Hello, and welcome to Citi's Second Quarter 2024 Earnings Call. Today's call will be hosted by Jenn Landis, Head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time you'll be given instructions for the question-and-answer session. 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 our second quarter 2024 earnings call. I am joined today by our Chief Executive Officer, Jane Fraser; and our Chief Financial Officer, Mark Mason. I'd like to remind you that today's presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And with that, I'll turn it over to Jane.

Thank you, Jenn, and good morning to everyone. Before I discuss the results of the quarter, let me first address the regulatory actions by the Federal Reserve and the Office of the Controller of the Currency, which were announced on Wednesday. These actions pertain to the consent orders we entered into with both agencies in 2020. And those orders covered four primary areas: risk management, data governance, controls, and compliance. Addressing these areas is the primary goal of our transformation, our number one priority. It is a multi-year effort to modernize our infrastructure, unify disparate tech platforms, and automate processes and controls. This week's actions focused primarily on data quality management. We've been public this year about the fact that we were behind in this particular area and that we had increased our investment as a result. The regulatory actions consisted of two civil money penalties and under the amended consent order with the OCC, a new process designed to ensure we're allocating sufficient resources to meet our remediation milestones and that is called the Resource Review Plan. We are currently developing a plan for submission to the OCC. Now by way of background, while the Federal Reserve is the primary regulator for Citigroup, our bank holding company, the OCC is a primary regulator for Citibank, N.A., we call it CBNA, which is our largest banking vehicle with approximately 70% of our assets. The amended consent order with the OCC allows CBNA to continue paying to Citigroup at a minimum the dividends necessary for debt service, preferred dividends and other non-discretionary obligations. While we're developing and seeking OCC consent for our Resource Review Plan, dividend amounts above that would require the OCC's non-objection. Now these dividends are intercompany payments that are made from CBNA ultimately to the parent Citigroup. They…

Thanks, Jane, and good morning, everyone. I'm going to start with the firm-wide financial results, focusing on year-over-year comparisons for the second quarter, unless I indicate otherwise, and then spend a little more time on the business. On Slide 6, we show financial results for the full firm. For the quarter, we reported net income of approximately $3.2 billion, EPS of $1.52 and RoTCE of 7.2% on $20.1 billion of revenue. Total revenues were up 4%, driven by growth across all businesses as well as an approximate $400 million gain related to the Visa B exchange offer. A significant portion of this gain is reflected in equity markets with the remainder reflected in all other. Expenses were $13.4 billion, down 2% and 6% on a sequential basis. The combination of revenue growth and expense decline drove positive operating leverage for the firm and the majority of our businesses. Cost of credit was $2.5 billion, primarily driven by higher card net credit losses, which were partially offset by ACL releases and all businesses except USPB, where we built for loan growth. At the end of the quarter, we had nearly $22 billion of total reserves with a reserve-to-funded loan ratio of approximately 2.7%. On Slide 7, we show the expense trend over the past five quarters. This quarter, we reported expenses of $13.4 billion, down 2% and 6% sequentially, which includes the $136 million civil money penalties imposed by the Fed and OCC earlier this week. The decrease in expenses was primarily driven by savings associated with our organizational simplification, stranded cost reductions, and lower repositioning costs, partially offset by continued investment in transformation and the Fed and the OCC penalty. As we said over the past few months, we will continue to invest in the transformation and technology to modernize…

At this time, we will open the floor for questions. [Operator Instructions] Our first question will come from Mike Mayo with Wells Fargo. Your line is now open. Please go ahead.

Hi. Could you elaborate more on the amended consent order? Jane, you said it was disappointing to have gotten that this week. It's almost four years into the consent order. And a little bit why it hasn't been resolved? And what's on the -- that's the loss column, and maybe a little bit more on the win column too. I mean you have, what, 12,000 people thrown at the problem, billions of dollars. Is it not enough people? Not enough money? Is it -- do you need to look at it in a different way? Are you not talking the same language? I mean, you have John Dugan as your Lead Independent Director, exit of the OCC, and it seems like you got your report card, I guess you passed overall, they went out of the way to say some nice things, but it looks like you got failing grades and data and regulatory management. So, your confidence is going to be resolved, but it's already been four years and it hasn't been resolved. So, what is it going to take from here? And how can you resolve the regulatory concerns while continuing or serving shareholders better? And then, in the win column, since it's so nebulous this back-office, what are you achieving? You mentioned some items, but you could put more meat on those bones? Thanks.

Yes. Thank you, Mike. That's a few different parts of that. So, let's start by just taking a step back. Our transformation is addressing decades of underinvestment in large parts of Citi's infrastructure and in our risk and control environment. And when you unpack that, those areas where we had an absence of enforced enterprise-wide standards and governance, we've had a siloed organization that's prevented scale, a culture where a lot of groups are allowed to solve problems -- the same problem in different ways, fragmented tech platforms, manual processes and controls and a weak first-line of defense, too few subject matter experts. So, this is a massive body of work that goes well beyond the consent order. And this is not old Citi putting in band-aid. This is Citi tackling the root issues head-on. It's a multi-year undertaking as we've talked about and you saw the statement by one of our regulators this week, we have made meaningful progress on our transformation -- excuse me, and on our simplification. Mark, do you want to...

Yeah. And so, what -- as Jane says, the progress that we -- that we've made, it spans multiple parts of the consent order and transformation work. Remember, that consent order and transformation work includes risk, it includes controls, it includes compliance, it includes data and data-related to the regulatory reporting. And we've got evidence and proof points of progress against all of those things.

Thank you, Mark.

Yes.

So, transforming -- to answer your question about how do we fix it and serve our investors at the same time, transforming Citi will drive benefits for our shareholders, our clients, and our regulators. This is not mutually exclusive. At the beginning of the year, we honed in on two priorities, the transformation and improving our business performance. And we're able to do so because we've largely cleared the decks. We have a clear focused strategy. We've executed the divestitures. We've got a much simpler organization, so we can focus on these two priorities and we are able to do both. You can see that in our results again this quarter, multiple solid proof points on the execution of the strategy and we know what we need to do on both fronts. We have plans in place on the transformation and on the strategy and we're executing against them. We have been and we will be transparent when we have issues and how we're addressing them.

Yeah. And just to add a couple of data points to that, Mike, you've heard us mention some of these before, but we've retired platforms. We've reduced the number of data centers. Platforms are down some 300. We've moved from 39 corporate loan platforms down to south of 20. We've got 20 cash equities execution platforms down to one. We've reduced the six reporting ledgers down to one, 11 sanctioned platforms down to one. So, we've been making considerable progress over the past couple of years. With that said, there's a lot more work to be done around the data regulatory reporting work. If you think about Citi, we've got 11,000 global total reg reports, right? So, we've got to make sure that the data that's going into those reports is the quality of the data that we want it to be, but more importantly, that we're doing it efficiently that it doesn't take thousands of people to reconcile that information. And so, this is an end-to-end process in the way we're approaching it. One example is the 2052a liquidity report that we have. It has 750,000 lines of data, and that data is -- it's important again that we're efficiently collecting it from multiple systems with standards and governance that ensures that it's of the quality that we want it to be without again having to have manual activity supporting it.

The next question comes from Glenn Schorr with Evercore. Your line is now open. Please go ahead.

Hi, thank you. So, Mark, I heard your comments on credit this year -- I'm talking US Personal Banking. I heard your comments for credit for the rest of this year and I think in a position that you're very conservative reserves. But right now, you put up a 3% margin, credit costs are almost half of what revenues are in the space. I guess, my question is, as we roll forward, in a slowing economy with likely a little bit lower some rate cuts, how does the P&L evolve? How does it improve from here? Because can we be expecting credit cost to come in a slowing economy? I'm just trying to figure out the path forward because it could be impactful that USPB obviously marches to where you need it to be.

Yeah. Look, like I said, we do think that there is certainly upside to USPB. We're looking for that upside in the medium-term targets that we've set for ourselves. You got to remember that when you look at the quarter and you look at the half, frankly that we're still in a period where we're seeing the normalization of the cost of credit. And as I mentioned in the prepared remarks, you have kind of a compounding [Technical Difficulty] now maturing at the same time that's playing through the P&L, that's not just true for us, that's true for others as well. And so, we'd expect and we are -- we do believe we're seeing some signs of a cresting when you look at delinquencies now. And so, we would expect that those losses start to normalize and loss rates start to come down as we go towards the medium-term. At the same time, we're investing in the business and we're looking to see continued growth in volume and on the top-line. And the combination of those things as we drive towards the medium-term will help us to deliver both the top-line growth and certainly improve returns from where we sit today and in-line with what we've guided to. So, it's a combination of top-line performance from volume, and obviously, the environment plays into that, but we feel like we've got a reasonable assumption around top-line growth there, cost of credit normalizing, continued discipline on the expense line, allowing for us to get improved returns across that USPB business.

Okay. I appreciate all of that. And one quickie on DCM. You had amazingly good performance. There's been plenty of conversation about pull-forward this year on just refi driving like three quarters of the activity. Could you just help us think through the second half, when thinking about DCM and just to make sure that we don't like start modeling this into perpetuity?

Look, I think when we think about the back half of '24, we're going to see a different mix of activity in Banking. We do still expect demand to be quite strong across our capital market products because you've got a wall of maturing debt securities coming up in the second half that carry on for a couple of years. But we did see some clients accelerating issuances into the first half, getting ahead of potential market volatility. So, if you put it all together, I think we expect the rate environment and the financing markets to continue to be accommodative and as well as to a continued deal-making with M&A being a bit larger in the overall mix, although some of the regulatory elements have put a damper on part of that.

Yeah. The only thing I'd add to that is, look, the wallet for the year is obviously going to depend on a couple of things. So, one, the return of a more normalized IPO market; two, the direction of volatility of interest rates; the ongoing global conflicts that we're all kind of seeing and witnessing; and then finally, as Jane mentioned in her remarks, the elections and what those outcomes look like, not just in the US but abroad. And so, there are a number of factors there that will play to the wallet, but as we said, we believe we're well-positioned to be there to serve our clients and to do so in a way that makes good economic sense.

The next question is from Jim Mitchell with Seaport Global. Your line is now open. Please go ahead.

Hey, good morning. Just Mark, maybe on NII down almost 4% year-over-year, it seems a little bit more than the guidance, but down modestly for the year. So, can you discuss sort of the puts and takes this quarter and how we should think about the quarterly trajectory for the rest of the year?

Yeah. So, I'd say a couple of things. So, one, as I mentioned, in the quarter, and if you see it on Slide 9, ex-Markets were down about 3%. That's largely driven by some FX translation that played through, but also some seasonally lower revolving card balances and then lower interest rates in Argentina. And what that is in Argentina, we have capital there, the policy rate was adjusted downward, and as that happened, we obviously earn less on that capital that flows through the NII line. As I think about the back half of the year and the guidance we have of modestly down, there are a couple of puts and takes to keep in mind. So, one is going to be rates, right? So, as I think about the higher yield that we can earn on reinvestment, that will be a tailwind that plays through from an NII point of view. The second would be volume growth, particularly in our card loans portfolio. And we do expect to see continued volume growth across the -- certainly the branded portfolio and so that will be another tailwind for us on the NII line. In terms of the headwinds, you've got the lower NII earned in Argentina from rates that will continue to play through. We've got assumed higher average betas in 2024, specifically on the non-US side. We still have in our forecast the impact of CFPB late fee. So, assuming that that goes into effect for this year, that will have an impact and it's in the forecast. And then, the impact of lost NII from the exits that we have. And so, the combination of those things will probably mean that NII in the back half of the year is a little bit higher than the first half, but again, consistent with the guidance that we gave of modestly down.

That's helpful. And maybe just quickly kind of a similar question on expenses, better-than-expected this quarter, but there was no restructuring or repositioning charges. I think to get to the high end of your range, you'd have to be up a little bit in the back half from 2Q run rate, is that because you expect more repositioning/restructuring in the second half, or maybe just talk through expense trajectory from here?

Yeah. So that's right. When I talked about at the first quarter, I talked about kind of a downward trend for each of the quarters after Q1. The second quarter came in a bit lower than we were expecting. I'm sticking with the guidance and that does mean that the back half of the year will likely come in -- will come in higher than the second quarter. That's a combination of a couple of things, including the pace of hiring and investment that we will do in the transformation work that has to be done. It also includes repositioning charges that we might take or need to take as we continue to work through our businesses across the firm and the franchise. And then, the second quarter did -- yes, the second quarter did have a one-time or so in some delayed spending that will pick up in the third and fourth quarter around advertising and marketing and some of the other line items. So, yes, the second quarter will -- the third and fourth quarter, the back half will be higher than the second quarter, but consistent with the guidance that I've given.

The next question is from Erika Najarian with UBS. Your line is now open. Please go ahead.

Hi. I had two questions, and I'll ask the first one on expenses first since it's a good follow-up to the previous. Mark, just to clarify, let's just say take the highest end-of-year range at $53.8 billion, just trying to think about how consensus will move. So, we take that $53.8 billion and then add the $285 million of FDIC expenses year-to-date so far and add the civil money penalties of $136 million, so that gets us to $54.2 billion for the year and any other repositioning charges in the second half of the year would already be included in the $53.8 billion?

So, yes, the answer to last part of your question is yes. So, in the range that I've given, $53.5 billion to $53.8 billion, that includes our estimate for the full year of repositioning and any restructuring charges. That range excludes the FDIC special assessment that we saw earlier in the year and it excludes the CMP of $136 million.

Got it. And my second question is for Jane. I mean, I'm sure you're getting tired of the question on capital return. So you're buying back $1 billion -- you plan to buy back $1 billion this quarter. It looks like you didn't buy back any in the second quarter. And I'm asking this question in this context because consensus has a buyback of nearly $1 billion in the fourth quarter and staying at this rate for the first half of next year and ramping higher. And I guess, is the $1 billion number a catch-up pace because you didn't buy back any in the second quarter? And I fully appreciate that you also have the Banamex IPO coming, which is different from peers that are also waiting for Basel clarification, but I'm just wondering, do we need to wait for that Banamex IPO for the company to feel comfortable moving away from that quarter-to-quarter guidance? And also, of course, I just want to readdress the beginning of the question when I asked specifically about the pace.

Okay. So, we are not going to be giving guidance going forward around our buybacks. We are going to continue to give quarterly -- and make it a quarterly determination as to the level. And a lot of that is to do with the uncertainty about the forthcoming regulatory changes. I think we were delighted to see a slight reduction in our stress capital buffer, reflecting the financial strength and resiliency of our business model and also good to see the benefits of our strategy playing out, but with the regulatory changes uncertain and we are -- that's one of the major factors for us to continue with the quarterly guidance.

Yeah. That's right. On the first part of your question, Erika, I'd say, look, we were in discussions with our regulators and we made a prudent call as it relates to buybacks in the quarter for Q2 [Technical Difficulty] Q3, as we talked about would be at $1 billion and that should not be necessarily viewed as a run rate level. As Jane mentioned, we'll take it quarter-by-quarter from here.

The next question is from Gerard Cassidy with RBC. Your line is now open. Please go ahead.

Thank you. Hi, Jane. Hi, Mark.

Good morning.

Mark, regarding the comments you made about the higher credit losses, the three factors that you gave us, can you also talk about if this was a factor at all for you folks? Was there any FICO score inflation back during the pandemic that might be playing into these kind of credit losses? And as part of the credit card question, you mentioned the CFPB, the fees that you have factored them, the lower fees, you factor that into your forward look, where do we stand on that? Do you guys have any color on that as well?

Yeah. So, on the first part of the question, look, we all kind of have talked about in the past the prospect of FICO inflation back during the COVID period of time. We've been very, very focused on ensuring that acquisitions that we've made have been appropriately kind of analyzed in the underwriting of that to get comfortable with the quality of new customers that we've been bringing on. In light of the environment, we have looked at moving towards higher FICO scores for new account acquisitions. But as I think about what we're seeing now, there is that dichotomy that I mentioned where we have the higher FICO score customers that are driving the spend growth and that frankly have still continued strong balances in savings and it's really the lower FICO band customers where we're seeing the sharper drop in payment rates and more borrowing. And so, the FICO inflation has effectively kind of fizzled out when we look at the mix and dynamic of the customer portfolio that we have at this point. And in terms of the CFPB, late fees, well, I don't have an update on that. Like I said, we've built in an assumption in the -- in our forecast, but in terms of the timing, I don't have a formal update on the certainty of it.

The next question is from Ken Usdin with Jefferies. Your line is now open. Please go ahead.

Hey, thanks, good morning. Hey, Mark, talking about the NII outlook and the fact that now we've got a little bit of a discrepancy starting between US rates, maybe higher for longer, and then the beginnings of some of the non-US curves starting to at least put forth their first cut, I know we've got that good chart that you have in the Qs about the relative contributions, can you just help us understand a little bit of like just generally how you're thinking through that discrepancy and how that informs the difference between US-related NII and non-US-related NII as you go forward?

Yeah, thank you. So look, I think that as we look at it out through the -- certainly through the medium-term, we expect to see continued NII growth at obviously a modest level, certainly lower than what we've seen historically. And that's in large part because -- or in-part, I should say, because of how we've been managing the balance sheet and that has allowed for us to reinvest as securities have rolled off and earn a higher yield on them relative to what we were earning. In some instances, they were five-year terms on some of these investments. And so, we still think there's some upside from a reinvestment point of view. The point you make around kind of non-US dollar or US rates kind of coming off, that will play through a little bit as we think about the beta increases that we're expecting outside of the US. And so, we've assumed that we have higher betas pickup outside of the US. If rates kind of come off in a more substantive way, then we could see kind of a little less NII pressure than we're forecasting there. But net-net, as I think about the combination of volume growth that we're expecting between loans and deposits over that medium-term, the higher yield we can earn on our assets, combined with the pricing capabilities that we have across the portfolio, offsetting some of that beta, we believe will have continued NII growth. As I think about what I often point to in terms of the IRE analysis and you have to remember that, that is a shock to the current balance sheet and it assumes that the full curve is moving simultaneously across currencies. And in that case, the 100 basis point parallel shift downward would be a negative $1.6 billion, with about $1.3 billion of that coming from non-US dollar. But again, that does assume that all of those currencies come down at the same time and doesn't account for the rebalancing of the balance sheet and things that I mentioned like the reinvestment higher yields that we'd be able to earn.

Got it. Okay. And just one follow-up on the OCC amendment, and that's specifically related to the resource review plan. Do you have a line-of-sight on how long that will take you guys to finish because it seems like -- and is that what we should be thinking about in terms of just understanding like what side of what you need to get done in terms of the other language that's written in the order?

So, Ken, look, the Resource Review Plan is just that it's a plan to ensure that we have sufficient resources allocated towards achieving a timely and sustainable compliance with the order. Essentially, if an area is delayed or looking as if it could be, we'll determine what additional resourcing, if any, is required to get back on track, and then we'll share that with the OCC in a more formalized way than we do today. We obviously review this pretty constantly ourselves. We're already working on the plan after it's finalized with the OCC. So, it will be confidential supervisory information that we can't disclose. So, we won't be able to tell you that the plan is -- whether the plan -- what the nature of the plan is going to be, but it won't be much more complicated than what we talked about. And we're expecting to get it, we're not expecting this to take long.

The next question is from Betsy Graseck with Morgan Stanley. Your line is now open. Please go ahead.

Hi, good afternoon.

Hello.

Hi, Betsy.

Okay. So, I know we talked a lot about expenses. I just have one kind of overarching question here, which is on how we should think about the path of expenses between now and the medium term as we have kind of come quite a long way in the simplification process, maybe if you could give us a sense as to how far along simplification impact on expenses we are? And overlapping with the regulatory requirements, do these net out or are we skewed a little bit more towards regulatory requirements being a bit heavier than what's left on simplification from here? Thanks.

So, thank you, Betsy. I guess, I'd say a couple of things. So, I think we said it in the past, so the target for the medium-term, I think 2026 is somewhere around $51 billion to $53 billion of expenses. As we've said, we'll have about $1.5 billion in savings related to the restructuring that we've done and another $500 million to $1 billion related to net expense reductions from eliminating the stranded costs as well as additional productivity over that medium-term period. And so, we've made, I think, very good headway, as Jane has mentioned in the org simplification and the restructuring charges associated with that, those saves will -- have started to generate some of those saves in the early part of that, meaning this year will likely be offset by continued investment that we're making in areas of the business like transformation, but also in business-led or driven growth. And you should expect in terms of the trend that we would have a downward trend towards 2026 and achieving that range.

And I just want to reiterate, we remain confident that we will meet our 11% to 12% RoTCE target over the medium-term. And we've got the -- we have the ability to manage the different elements we've been talking about today, making sure that we're investing sufficient resources into the transformation, so we can be on-track with that, as well as in our businesses, as well as the return of capital to our shareholders. And so, we feel confident around that and good about that we can manage this.

Yeah, I think that's a great point, Jane. Look, the reality is, as was pointed out earlier, we spent about $3 billion last year, a little bit under that on the transformation-related work. And the plan has called for us to spend a little bit more than that this year. And frankly, in the first half of the year, as we work through the transformation work and some of the things that Jane and I have mentioned earlier in the year that we've been focused on like data and data related to regulatory reporting, we've had to spend more than we had planned for in the first half, right? And we've done that and we funded that. We've been able to find productivity opportunities that allow for us to still stay within the guidance that we've given for the full year. So, we are managing this entire expense base, right? So, not -- the whole $53-plus billion of it, we are actively managing that with an eye towards what's required from a transformation point of view to keep it on-track, to accelerate in areas where we're behind, and to shore up areas where we are tracking in accordance to what the order requires and where are there other inefficiencies that can allow for us to free up the expense base. And so, things like the work that Andy Sieg has done with the finance team around that expense base and finding efficiencies there are opportunities that we've been able to tease out of the business. Things that we have done in parts of USPB and that we have continued to get up there in parts of Banking, which you see in the down 10% this quarter are areas where we've been keenly focused on, where are there duplicative roles, where are there inefficient processes that we can actually drive greater efficiency out of. So, long-winded way of saying, we understand the expense guidance that we've given. We also understand and stress the importance of funding the transformation with what's required and we are doing both.

Okay, great. Thank you very much. Appreciate that.

The next question is from Vivek Juneja with JPMorgan. Your line is now open. Please go ahead.

Hi. Okay, let me just clarify this, Mark and Jane, just to make sure that we all have it right. The $53.5 billion to $53.8 billion does not include anything thus far on what you think you may need to spend on the Resource Review Plan, meaning what additional resources you would have to put to fix the consent order, am I right there?

No, you're not right. So, I think -- as you've heard us talk about, Vivek, for a while now that we knew the areas that we were behind in elements of our transformation program and that we began addressing those and making the investments, some of that is in people, some of that is in our technology spend, it's using different tools and capabilities to get areas addressed earlier and we began that earlier in the year. And you saw that acknowledged as well by our regulators, who pointed to the fact that we've already begun addressing the areas that we're behind. Mark?

That's right, Jane. What you have heard is that, despite having to spend more, some $250 million or so more, we're not changing the guidance, right? And so, we have -- as Jane mentioned, we have worked on areas already that we've needed to and we have looked for ways to absorb that and are doing so within our guidance.

Okay. So, going forward, even though this plan is still to be sort of put together and approved by the regulators, we should not expect any change to this expense?

Look, the plan -- the Resource Review Plan, as Jane mentioned, is what we're working through now with the regulators. That will be a process for demonstrating to them that we are spending and allocating the appropriate resources to accomplishing the commitments that we have. Appropriate resources can range from people to technology to enhancing our processes and ensuring better execution. If you think about what that will entail, it will entail areas where we are delayed or behind as we identify those areas, being able to tease out the root cause of any delay and ensure that we've got proper funding allocated to get it back on track. And that's me framing out how I think about what something like this might look like. And so, what we're saying is that, if we identify issues in the quarters to come that we haven't identified already, that's the process we're going to apply to those issues. And as you've heard us say repeatedly, we're going to spend whatever is necessary to then get those things back on track, and as we've done thus far this year, we're going to look for opportunities to absorb those headwinds. I hope that's clear.

The next question is from Matt O'Connor with Deutsche Bank. Your line is now open. Please go ahead.

Hi. Apologies if I missed it in the opening remarks, but what drove the decline in credit card revenues from 1Q to 2Q? It looks like they were down about 6% in aggregate even though average loans went up, spending went up. What was the driver of that?

Credit card revenues seasonality...

Yeah. Seasonality...

Seasonality playing through there.

Sequentially.

Yeah, sequentially. Yeah.

I think if you look year-over-year, you'll be able to see a pretty common trend there. The consumer is slowing in some of the -- in the spend, as Mark had referred to Matt, but -- and a lot of the spending and the growth areas we are seeing and the underlying numbers is being driven by the affluent customer.

Yeah, I think there's also the dynamic on the CRS of the reward -- across the portfolio of rewards playing through from one quarter to the other. So, the combination of those things are playing through the revenue line there.

But nothing that's particularly worrying us, Matt.

Okay. And then, just separately on -- the very early kind of part of the prepared remarks, you talked about the dividends being capped in terms of what can be upstreamed from the bank to the holding company because of the OCC thing that came out this week. Like, for all intents and purposes, like does that impact how you run the company or subsidiary or impact liquidity or capital? I understood the comment, no change to dividends or buybacks at the holding company, but is there any impact from that, that we would notice on the outside? Thank you.

Look, the -- let's be clear. This action does not impact our ability to return capital to our shareholders. The dividends that are referenced are just intercompany payments from CBNA to the parents. So, first of all, don't confuse what a dividend is here. We will -- it's not going to impact how we run the company, the subsidiary, the capital or the liquidity at all, and the dividends are not capped.

Yeah. I think the -- Jane, that's right. And I think let's not lose sight of the purpose of the orders that are there. And the purpose of the orders that are there are to ensure that we're funding and allocating the effort appropriately, right? So, the regulators want essentially the same thing we want, right, is for us to get this done, right? And so, that is the primary objective. The reference to the dividending from out of CBNA up to the parent is certainly referenced there between now and establishing that Resource Review Plan, but as Jane mentioned that does not constrain the parent from doing the things that it will need to do. And as opposed to -- it's not a cap. What it is, is that anything above the debt service of the parent or the preferred dividends and other non-discretionary obligations would require a non-objection from the OCC.

Until the resource plan is agreed...

Until the resource plan...

And as you'll have seen the resource plan needs to be submitted within 30 days. And as I indicated, we're working on that one and not anticipating that to be a problem.

The next question is from Saul Martinez with HSBC. Your line is now open. Please go ahead.

Hi, good afternoon. Thanks for taking my question. Just -- I guess I just want to follow-up on the latter question. I just want to be very clear. So, the -- what you're saying is that the requirement that CBNA receive a non-objection to before dividending upstream to the parent, that does not impact how you think about your capital flexibility, how you think about -- it doesn't restrict you in any way and shouldn't impact, for example, your ability to benefit from -- for example, a Basel endgame rule that is softened or some of the benefits, Mark, that you talked about in terms of simplification. So, you don't see this impacting your ongoing level of capital flexibility and your ability to repurchase stock going forward if some of these things actually do play out?

No. No, I don't.

Okay. That's fair enough. That's clear as it can be. Good.

Thank you.

Second question on, I just want to follow-up on USPB. I mean, I still -- I get the point that you're seeing normalization in losses in cards, but even if I adjust for reserve builds, your RoTCE is still single-digit. I would think even at these NCL levels, your cards business is pretty profitable. You're a scale player. I mean, you're above sort of pre-pandemic levels, but not -- I don't know if I -- it doesn't seem like it's that much higher by a dramatic amount. It would seem to imply that the retail bank is a huge drag on profitability even maybe even losing money, I don't know. But can you just talk about what you can do to sort of improve the retail bank profitability and just give any more color that you can in terms of the path to get to that high-teen RoTCE that you talked about?

Yeah, let me let me kick-off there. And let's say, look, clearly, we're very focused on improving the returns in USPB to get us to the high-teens level over the medium term. And you've seen us generating healthy positive operating leverage this quarter. We've had a number of quarters of good revenue growth. And as Mark said, however, we're at the low point of the credit cycle. We knew this year we would see the pressure on returns from the elevated NCLs and some of the industry headwinds we've talked about. But as the NCL rates approach steady-state levels and the mitigating actions that all of us have been putting in place against the industry headwinds as those take hold, we expect the returns will improve and support the medium -- the firm-wide medium-term targets. In the retail bank, we're continuing to focus on growing share in our six core markets and we're doing that leveraging our physical and digital assets and it plays an important role in enabling the wealth continuum and the growth that we are looking at in our Wealth franchise. We are continuing to improve our operating efficiency, being very disciplined in expense management and managing carefully the branch and digital productivity of the retail bank network. But we're at the high point of the credit cycle, it's driving the low point for USPB, and as I said in my remarks, we're expecting to see those returns improve from here.

The next question is from Steven Chubak with Wolfe Research. Your line is now open. Please go ahead.

Hi, good afternoon. So, Mark, I have a fairly technical question on DTA utilization and specifically the NOLs. The deduction is still fairly significant at $12 billion. It roughly equates to about 10% of your market cap. And the good news here, I suppose is that it should come back into capital over time, but we've seen very little utilization over the past two years despite the firm being profitable. And so, wanted to better understand is, what's constraining your ability to utilize those DTAs? And are there catalysts on the horizon that can actually help accelerate that utilization beyond organic earnings generation?

Mason Yeah, thank you. So, I'm going to give you a very simple answer to a very complicated question. It really comes down to driving US income, right? And so, we are focused on not just all of the things that we've mentioned, but driving higher income in the US that allows for us to utilize the disallowed DTA. We saw some of that in the quarter, and we expect to see more of it as we move through the medium-term, but that is the major driver of that utilization. And...

And we've got our -- and we have many of our business heads very much focused around that opportunity as well. So, winning in the US is a very important leg, for example, of the strategy that this is refreshing. Similarly, we see opportunities in -- from the commercial bank, we see it in Wealth, we see it in obviously in US Personal Banking and in Services. So, we're very -- we're focused from a business strategy point of view on this not just from the financial side.

Yeah, thank you both for that color. And maybe just a quick follow-up. Just on the retail services business, we are seeing some evidence that your competitors in this space have been more aggressive leading with price in an effort to win some new mandates. I was hoping you could just speak to what you're seeing across the competitor set and your appetite or willingness to potentially offer better economics in response to increased competition from some of your peers?

Well, I think you'll be delighted to hear that we're very focused on returns rather than just on revenues. So, when we enter into discussions with a partner who may be a new RFP for their portfolio or looking at new ones such as the one we just agreed with Dillard's, it's all about the returns and the profile of the business rather than the revenue side of things. And it's a shift probably from some of the ways in the past, but I'm very pleased with how disciplined the team is being around this and we're seeing the benefits of it.

And that may be different from what you hear and see from other players in the space, but as Jane mentioned, we're keenly focused on ensuring that, yes, we have a good partnership, but that we're generating an appropriate return. That's part of achieving our medium-term targets. And as you know, since you brought up retail cards, I mean, when we think about how CECL works in the reserves you have to establish for these partnerships, we're establishing full lifetime reserves that's on the balance sheet where ultimately we end up splitting those through the partner sharing economics. So, it's another important consideration as we think about expanding and taking on these relationships and renegotiating partnerships to making sure that returns make good sense for us.

And Mark and I have no problem saying no to revenue that doesn't come at the right returns and being very disciplined around that.

The next question is from Vivek Juneja with JPMorgan. Your line is now open. Please go ahead.

Hi. Sorry, just a follow-up on this whole consent order stuff, Jane. What do you think this does in terms of timing? How much longer for you to sort of get this past you? Are you talking couple of years? Is it now longer by a year? Any sense of that? Any sense of helping us think through that?

Look, in terms of the consent order and the areas we've had delays, there are four areas to the consent order; it's risk management, it's data governance, it's around compliance, and it's around control. As we've said, we were falling behind in certain areas related to data and we've been investing to address the areas that we were behind. We also saw an increase in the scope related to regulatory reporting. So, we added some more bodies of work there and we are well underway. So, we are not expecting this to extend on the original expectations that we have on when we will complete the body of work for the consent order. We have a target state for the different areas of it. We have the plan to achieve those target states. We'll make the investments necessary to ensure that we do so. We'll try and get this done as quickly, but as robustly as possible. And we're doing this by making strategic fixes and investments rather than what I would call the old city way, which is a series of band-aids that remediate, but don't actually fix the underlying issue. And that way, we are delivering for our shareholders as well as our regulators and our clients because we're putting in strategic solutions that will benefit all, but I'm not expecting this to change the timeframes.

Thank you.

The final question comes from the line of Mike Mayo with Wells Fargo. Your line is now open. Please go ahead.

Hi. Just two clarifications. So, this is a very high-profile amendment to the consent order. And I think what I hear you saying, but if you can confirm, your risk compliance and controls are getting passing grades. It's really the data. And as it relates to the data, you're talking about, 11,000 regulatory reports, some of which have 750,000 lines of data. Is that really the scope of what you need to fix? Because people see this externally and say, hey, you're failing in terms of overall controls and resiliency, but I think I hear you saying it's really more about just the data and the regulatory reporting, which is important, but more of a slice of a broader picture. Is that correct?

Yeah. Mike, maybe I just -- you're asking a great and it's an important question. So maybe I try and explain what we -- the data elements because it's an area that Mark and I have pointed to. So, first of all, we use data all over the firm. We use it to deliver 72 million customer statements every month. Our corporate clients, that you heard about at our Service Investor Day access account data real-time across multiple countries on CitiDirect, and we're moving $5 trillion roughly per day for those clients around the world. We trade billions of dollars in a millisecond on our trading platforms. We can see our liquidity positions real-time around the world. This can only be done if you've got pretty pristine data and highly automated ecosystems. So -- but what is the transformation doing? What it is doing is simplifying how data moves through the firm and it's about upgrading the management and governance over those flows. And we -- as I've said, we're doing a strategic overhaul of large parts of our infrastructure. So, what are we doing? We're making sure we're capturing data accurately using smart tools and automation. We will often talk about this smart system, make sure there's no errors when we book a trade. We've seen our error rate down 85% as a result of it. We're housing our upstream data in two standardized repositories. They're the golden sources, Olympus and Data Hub, which you've heard me talk about a few times. And they're a golden source now for all of the downstream data use, populating the thousands of regulatory reports Mark talked about and other areas. And what a single repository means is that the data models, the data quality rules, the controls you put in place to…

The only thing I'll add...

Real short follow-up...

Sorry. What was that, Mike?

Yeah, just to say -- real short follow-up to that. So you're doing all this great stuff, but you still fell short. Just in, like, one sentence, despite doing all this great stuff that you described, the regulators still said you didn't get it done. Why after doing all that, didn't you get that it done in the eyes of the regulators and why won't be fixed now? Just like a one-sentence explanation for that if you have it?

I always said that a transformation of this magnitude over multiple years would not be linear. We have many steps forward. We have setbacks, we adjust, we learn from them, we move forward, and we get back on track.

And Mike, if I could just put one number into context, because you played back the 11,000, which was a number of global regulatory reports across the landscape here. There are probably 15 to 30 that are core US reports that are pivotal to our US regulators. And a lot of what we're discussing here is about ensuring that we're prioritizing the data that impacts those 15 to 30 reports as we work through this.

There are no further questions. I'll now turn the call over to Jenn Landis for closing remarks.

Thank you all for joining us. Please let us know if you have any follow-up questions. Thank you.

This concludes Citi's second quarter 2024 earnings call. You may now disconnect.