Citi should benefit from regulators forcing a risk fix
Consent orders provide a perfect excuse to shareholders for spending on the better risk management and controls that Citi’s businesses need.
In 2021, Citi’s top management has focused on complying with regulatory consent orders to make its risk management systems and data controls fit for purpose.
Failure to address shortcomings that regulators had consistently warned about led to the departure of chief executive Michael Corbat in February. His replacement, Jane Fraser, may have found appetite and capital to invest in growing revenues: hiring 500 wealth managers mainly in Asia, for example, and 200 investment bankers to profit from the boom in M&A. But she makes it clear that nothing is more important than the successful execution of what the bank calls its transformation programme.
“It is our number one priority,” Fraser told analysts on the third-quarter earnings call. “We want to make sure the bank is modernized in its risk and control environment.”
Some 3,000 people are working on the consent orders, which also span data management, finance and compliance. This effort boosted group expenses by 3% during the first nine months of 2021 compared with 2020, with business investments contributing another 2% to cost growth.