year?

I think there are a couple of things to kind of keep in mind in terms of PBWM fees. And I think part of it is that PBWM is a combination of both the cards business as well as the wealth business. And a good amount of the pressure that we have seen in fees, and that is still subject to how the environment evolves, is in the wealth space, because we continue to see fee pressure on investment activity and revenues there. And we will have to see how the market valuations move on some of the assets that we manage on behalf of clients and what momentum it drives in terms of more investment activity. So, I think that’s a big part of the drag in fees, the upside that we have seen in fees and in banking and cards, again, I think will be subject to how activity and volume evolves across our cards business. We do expect revolving levels to continue, but purchase sales, while they are up year-over-year, when we look at kind of the latter months of the quarter. They have been under – the growth has been slowing and it’s been quite concentrated in travel and entertainment. So, we will have to see how some of that volume activity evolves, and that will be a factor to keep in mind.

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

Hey. Good afternoon. Just a couple of quick questions. One, in terms of the Banamex sale, I think Jane, you mentioned that maybe we might hear something relatively soon and you still are pursuing the dual-track process. One, if you do decide to go the IPO route, does that change the accounting dynamics, Mark, with regards to taking that hit early on if – given just the time it might take to go through the an IPO? And the outlook for the Mexican economy, the banks continues to be robust. Does that – is that impacting or influencing how you are thinking about the value that you should get from this transaction?

So, we are in a very active dialogue right now in Mexico. So, neither, Mark or I are going to comment in a lot of detail there. As you say, we are continuing to pursue a dual path, both the sale and an IPO. So, we will have an exit strategy either way. And we will take the path that is in the best interest of our shareholders. So, we have got enormous body of work going on in Mexico to separate out the institutional business. I am pleased with the progress they are making. I think we are seeing – when we look at the performance of our Mexican franchise, a lot of the really strong performance is happening in our ICG business where Mexico is such a beneficiary of the supply chain dynamics that are happening around the world. And its location is obviously very beneficial given the proximity to the U.S. as well. So, we are seeing a lot of the dynamic and the big benefits here coming in the institutional franchise that we are keeping within Citi as a core part of business. So, the current Mexican economy doesn’t really have so much of an impact on our current decision-making. The principle is we will take the path that is in the best interest of our shareholders.

Yes. And just to put some numbers to that. For the quarter, Mexico was up 16% revenue year-over-year, quarter-over-quarter up 5%, cards growth, deposit growth, so performing well, I would say. And in terms of the latter part of your question, Jane is exactly right. Everything we are doing is positioning us for both a private sale and/or an IPO, and we will choose the path that’s best for shareholders. And IPO would take longer. It would likely take longer as we would want a set of full audited financials, etcetera. I would say that in terms of what the implications would be from an accounting point of view, CTA accounting is different for an IPO, so we would not recognize that CTA through the P&L. In an IPO, we wouldn’t have at signing that impact that is different from that closing. And so that would not be an issue. The impact would be a matter of how much we IPO-ed at that time. So, love see a lot of moving pieces there. We would need to figure out if we ended up down that path. But hopefully, that gives you some sense of the scenarios there. But I would end with just one final point that Jane has made already, which is that the outcome that we choose will be the best outcome for our shareholders, our clients and employees.

And that will be an exit.

Thank you. Our next question will come from Matt O’Connor with Deutsche Bank. Your line is open. Matt O’Connor: Hello. You guys have talked about bending the curve on cost, I think in the latter part of 2024. And I wanted to see if that’s still the case. And I guess maybe just some clarification on what bending the curve means. Is that slowing expense growth absolutely dropped? Any kind of clarity on that and cost in general kind of medium-term would be helpful. Thank you.

Thanks Matt. To answer your question very directly, yes, it is still the case. We are going to bend the curve, as I have mentioned in – towards the end of 2024. It does mean an absolute dollar reduction in expenses. Matt O’Connor: Okay. That’s helpful. And then I mean I think in the past, you have kind of insinuated that, that’s like the start of, hopefully, a more material drop in costs beyond, obviously, if it’s far away, but just any additional color there, too. Thank you.

Yes. Look, again, look, the expense base is a key area of focus for us, right. We recognize that expenses have been growing. They have been growing because we have been investing in the franchise, both transformation-wise, as well as business-led growth to support the competitive advantages that we have in many of our franchises. But we are managing that very actively and very deliberately. And that means that we are looking to ensure that we are spending the money in the right way and the right places and that we are going to yield the benefits that we expect from that over time. And that was all factored into the targets that we set at our Investor Day for the medium-term. And what that requires is that we start bending the curve in ‘24, as I have stated, and that we end in that medium-term at a place where we have an operating efficiency of about 60%, and we are positioned to have returns that are in that 11% to 12% RoTCE point of view. There are a couple of factors that are going to contribute to lowering that expense base. One, the divestitures that we have been talking about, right. The second is both the benefits from the transformation and other investments that I have just referenced. And the third is further organizational and management simplification efforts that we have underway that are enabled by the idea that we are exiting 14 consumer countries. And so those three factors, if you will, become very important and to ensure that we get to that lower cost structure and that we are able to deliver on the broader commitments that we are making with regards to returns.

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

Thank you. Hey Jane. Hey Mark.

Good morning.

A couple of questions. Jane, maybe starting with you first, or Mark, both of you can answer it. In view of what the – the disruptions we have seen in the banking system in the month of March with what went on with the regional banks here in the U.S. and obviously, the large investment bank over in Switzerland, do you guys see changes coming, or what changes do you see coming in terms of regulatory, whether it’s more capital, more liquidity? And it may not be directed at a company like yours because you are a global SIFI already, and it might be more regional orientated in the United States. And then as part of this question, Jane, can you guys give us some color on the deposit you and your peers made into First Republic? What was the thinking behind that as well?

Yes, sure. Thank you for the question, Gerard. Well, I would say that we hope that there will be a thoughtful and targeted approach to any changes in the regulatory and capital framework, and that they address the root causes of what actually happened here. And what happened is a combination of macro impacts from the sharp rapid rate increases and some idiosyncratic situation, namely a lack of proper asset and liability management at a small handful of banks. We don’t see these issues as pervasive throughout the broader banking industry. But the events certainly highlight the importance of prudent asset and liability management. We still believe that there is plenty of capital amongst the large banks. And if capital requirements were to increase for the large banks by the regulators, it would exacerbate any credit tightening that might go on. And related to that, what continues to keep me most awake at night is the quantity and quality of activity in the shadow [ph] banking industry. It does not benefit from the same regulatory frameworks and protections for participants. And I amongst others fear that more activity getting driven into it, if the banking capital requirements increase, will be through the detriment of system, strength and stability. So, we hope that this approach will be thoughtful and targeted to where the issues actually were. As I said in my opening comments, we thought that the regulators, both at the local and the national and the international level, were very – were swift and effective in making sure that they tackle the issues that were in front, and we were absolutely delighted that the large banks acted as a source of strength. And let’s just step back for a minute. In the face of tremendous market uncertainty, 11 of the largest U.S. banks were able to come together to inject $30 billion of deposits into First Republic in little over one day. And that speaks volumes for our capital and balance sheet positions. And I think the responsibility of large institutions and recognizing that we also play an important role here in helping stabilize situations like this. And we thought it was very important to help buy some time and also demonstrate our confidence in the overall U.S. banking system. So, I hope that gives you a bit of a flavor.

No, very insightful. Very good. Thank you. And then as a follow-up question, I noticed in your card, I think it was Slide 8, you gave us the prime – 80% of the portfolio is prime, which is FICO score is greater than 680. I don’t know if you would agree with this statement, but we are hearing that there were some FICO score inflation. As a result of the pandemic, a lot of consumers saw the FICO scores go up. And I have seen numbers as high as 70 points that may be in the high side. But can you guys – do you agree with that? And if you do, would you then expect the 700 FICO score customer at some point to behave like a 650 score customer?

I think the short answer is no, but let me let Mark answer that one.

Yes. I think what’s really important here, Gerard, is kind of what we are seeing in the way of the performance of the portfolio. So, again, I have heard that sentiment regarding FICO store inflation. We feel very confident in how we have assessed our customers and what it means to have 80% of our customers prime and greater than 680. And I think importantly, what we are seeing is we are seeing payment rates start to slow. We are seeing average interest-earning balances start to increase. We are seeing NCL rates increase, but particularly driven by the lower FICO score customers across the portfolio, which is where you would expect to start to see that drag occur. And the NCL rates that we are seeing are still well below what we would see in a normal cycle, right. And they are in line with what we have been forecasting for performance. So, there are no surprises that we are seeing in terms of how that curve is evolving. We would expect that it will get back to those normal levels towards the beginning of next year. It will likely play through those normal levels a bit before tapering. But my point here is that we understand our customers, the portfolio and how it reacts to the environment enough to forecast that out. And so far, that’s been performing in line with that forecast and those estimates. And importantly, we continue to stress it to make sure we are not missing anything. And importantly, we carry a sizable reserve, as you know, as part of that $20 billion.

I would also add that we then just rely on FICO scores for assessing the credit of our customers and our portfolio. There is a tremendous amount of data that we draw upon that goes well, well beyond that. And that’s also, as you can imagine, something that gives a lot more confidence. It’s not just prior history and it’s a wealth of data that is used.

Thank you. Our next question will come from Vivek Juneja with JPMorgan. Your line is open.

Thank you. Thanks for taking my questions Mark and Jane.

Good morning.

Mark, I want to go to your revenue. I hear you, you are keeping the revenue guidance unchanged. What is in your revenue assumption? I just want to unpeel that a little bit. What’s in your revenue assumptions for rates, U.S. and internationally? And what is going on with deposit betas, particularly following the inflows you have seen recently in the U.S. with the crisis?

Yes. So, I guess a couple of things. One, in terms of the rates that we have assumed, in the balance of the year, we have kind of assumed that rates would kind of probably – rates would flatten out after this quarter, after the second quarter and then trend down a bit towards the end of the year, down a bit to something like 450 or so, 450 or so. So, we may have one rate increase and then flat and then down to about 450. That could change. But candidly, if it changes a little bit here or there, it’s unlikely to have a meaningful impact in 2023. That’s likely to have more of an impact in 2024. So, we can debate that curve, but that’s kind of what we have thus far in our outlook. The second point I would make is around – and that’s U.S. rates. We are assuming – I don’t have specifics in front of me in terms of the rate curves around the globe, but we are assuming kind of continued rate increases there, not of significant magnitude, but some assumptions there depending on where we are talking about. The beta assumptions that we have built in are for betas to continue to increase outside of the U.S. But again, they run lower than the U.S. in general, for our multinational clients. We expect that we will see in the PBWM retail banking or with PBWM client segment space that clients are likely to move towards either higher-yielding deposit products or investment products. And so we have factored those things into how we think about the outlook. And could that change or evolve? Absolutely, but that’s kind of what’s behind what we have assumed here.

And just as a clarification, with the inflows you have seen recently in deposits with the crisis systems in the U.S., obviously, any other betas, the tempering a little bit, how much those are going up? Are you – is that slowing down or not any change so far?

So, a couple of things I have mentioned. So, one, we did see inflows in the quarter associated with some of the sector turmoil. If you – we have looked at kind of deposit levels from, call it, March 7th, March 8th, through close to the end of March. And we certainly did see an uptick, call it, probably a little bit under $30 billion or so of inflows in that period of time with a good portion of that in our CCB, our commercial middle market client base. It’s too soon to tell kind of how betas evolve, but we do think that a good portion of those deposits will likely be sticky. I think what’s important here is that part of our strategy here is, in fact growing operating deposits with our large multinational clients and our middle market clients. And so we are going to continue to be focused on that. What’s a little bit unclear is how the rate environment continues to evolve and what that means for how betas actually evolve, right. And we will have to kind of wait and see. It’s too soon to tell as it relates to that.

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

Thanks. Hey Mark. Just a follow-up on the credit. So, you mentioned, obviously, that you moved your part of your CECL adjustment a little bit towards the – in your weightings. And you had previously talked about getting towards “normalized” card losses, I think you had said by around the end of the year. So, can you just – given the changes that we are seeing ahead of us and definitely saw some normalization happen this quarter, can you just – are you still online for that getting to that 3 to 3.5 and 5, 5.5 in the respective card businesses by around year-end this year?

Yes. Year-end, early next year, yes. We are still kind of on track on trend for that. Again, I would expect that they pick up a little bit after that before they start tapering down. But to answer your question, Ken, is yes, that’s still the timeline, fourth quarter, early 2024, reaching those normalized levels.

Okay. Cool. And then one more just follow-up, end-of-period deposits down 3%, you mentioned the taxes. Are the taxes – fell across the business. When I look at the deposits page, there are a lot of ins and there are a lot of outs on an end-of-period basis. And just trying to get a sense of like what areas might have been impacted by that tax seasonality and where there was just some of the other pieces that you have already talked through in terms of inflows, outflows and everything else in between?

Yes, it’s a good question. So, again, in the – when you look at our deposits on an average basis, you see on Page 26 that they tick-up a little bit. If you look at it on an end-of-period basis, they are down about 3%. And essentially, intra-quarter, particularly in March, as I mentioned earlier, we did see a sizable increase in flows. With that said, if you remember in the fourth quarter, we saw a nice run-up in deposits. And then we have the seasonality point that I referenced in prepared – in my prepared remarks, excuse me, where we have both operational payments from our large TTS clients as well as tax payments and with our TTS clients, also with wealth clients, to some extent, kind of playing through the end-of-period deposits. And again, that for the most part is normal operating payments that we would expect to see at this time of year.

There are no surprises in what happened.

Yes.

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

Hi. Just one clarification on that last answer. You said you had inter-quarter flow. Did you gain more deposits in the month of March? And was that in the U.S.?

Yes, we did. Yes. That’s what I was talking about, Mike, in terms of those flows. They did come largely in the U.S. in the month of March, following March and through kind of the end of March. They were overshadowed by these normal payments that I referenced. And we did – and we still see good activity kind of even as we came through March and in the early parts of April.

And that was both in the institutional business that we saw the inflows as well as in the PBWM.

And if you define deposits this way, I mean, if I am oversimplifying correct me, but look, you have 5,000 multinationals. You really target for payments, capital markets and banking. Those companies have a lot of deposits, a lot of services. That’s the stickiest. That’s where you said 80% of your clients in TTS have been with you for over 15 years. What are the deposits for those 5,000 multinationals? And I know I am asking the slice and dice in a little bit different way, but even just a general sense. Because the reason I am asking this is because I think there is a disconnect between selling percent of uninsured deposits as a measure of stickiness. And I don’t think that’s valid. And you showed higher deposits, even though you have a big percentage of uninsured deposits or maybe that doesn’t matter as much as some front pages of newspapers are suggesting. So, if you could address that.

Yes. Thanks Mike. Look, I will tell you to turn to Page 26 in the earnings presentation, right. And we have broken down the deposits for each of the businesses that we have. And at the bottom, you see the TTS deposits. And this is where the 5,000 or so large multinational client deposits reside. And you can see the stability as well as the steady growth in those deposits over time. And to your point, these are largely operational deposits that these clients have with us. And we shouldn’t mistake rate sensitivity or betas with stickiness, right. And because these deposits tend to be quite sticky with us, as you can see here. Now, they are price-sensitive in the sense that as rates go up, we often have to re-price those. But remember, the relationships we have with these clients are broader than just deposit relationships. And that’s what gives us the opportunity to adjust pricing accordingly with our deposits, both in the U.S. and outside of the U.S. And so the other page in your own time you can look at is the page prior to that, which again speaks to the diversification of the portfolio, but it also speaks to the length of time that many of these clients have been with us and they have grown with us. And so nearly 80% of our deposits are from clients that have greater than 15-year relationship with us, and that says a lot. And that – and so anyway, those are the two points I would make. Hopefully, that addresses your question around the stickiness.

Yes. I often say it takes the root canal to extract us from the operations of our clients just because of exactly what we are talking about here. And that’s also we see it even with the mid-market clients that are a growing portion here as well because we are helping them expand internationally, and that stickiness comes through. And the LCR of 120% is a very high-quality LCR ratio.

Thank you. And there are no further questions at this time. I will turn the call back 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. Thank you.

Thank you, ladies and gentlemen. This concludes the Citi first quarter 2023 earnings review call. You may disconnect at any time.