Citigroup Inc. (C)
Q4 2008 Earnings Call Transcript
January 16, 2009 8:00 a.m. ET

Executives

Vikram Pandit - Chief Executive Officer
Gary Crittenden - Chief Financial Officer
Scott Freidenrich – Head, Investor Relations

Analysts

Mike Mayo - Deutsche Bank
John McDonald – Sanford Bernstein
Guy Moszkowski – Bank of America, Merrill Lynch
Meredith Whitney – Oppenheimer & Co
Glenn Schorr – UBS

Presentation

Operator

Good morning ladies and gentlemen and welcome to Citi’s fourth quarter and full year 2008 earnings review, featuring Citi Chief Executive Officer, Vikram Pandit and Citi Chief Financial Officer Gary Crittenden. Today’s call will be hosted by Scott Freidenrich, Head of Citi Investor Relations. (Operator instructions) Please hold all questions until the completion of the formal remarks at which time you’d 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. Mr. Freidenrich, you may begin.

Scott Freidenrich – Head of Investor Relations

Thank you, operator and thank you all for joining us. Good morning and welcome to our fourth quarter and full year 2008 earnings review. The presentation we will be going through is available on our website at Citigroup.com. You may want to download it now if you have not already done so. The financial supplement is also available. On the call this morning is Chief Executive Officer, Vikram Pandit, followed by Chief Financial Officer, Gary Crittenden who will take you through the earnings presentation. Afterwards we will be happy to take any questions you may have. Please limit follow up questions to one. Before we get started, I would like to remind you that today’s presentation may contain forward-looking statements. Citi’s financial results may differ materially from these statements. So please refer to our SEC filings for a description of the factors that could cause our actual results to differ from expectations.

With that said, let me turn it over to Vikram.

Vikram Pandit – Chief Executive Officer

Scott thank you and good morning everybody. I appreciate your joining us this morning. Our results released this morning are clearly disappointing and I can assure you that my number one priority is to return this company to profitability. In a few minutes Gary will take you through the earnings. I want to talk to you this morning about the strategic direction for Citi and really the strategic destination. Gary will then provide you a roadmap for restoring profitability and rebuilding our TCE. As you all know, the new management team has been here for a little over a year working on your behalf. As you also know, we came into this with a lot of embedded challenges. We recognize what we needed to do and we started to act quickly. For much of the year we’ve been dealing with dysfunctional markets which deteriorated even further after Labor Day but we kept working through all the dysfunctionalities.

In May, at Citi Day, we outlined our three step plan, to get fit, to restructure Citi, to maximize Citi. For all of 2008 we focused on getting fit and as a result our assets were reduced from almost $2.4 trillion to $1.9 trillion. We had identified legacy assets which we have reduced to about $300 billion. Normalized expenses are down 16% to $12.8 billion in Q4 ’08 excluding one time items and we’re on track to achieving our targeted full year expense base of $50 to $52 billion. Headcount is down from 375,000 to 323,000 with defined plans to reach approximately 300,000 in the near-term. Our Tier 1 capital ratio is up from 7.1% in Q4 ’07 to approximately 11.8% in Q4 ’08. We sold a number of small and large businesses and as you know, we added a lot of experienced talent to the company. It’s hard for people who are not here to truly understand the magnitude of change we’ve gone through at Citi and I really want to thank all of the people at Citi who have worked so hard to address all our challenges and accomplish so much in such a short time.

As we’ve been getting fit, we have been continually focused on restoring profitability as fast as possible and positioning Citi for the markets of the future. The world is a different place than in May and particularly, post Lehman. The funding markets and capital markets have changed fundamentally. We’re all relying on funding support in some form or another. I’m sure many companies are rethinking how to architect themselves for the future. Considering the dysfunctional markets and the extent to which the world has changed, as well as the progress we had already made, we’ve come to some conclusions about our future. First, there are businesses that we had exited such as traditional asset management, but then we inherited some from acquisitions. So, for example we still have a few retail asset management businesses that are not core to our long-term strategy.

Secondly, the funding markets have changed and may have changed for the foreseeable future and we have to consider the impact on our strategy. We have concluded that certain aspects of our sales and trading business and our consumer lending businesses would be more challenged in this environment and need to be restructured. Thirdly, we have a pool of assets that are not necessary to our business. This includes the ring fenced assets with the US Government loss sharing, some of these we have highlighted to you previously. Fourthly, we like the Smith Barney and Nikko Cordial businesses. They’re good businesses and believe they have considerable value as evidenced by the transaction we just announced with Morgan Stanley but they do not really add sufficiently to our global strategy and they do add to management complexity.

We’ve also come to the conclusion that our competitive advantage is our global presence which is rich in history and relationships. We have an irreplaceable franchise and this is the heart of our company. We have a presence in about 140 countries and we have built this over 200 years. Through this global network we’re helping the world globalize. We help local companies globalize. We help global company’s access local markets. We also have deposit taking capabilities throughout the world which we can put to work with our consumers and institutional customers in a diversified way that produced the highest returns. That is what a global universal bank is. Given these conclusions, we’ve decided to restructure the company into two; Citicorp and Citi Holdings. By implementing this, we can focus on maximizing the value of Citi by operating Citicorp as our core business and by optimizing Citi Holdings through rationalization and managing it through the cycle. With that as background let me briefly describe what’s in both and what we’re trying to achieve, first the strategic story and then the financial story.

Let me begin with Citicorp. Citicorp is the global bank for businesses and consumers. Our distinctiveness is our globality. There are two parts to the business, the global institutional bank which includes our industry leading transaction services business that has a global network spanning 140 countries. Our institutional bank will encompass both corporate and investment banking and will remain a world class banking business providing a full range of services including advisory, underwriting, lending and market making. We’re committed to remaining a top tier player in this area. We’ll continue the process of de-risking and refocusing the sales and trading businesses towards more market making businesses. We have and will continue to exit several forms of proprietary risk taking. Where we continue to take principal risk we will only do so when we have proven teams and a clear source of advantage.

We have reduced the capital in the securities and banking business significantly. The balance sheet in this business is down approximately 25% since the beginning of 2008 and we intend to operate the securities and banking businesses within Citicorp with approximately $700 billion of assets. We have great people and we’ve added substantial talent to those people and we’re building a risk culture that is consistent with our strategy. These changes and the accompanying risk profile will allow us to produce the desired consistent and stable earnings over time. We’ll continue to build our distinctive private bank that is well known globally and serves high net worth individuals including over 30% of the worlds billionaires. There are strong linkages between our private banking services and our advisory financing services. We are the number one wealth manager across Asia and the third largest in Latin America.

Let me turn to retail banking. We have a strong presence in the US, Asia, Latin America, Central and Eastern Europe and the Middle East. This includes our credit card business in addition to our consumer and commercial banking business. The retail banking business is strongly positioned with good growth prospects. In the US our retail bank is well positioned in primary metropolitan areas with an attractive affluent and small business customer base with over 1,000 branches. Our branded cards business remains a top player. We’re already number two in Asia with a rich 100 plus year legacy. Going forward we’ll substantially expand our market leadership position and continue to focus on innovation particularly via technology.