Hello, and welcome to Citi's Third Quarter 26 Earnings Call. Today's call will be hosted by Mark Mason, head of Citi's strategy, M&A, and investor relations. We ask that you please hold all questions until the completion of the formal remarks.
At which time, you will 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 third quarter 26 earnings call.
I am joined today by our Chair and Chief Executive Officer, Jane Nind Fraser. And our chief financial officer, Gonzalo Luchetti. I would 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 will turn it over to Jane.
Thank you, Jen, and good morning to everyone. This morning, we reported net income of $5.2 billion for the third quarter, with an EPS of $2.85 and an ROTCE of 11.5%, Our returns improved meaningfully, in services, banking, wealth and US consumer cards. The firm's ROTC grew by 180 basis points over last year, and our net income was up 17%.
With revenues up 8% year over year, we delivered our best third quarter revenue in a decade. And we saw revenue growth in 4 out of our 5 businesses. As previously shared, we pulled some of our planned investments and severance into this quarter.
We remain very intentional around our expenses and our investments in talent and technology. Even with this pull forward, we delivered positive operating leverage, holding expense growth to 3% excluding last year's notable item. Our overall performance continues to demonstrate the consistent execution of our strategy.
Now let's go through our 5 businesses. This was another standout quarter in services. With revenues up 15%.
Growth was broad based across every driver, from deposits to commercial card spend. And we saw continued momentum in trade loans and cross border activity across the network. We continue to lead through innovation, bringing new real time capabilities to our clients, with the launch of Citi Token services in the UAE and Manan, and the introduction of Custody Plus.
Assets under custody and administration grew by 16%, and we are laser focused on winning and onboarding further new mandates. In markets, revenues were up 6%, Equities revenues were up 14% driven by our performance in prime and in Asia, where we have been investing to gain share. FICC was up 4%, Rates was pressured by the trading environment, but we saw good growth in FX and spread products.
Both stable revenue streams. In banking, revenues were up 6%. We performed particularly well in ECM, where we played meaningful roles in the 6 largest transactions of the quarter.
Including leading SK Hynix, the largest ever of an Asian based issuer. And in leveraged finance, we led $11 billion high yield offering. The largest ever of its kind.
I am proud of these wins and how our client relationships and bankers, including the new talent we have attracted, allowed us to land these mandates. As you have seen this quarter, we are continuing to invest responsibly in high quality talent to build on our strengths and fill identified gaps in our franchise. Wealth's performance continues to steadily improve, with growth across all 3 businesses.
ROTCE was over 14%, significantly higher than last year. We brought in $38 billion in net new investment assets this quarter, up over 100% from a year ago. We continue to launch new offerings such as Premium Boost, to deepen client relationships, and are seeing strong uptake of our wealth offering by our retail bank clients.
In US consumer cards, revenues were flat as a result of higher partner payments. At the same time, our general purpose portfolio drove 6% growth in total average loans. We are increasing investment in this business, both through our deep relationships with key partners, and differentiated rewards for our customers.
As you saw with the acquisition of Card. With returns of over 21% in the quarter, this is already a very attractive business, and the benefits of our investments will continue to scale over time. In legacy franchises, we closed on the sale of a 1.4% equity stake of Banamex.
Bringing the total amount divested so far to 49%. We are now busy preparing for Banamex deconsolidation from Citi next year. The IPO would happen after that, when market conditions allow, and when the usual regulatory requirements are met.
At that point, our international consumer divestitures will be nearly complete. Turning to capital. We returned over $4 billion to our shareholders this quarter, including $3 billion in share buybacks.
We have also utilised about £900 million of our disallowed DTA so far this year. Slightly above the path we discussed at Investor Day in May. Our tangible book value per share rose 6% to $101.59 and our CET1 ratio stood at 12.8%, and remains about 120 basis points above our current regulatory minimum.
I know that the opportunities and risks that AI presents are on everyone's mind. Our transformation has modernized our core technology platform giving us the foundation we need to implement AI firm wide. As I have said before, we are approaching AI through 4 lenses: how it can help us grow, how we can deploy it to operate more efficiently, how we can teach our people to use these new capabilities, and how we can strengthen our defences given the enhanced threat environment we and our clients face.
I have talked frequently in the past about what we are doing on the first 3, and we are excited about the top line benefits and the efficiencies we are delivering. And the many opportunities to do more for our clients. But let me spend a minute on the 4th lens.
Our cyber defense strategy is about being on the front foot. About moving fast and retaining trust. We do not wait for risks to happen, we are constantly preparing and improving our defences.
We are in the business of managing risk every day, and this is no different. We have been hardening our systems and running challenging and disruptive scenarios, to stress test our defenses and our responses. We then modify our playbooks based on what we have learned, so we are ready before an event occurs, not after.
We are focused on our resilience, and working with our peers and regulators on reducing systemic risk. Even as we deploy AI to improve the performance of our firm. Finally, on the macro environment, Conditions did soften a bit, during the third quarter.
And while various headwinds, most recently higher energy prices and tighter monetary policies, have been challenging, the global economy has held up remarkably well, In the US, while much has been made of the AI boom, the consumer is still driving much of the growth, the labor market is stable, and companies remain active. Our near term economic outlook remains positive. China is seeing similar benefits from AI, but without the consumer spend needed for balanced growth.
And so their economy leans heavily on exports. And Europe remains structurally challenged. That backdrop is exactly why clients are leaning on our network.
They are engaged and they are healthy, as you will see from our credit numbers. They are open to strategic opportunities while being keenly aware that there could be more disruptions ahead. Our focus is on delivering our network and providing the intellectual firepower to help them compete more effectively.
Raise capital, or manage their supply chains. They know we will be at their side no matter what environment they face. This quarter, was another proof point of our consistent execution and delivery in the face of a dynamic environment.
In terms of the journey ahead, as know, we expect to exceed this year's ROTCE target of 10-11%, even as we pull forward the investments to support our near term target of 11-13%, But these are simply the next waypoints on our path to reach 14-15% in a sustainable manner which we will do. With that, let me turn it over to Gonzalo and then we would then both be delighted to take your questions.
Gonzalo Luchetti
Head of US Personal Banking
Thank you, Jane and good morning, everyone. I am going to start with the firm wide financial results. Focusing on year over year comparisons unless I indicate otherwise.
And then review the performance of our businesses in greater detail. On slide 4, we show financial results for the full firm. Which demonstrate the progress we have made and the momentum of our strategy.
This quarter, we reported net income of $5.2 billion EPS of $2.85 an ROTCE of 11.5% on $23.8 billion of revenues, generating positive operating leverage. Total revenues were up 8% driven by growth in services, wealth, markets and banking. Partially offset by a decline in all other.
Net interest income excluding markets which you can see on the bottom left side of the slide, was up 7% driven by growth in services, wealth, and U. S. Consumer cards, partially offset by declines in Corporate/Other, and banking. Non interest revenues, excluding markets, were up 12% driven by growth in all other, services, banking, wealth, partially offset by a decline in US consumer cards. And total markets revenues were up 6%, Expenses of $14 billion were down 2% on a reported basis, with an efficiency ratio of 58.5%, Excluding the impact of the $726 million Banamex goodwill impairment notable item from the third quarter of last year, expenses were up 3%.
And cost of credit was $2.6 billion which included a firm wide net reserve build of $369 million. Looking at the firm on a year to date basis, we generated positive operating leverage and an ROTCE of 12.6%. On slide 5, we show the expense and efficiency trend over the past 5 quarters.
As I just mentioned, excluding the impact of the notable item last year, expenses were up 3% primarily driven by higher transactional and product servicing, deposit insurance costs and compensation and benefits. Partially offset by lower professional services expenses. On a year to date basis, we have recognized over $1 billion of severance, largely across functions, technology and operations as we continue to drive structural efficiencies and bring down transformation expenses and stranded costs to create capacity for business growth.
On Slide 6, we show U. S. branded and corporate credit metrics. At the end of the quarter, we had over $22 billion in total reserves, with a reserve to funding loan ratio of 2.5%. Our reserves incorporate an 8 quarter weighted average unemployment rate of 5.3%, which includes a downside scenario average unemployment rate of nearly 7%, We maintained a high quality credit card portfolio with approximately 86% of balances extended to consumers with FICO scores of 660 or higher.
And a reserve to funded loan ratio in our U. S. branded portfolio of 7.7%, And we continue to see strong consumer credit performance, as both net credit loss and delinquency rates in our overall cash portfolio declined year over year. Looking at the right hand side of the slide, you can see that our corporate exposure is 79% investment grade, and in the quarter, corporate non accrual loans as well as corporate net credit losses remained low. We are confident in the high quality nature of our portfolios, which reflect our robust risk appetite framework and rigorous client selection.
Turning to capital, liquidity and the balance sheet on Slide 7. Where I will speak to sequential variances. Our total assets of $2.9 trillion increased 2%, driven by growth in trading related assets and loans.
Net end of period loans increased 3% driven by growth in markets and banking. Our $1.5 trillion deposit base remains well diversified and increased 1%, primarily driven by growth in services. We reported a 114% average LCR, and over $1 trillion of available liquidity resources.
In the third quarter, we continued to deploy capital to support accretive client activity, while at the same time prioritizing the return of capital to common shareholders as evidenced by the $3 billion in buybacks and the 12% increase in our quarterly common stock dividend. We ended the quarter at a 12.8% CET1 ratio, under the binding standardized approach. Approximately 120 basis points above the 11.6% regulatory capital requirement.
Turning to the businesses on slide 8, We show the results for services in the third quarter. Revenues were up 15% driven by growth across both TTS and security services, reflecting the benefits of our continued investments in the business. NII increased 17%, driven by higher average deposit balances and deposit spreads.
NIR increased 12% driven by growth in fees as we continue to see strong activity and engagement with both corporate and commercial clients. Driving momentum across underlying KPIs. Expenses increased 10%, primarily driven by higher severance as well as volume and revenue related expenses.
Average loans increased 14%, largely driven by working capital loans and export agency finance. Average deposits increased 16%, primarily driven by growth in the US. Services generated positive operating leverage, net income of $2.6 billion and an ROTCE of 31.2% in the quarter, and 29.7% year to date.
Turning to markets on Slide 9, Revenues were up 6% driven by growth across both equities and fixed income. Fixed income revenues were up 4% with spread products and other fixed income up 13% driven by an increase in spread products financing revenues. And rates and currencies was flat with growth in currencies on higher volumes offset by lower revenues in rates.
Equities revenues were up 14% driven by continued momentum in prime services, as balances grew by over 40%, partially offset by a decline in derivatives revenues. Expenses increased 7%, driven by higher transactional expenses and compensation. Average loans increased 30%, primarily driven by spread products, as we executed against our Investor Day strategy to drive more stable financing revenues.
Markets delivered net income of $1.7 billion and an ROTCE of 12.3% in the quarter, and 15.9% year to date. Turning to banking on slide 10, Revenues were up 6% driven by growth in investment banking and gains on loan hedges, partially offset by a decline in corporate lending. Investment banking revenues increased 9%.
Driven by 77% growth in ECM, partially offset by declines of 43% in advisory and DCM, respectively. Corporate lending revenues declined 16%, driven by lower loan spreads, partially offset by higher average loan balances and commitments. Expenses increased 8%, driven by higher compensation and continued investments in the business.
Cost of credit was $23 million, consisting of $43 million in net credit losses and a net reserve release of $20 million. Banking delivered net income of $378 million and an ROTCE of 19.2% in the quarter and 17.7% year to date. Turning to wealth on slide 11, Revenues were up 15% driven by growth across all businesses.
NII, which you can see on the bottom left side of the slide, increased 20% driven by higher deposit spreads and average deposit balances. Partially offset by lower mortgage spreads. NIR was up 5%, largely driven by higher investment fee revenue.
Client investment assets were up 15%, primarily driven by net new investment asset flows which were $38 billion in the quarter, contributing to over $75 billion in the last 12 months representing 11% organic growth. Expenses increased 3% driven by higher compensation. Cost of credit was $102 million, consisting of $70 million of net credit losses and a net reserve build of $32 million.
Average loans were up 4%, as we continue to grow securities based lending and mortgages. Average deposits were up 3%, driven by growth in the private bank partially offset by a modest decline in Citigold and retail banking. Wealth had a pre tax margin of 22%, generated positive operating leverage, net income of $585 million and a ROTCE of 14.3% in the quarter and 13.2% year to date.
Turning to U. S. Consumer cards on slide 12. As a reminder, our year over year results continue to reflect the impact from the acquisition of the American Airlines co-branded card portfolio onboarded in April. In the quarter, revenues were flat, with growth in NII offset by a decline in NIR.
NII was up 6%, driven by higher interest-earning balances. NIR was down 62%, driven by higher accruals from partner payments as well as rewards costs, reflecting our investments for growth partially offset by higher interchange and annual fees. Consistent with the strategy we laid out at Investor Day, we saw growth in general purpose cards.
With spend volume up 13% and average loans up 9%, both partially offset by declines in private label cards. Expenses increased 2%, driven by higher transactional expenses as well as advertising and marketing, as we invest to drive future acquisitions and continued customer engagement largely offset by lower compensation. Cost of credit was $1.9 billion, consisting of $1.7 billion of net credit losses and the net reserve build of $28 million primarily driven by changes in the macroeconomic outlook.
US consumer cards delivered net income of $851 million and an ROTCE of 21.8% in the quarter and 21% year to date. As I mentioned last quarter, while we expect ROTC to remain around our through the cycle target for the business, in certain quarters we do expect expense growth to outpace revenue growth as we invest in the business to drive engagement and acquisitions with some of these investments reflected as contra revenues and others as expenses. Turning to slide 13, we show results for all other on a managed basis.
Which includes Corporate Other and Legacy franchises and excludes divestiture related impacts. Notably the $726 million Banamex goodwill impairment in the third quarter last year. Revenues were down 3%, driven by declines in legacy franchises and corporate other.
Expenses were down 14%, driven by lower transformation expenses in corporate other, as well as lower expenses from our exits and wind downs, which declined to a run rate of approximately $100 million in the quarter. Partially offset by the impact of Mexican peso appreciation. Cost of credit was $532 million consisting of net credit losses of $433 million driven by consumer loans in Mexico and a net reserve build of $99 million.
And we have reduced the total firm wide DTAs deducted from CET1 capital by approximately $900 million year to date. As U. S. Profitability continues to improve. Additionally, in the appendix of the presentation on slide 20, we have provided an overview of financial impacts related to the Banamex divestiture.
There are 3 points that I would like to highlight: First, upon our full exit from Banamex, we expect the cumulative net capital impact to reflect The release of CET1 capital associated with the Banamex RWA removal of certain CET1 deductions, and the cumulative gains or losses over the divestiture horizon. Second, as we have shared previously, as part of the deconsolidation process, we expect to recognize an approximate $9 billion CTA related loss through the P&L in early 2027. And third, we expect the impacts related to the deconsolidation process to be slightly accretive to our CET1 capital ratio.
To close, We have included our full-year 2026 outlook on Slide 14. We expect to deliver an ROTCE above 11% for the full year, supported by NIIX markets growth in the mid- to high-6% range and continued NIR ex markets growth driven by fee momentum in services, banking, and wealth partially offset by USCC. In markets, we expect a typical seasonal decline in the fourth quarter around the same magnitude as last year, which was 20% or possibly a bit more given the strong performance so far this year.
Given this outlook for revenue, combined with our continued focus on expense discipline, we expect our full year efficiency ratio to be below 60% As it relates to credit based on the strong performance we have seen so far this year, and our expectations for the fourth quarter, we now expect a full year total U. S. Credit cards NCL rate of around 4%, the low end of the range we provided previously, while the ACL will continue to be a function of the macroeconomic environment and business volumes. And we will continue to provide the businesses with capital to pursue accretive growth opportunities, while returning capital to shareholders. We remain confident in the strategy we laid out at Investor Day, and in our ability to deliver on all of our commitments.
As we take a step back, the results in the third quarter and year to date this year represent significant progress towards our goal of improved firm wide and business performance. Our strategy is working, and we have a clear path to delivering higher, sustainable returns. With that, Jennifer and I would be glad to take your questions.
At this time, we will open the floor for questions. For today's session, we will be utilizing the raise-hand feature. If you would like to ask a question, simply click on the raise hand button at the bottom of your screen.
If you have joined by phone, please press *9 to raise your hand. Once you have been called on, please unmute your audio and begin to ask your question. If you have dialed in, you can unmute by pressing *6.
Please limit to 1 question. Thank you. We will now pause a moment to assemble the queue.
Our first question comes from the line of John McDonald with Truist. You may now press *6.
Hi. Good morning. I was hoping to kick off, you could put your strong year to date results on ROTCE into context.
Obviously, you have got the 12.6% ROTCE for the year and 11.5% this quarter. It implies a little bit of deceleration in the fourth quarter. You know, if you do, something ending up at 11% to 12% for the year.
Understanding there is lots of factors around seasonality and how much spending you pull forward, could you speak a little bit to the near term expectations and trajectory for ROTCE for the fourth quarter? And then as you look out for the next 2 years?
Gonzalo Luchetti
Head of US Personal Banking
Alright. Good morning, John. Thank you very much for the question. it is a great question.
And I think maybe a couple of thoughts to step in there. The first is our number 1 priority is driving sustainable return improvement. that is very clear. The second piece that you can see from our results throughout this year is that our strategy is working.
You are seeing the compounding effect of client intensity and execution milestone after execution milestone in a constructive backdrop but that execution is clearly there. The next piece I would mention is we have lifted our guidance now. Again from the high end of the 10-11% or a bit better than 11% to above 11.
So that hopefully gives you a sense of the confidence that we have and the discipline that we have going into the end of the year Now to your point, and I think you alluded to this on your question already, there is a natural seasonality. I just mentioned that in my remarks as it relates to markets There are other elements beyond markets too. And so when you think about the market component alone, that is about last year was about a 20% decline quarter on quarter between Q3 and Q4.
This year, as I mentioned a few minutes ago, could be a bit worse on the basis of the basis of how strong the year has been so far and kind of the dynamism in the market right now. So when you when you flow the math, similar for ROTC, even if you look historically over the last, couple of years and you adjust for the typical nodal items that may be there from time to time, you do land at a high single digits rate. And so that more or less sets you up for the above 11 that we are looking at.
But you can see kind of the confidence coming through in how we are we have been raising, the estimates over the last 30 days a couple of times over. As you look forward into 2027, I think undeniably, have business momentum. You can see that on our revenue growth, right, 7% a year ago.
Ex notable items. First half of the year about 14%, this quarter about 8%, You look at the drivers, you can see the client momentum. Driving that revenue growth, so we feel very good about that.
We have not moved an inch from our Investor Day commitments. The near term targets for returns Just as a reminder for everyone, are 11% to 13% into the 2027 and 2028 time period. So we are comfortable with that.
And we also tested those for a range of environments, right? So we are not expecting the sun always to be shining, the wind in our backs, and our. Us walking downhill.
We have tested that for a range of outcomes. Thank you.
Thanks, Gonzalo. Appreciate that. And maybe just as a follow-up, a question on capital.
How are you thinking about the glide path to the capital target you laid out at Investor Day? And how do rates factor into that in terms of rates and what it means for buybacks? Thank you.
Gonzalo Luchetti
Head of US Personal Banking
Thank you for the follow-up. Maybe just to baseline everyone again, Today, we are at our CET1 of 12.8%, which is about a 120 basis points above our regulatory minimum. As per Investor Day, the regulatory minimum that we talked about and you were alluding on your question to the glide path We have talked about how we are now at 11.6% as a regulatory minimum.
And we our assumption is that we go into 13.1% as a regulatory minimum starting in January 2028. At Investor Day, we gave a directional target of 13.1%. So that gives you a sense of the direction of travel We continue to be comfortable with that direction of travel.
So that I think is the key piece. The second piece is. And going into the buybacks component of your question too, I would say a couple things.
First, maybe restating our framework, right? Our framework is we hold capital for resilience and flexibility. And we deploy it for returns and to distribute it to shareholders.
And that is kind of the staircase that we talked about on Investor Day and that is hopefully you are seeing this apply that every single 1 of the quarters this year. Right? When you look at this quarter, as 1 example, I feel good about how we were able to deploy our balance sheet to fuel the revenue growth that you are seeing and the improving returns year on year that you are seeing, and at the same time, billion dollars of capital to shareholders 3 of which in buybacks, while still holding an appropriate cushion above our regulatory minimum to be able to navigate the environment.
So being. By the way, along the way, some OCI shifts that happened due to rates in the quarter. So I feel good about that ability to balance that equation.
We did that in the preceding quarters as well. Maybe with a bit less OCI action, but that hopefully gives you a sense of business has momentum, We do have a balanced framework in place, and we try to find the appropriate balance there always starting with, being a source of resilience. Thank you.
Thank you. For today's call, we invite a limit of 1 question plus 1 follow-up. Our next question will come from Mike Mayo with Wells Fargo.
You may now unmute and ask your question.
Hey, Gonzalo. On the second quarter earnings call, you talked about pulling forward investment spending of the $5 billion over 3 years. To now, I guess, $500 million this year.
How much of that has been spent in the third quarter? Why did you pull it forward? What are you spending it on?
And does that mean after this year, it is $4.5 billion of investment spending, or will you increase the total? Thank you.
Gonzalo Luchetti
Head of US Personal Banking
Alright. Yeah. Good morning, Mike.
Thank you very much for the question. Maybe let me spend a second on how we think about expenses, how we think about efficiency. Again, returns number 1, sustainable return improvement but when we think about how we approach expenses, hopefully, you can see a very sharp expense discipline. that is not an initiative. that is how we operate the business every day and for every dollar.
And we talked about Investor Day, that in order to unlock the client driven growth that we are aspiring to, we needed to deploy incremental investments over 3 years of about $5 billion, which we just alluded to. And we also said that we are going to fund these investments the hard way. Via relentless structural efficiency focus.
Right? We talk about stranded cost, about transformation cost, and about the structural efficiency. So that hopefully gives you a sense for how we think about expense management.
So the pull forward that we talked about maybe to answer 1 piece of the question, quickly, is 100% inside the $5 billion. Right? The $500 million or so that I spoke recently about being part of that pull forward in the second half of the year. that is fully, embedded inside the $5 billion we have not moved anything related to our Investor Day, expectations.
And then to your other sub question around how much of that landed into this quarter, You can think of it as about half of it landed in this quarter. You can see about $200 million of severance in the quarter. So that is a good portion of it.
And then there is a few investments extra around technology, around marketing, around client experience that we also we also support. And again, that severance is directly linked with 1 of those 3, the biggest of the 3 legs of our structure. Of our self funding investments, which are the structural efficiency focus with the processes that Jane has alluded to in the past, the 100 plus, end to end processes that we have looked at.
We review those every week. And those are part of the, unlocking through automation and AI the efficiencies that we are looking to, to deploy. Thank you.
And then 1 follow-up. Mike, you said, you are not always planning for the sun to always be shining and the wind at your back. But the return for the fourth quarter if you back into it, looks really lousy to get to 11%.
When you say the sun might not always be shining, the wind's not at your back, you did say markets will not be as strong. I get it. But are you assuming something might go terribly wrong in the fourth quarter, or you just giving the usual caution and caveat?
Gonzalo Luchetti
Head of US Personal Banking
Let me go with the latter on that. Thank you, Mike. Yeah.
So we are guiding to above 11% which is again an improvement from the a bit over 11% that we talked about 30 days ago. And of course, there is a range. We could do better but it is hard to predict early in the quarter, especially how, some of the activity will play out in the market, mostly.
And so it is really anchored on that. And, yes, abundance of caution. Thank you.
Our next question will come from the line of Erika Najarian with UBS.
Hi. Sorry about that delay in unmuting. Thank you for taking my question.
Just to. I wanted to double click on John's question on capital. So I guess this is a bit of a compound question.
For my first question, and I apologize. The way you responded to John's question is that you can continue to, deploy capital in into growth as well as keep up the space of buybacks. And I just wanted to make sure we heard that correctly because, AOCI aside, I think a lot of your investors, it is the buyback pacing is important.
And so I guess, just wanted to confirm that you can continue this pace of buyback at around these levels, even with higher rates. And, in terms of the glide path to a CET1 minimum of 13.1% by January 1, 2028. Is your understanding that Basel III endgame revisions and GSAB revisions would be mostly prospective, and you will not get any, you sort of retrospective or retroactive adjustments that could help you in terms of forward G SIB surcharge increases?
Maybe if I jump in just in terms of the big picture here. You have heard us talking about a lot of upside potential. We have got a lot of different opportunities which are high returning, to be investing in.
So as Gonzalo said, once we are comfortable around the resiliency of our capital base, which we feel very good about, we see a lot of opportunities to deploy capital into high returning opportunities. That will drive the growth and scale that underpins the presentation we gave at investor day and laid out that in a lot detail. We know buybacks are important.
We know return of capital is important to our shareholders. And we make that judgment as to what the right balance is. But you think all of our investors will want us to make sure that we are investing behind these long term, high return growth opportunities that will drive the performance and competitiveness of the bank.
Gonzalo, over to you for the nitty gritty.
Gonzalo Luchetti
Head of US Personal Banking
Thank you, Jane, and thank you, Erika, and good morning. Thank you for the question. So I think maybe a couple of thoughts on maybe to start on buybacks and then pull back up into the path on capital.
Just as a reminder, right, what we said for this year, let me start in the year and now and then maybe without giving you the decimal precision going forward, I can describe the shape of how we think about it. In the here and now, just, completed, with this quarter of about $3 billion of repurchases. Year-to-date, $13.3 billion.
Last year was $13 billion, and we had said earlier that we expected this year to do more than last year which we just achieved in the third quarter. So we are in that sense, doing what we said we are going to do. When you think about the framework going forward, I think you highlighted, what I was talking about a little bit earlier.
That we plotted at investor day. That glide path for capital for us And let me talk in maybe regulatory minimum terms. Going from 11.6% to 12.1%. that is on the back, of course, of having enabled the business, the balance sheet, to support the high levels of activity that we have seen over the last couple of years?
And have you seen us grow various businesses, not only the markets business, but also banking, and services and some of our, franchises. And so that is directly linked to that. It was expected. that is why we discussed it at Investor Day.
To your point, it is a bit unknown exactly how all the rules, right, when we are done, which we should see more of those over the next, several months. And then we will have, full visibility with models and market shock scenarios and so on. Really, we will know probably around next year the full impact that may have on glide path.
So as of now, we are operating on the basis of what we know, which are current rules. And on the basis of those current rules, like glide path it goes from 11.6% to 12.1%, which obviously means we will need to build, that capital trajectory again, absent some changes from the rules. And then what you will see in the future is what you have seen, year to date.
We manage that very balanced framework, right, of holding capital for resilience and flexibility first, and then deploying it as you have seen us do this quarter and even in the prior quarters supporting very strong activity. Or, pursuing returns that are accretive and supporting our clients or distributing to shareholders. you can see how much of a priority it is on the basis of the progress we have made even in the last couple of quarters against our $30 billion program that we announced at Investor Day. Thank you.
Thank you. And just as a quick follow-up here on the market's commentary. So just to put a framework around it, you mentioned that you continue to deploy balance sheet and high returning opportunities.
And 1 of your peers that is typically quite conservative, had talked about, deploying capital and not having that much seasonality in the fourth quarter. Know, because of all the activity levels. In terms of your comment of, markets down 20% quarter-over-quarter, and that underpins the implied high single digits ROTCE.
Is that conservatism, in terms of the typical seasonality, or is that more of a comment on mix in terms of you guys are still building out the equities business? Know, to, a more optimized size? just trying to unpack the markets commentary for the fourth quarter.
Gonzalo Luchetti
Head of US Personal Banking
Erika, I think you are reading too much into it. This is just the normal seasonality that we have seen over many, many years between a strong third quarter and the typical fourth quarter, it is no more than that. Do not read too much into it.
Our next question comes from the line of Glenn Schorr with Evercore ISI. Glenn, I see I have you in with 2 connections. Both are enabled.
Feel free to dial 6 if you prefer to use your phone.
Thank you. Sorry about that. So a follow-up on the equity side.
Your prime balances are up over 40%. Your revenues were up 14%. Still a pretty good gap versus the biggest peers.
So maybe let's talk about where you are investing and what your aspirations are for the equities business because there is a pretty big upside if you continue to strengthen the franchise there? Thanks.
Yeah. Look. it is. As Andy said at investor day, we were late to invest in equities.
And we are. What we what we are systematically doing is scaling our business primarily by committing the resources to grow the prime balances, making the necessary investments in technology, and we see a lot of room to gain share ahead in prime. We are doing so with very diligent client selection and risk management, but the client appetite for Citi is clearly there.
Clients meet with them all over the world. They keep telling me they want an alternative in this market, and they want that to be Citi, because they know and trust us, particularly from the fixed income side over history, and that gives us an easier path for expansion and our growth in equities and continued momentum there. So you will see us steadily investing in execution, and think we feel confident in our ability to continue growing there.
Okay. And maybe a similar but different follow-up on the wealth side. You had some very strong net new money flows.
You had good 15% investment asset growth, but I think that the wealth fees were only up 5%. Do not know if that is a mix get them in the door, mix them up, provide more advice, but just curious if you can provide a little color behind those trends. Thanks.
Gonzalo Luchetti
Head of US Personal Banking
Sure. Let me maybe ask. I will answer your question directly and as asked, and then I will give you maybe the broader perspective on wealth.
But very quickly, that is only the result of a couple of, strategic decisions that we took a year ago that were lapping So that is what is dampening that growth rate on the 5%. Once that gets lapped, you are gonna see a closer matching between some of the drivers and the revenue. that is kind of the simplest version, I think. Thank you for the question.
And I think the broader piece there was, we are pleased with what we are seeing. Terms of momentum from our wealth business. Right?
Revenue growing 15%. With good expense discipline at 3%. We are accumulating, several quarters of very positive operating leverage.
And that is what is driving the improvement on returns, right? Returns for the business, we are about 7.6% a year ago, and 10.8% in the first quarter and now this quarter and last quarter, they were a bit above 14%. So that gives us confidence that soon we will be able to get into the 15-20% near term target window that we spoke about at Investor Day.
But yes, the business has good momentum, good NII quarter, and overall, we are seeing good traction. Thank you.
For our next question, we will go to Manan Gosalia with Morgan Stanley. Please use *6 to unmute. See your line is open, Manan, We are not hearing you.
You may need to unmute locally.
Hi. Can you hear me now? We can.
Oh, yes. Alright. Perfect.
Sorry about that. So I just wanna clarify the comment on the on the capital side. So 13.1% capital target for next year that excludes finalization of the capital rules.
Once we get finalization and, maybe as you go through the stress test and you see the results of that, revisiting that 13.1% is still on the table?
Gonzalo Luchetti
Head of US Personal Banking
Thank you, Manan, Good morning, and thank you for the question. First. To the first part of your question, yes.
The 1 which anchors to a minimum requirement of 12.1%, into January 2028, anchors to current rules. So it does not include anything related to any of the rules that are in play that some of which have been, released and others have not. But, obviously, we need to see to your point, we need to see what the run or the first run of the new set of SCB happens and then as well as the Basel III and the and the G-SIB components as well.
So that is that buildup between, the 11.6% minimum now to the 1 that I was just describing. Incorporates exactly and only the current rules. The second thing I will mention as it relates to capital, which is also not baked in and is the part that, number 1, we control Number 2, I feel better about.
And you can kinda see that even though it is still with old models in the, release results from this year. Right? You can see our SCB from the peak of 4.3% coming down over a few years into 3.6%, which is the current level.
And then the 1. The latest run, which obviously does not count, at 3.3%. But directionally, it gives you, hopefully, the reaffirmation of the signal of what I was talking at the very beginning of the call, which is that the strategy is working.
And the strategy working means we have simplified the bank quite a bit. Right? We have increased the level of accountability.
You can see the progress on returns and the proof points quarter after quarter. And as you think about that, the PPNR increases stabilizes, and the loss absorption capacity improves. That.
All of that is a lot more within our control and that is, that is what we expect over time to also, flow through. But, again, not considered in. Thank you.
Okay. Perfect. And then just pivoting over to rates and rate sensitivity.
With short end rates moving higher in both The U. S. And internationally, how should we think about the rate sensitivity of the business? And given the strong services business that you guys have and the strong deposit growth there, I am sure that drives a lot of the rate sensitivity. If you can just talk about that and how we should think about it over the next year or so.
Gonzalo Luchetti
Head of US Personal Banking
Yeah. Thank you. Very, very good question.
So I think maybe a couple of thoughts. The first 1 let me talk for a second about the here and now and then the going forward. In the here and now, you just saw us upgrade our guidance again of going on NIIX markets to mid- to high-6% range versus the original beginning of the year, 5-6%.
Sorry. And what we said, a few weeks ago that we were gonna be high end of that spectrum. And that gives you a sense for, again, the confidence that we have.
The second piece is, as a reminder, the vast majority of the bus for us is driven by client volumes. So it really is up to us having success deepening relationships and also attracting new clients across, the range of our franchise. And you saw the NIIX markets at about 7% this quarter, You are seeing deposit growth of 11% and loans ex market growth of 7%.
So good momentum really across the franchise there. And when you think about, a hire for longer environment, that should be for us net positive given aggregate asset sensitivity positioning that we have. Even if of course you have to in the short term absorb the OCIS we just did.
When you think about that as a sensitivity, maybe to give you a bit more color there, and hopefully not a lot more than what you bargained for, is overall that asset sensitivity you can see in our disclosures is non USD from the structural position that we have across the world from our services franchise. And so we feel we are very well positioned there to take advantage of the global rate hikes. Manan of which have already happened between February and now.
You know, across the world. And then you will see also we are relatively neutral on a USD basis. At least within 12 months because given the short duration of our portfolio, we actually do turn asset sensitive in year 2.
And relatively quickly as we know those reinvestments come in. So net, all of that, should put us in, in something that is constructive as it relates to higher for longer rates, of course. Some businesses, and you alluded to this, services would be a large beneficiary.
In this particular, picture. And the reason for that, even if there are as always puts and takes, right, you have to think about the volumes, right, and how those will play out. There will be competition for deposits.
Money supply may tighten. And so far, what we have seen is betas are performing in line with our expectations. The team in services, this is true also in our team in wealth, very focused on quality and not, and not on giving away pricing.
And so that discipline pricing and discipline quality focus even if I look at Q3 as, a proof point for me, is our deposit growth in services was faster for operating deposits than it was for the, the overall deposits. So that gives you a sense of how much focus Shamir and the team have on the quality of what we are engaging with clients. Thank you.
For our next we will go to Ebrahim Poonawala with Bank of America. You may now unmute your line and ask your question.
Hey. Good morning. Can you hear me?
Yes. We can. Okay.
Hey, Jane. I guess the first question just. I apologies if I missed something on the capital on the back and forth.
If we I think, Gonzalo, you mentioned if nothing changes on capital, the requirements obviously go up by 50 basis points. Is the point there that if the Fed finalizes rules before the end of the year, then you have better flexibility than if they do not, like, that is how we should think about it.
Gonzalo Luchetti
Head of US Personal Banking
Hi. Good morning, Ebrahim. Exactly.
The way I think about it is the glide path anchors to current rules, that is on the back of our decisions also to support business growth and that is what we are looking at. Of course, the piece on capital to your point around the rules it is an unknown at this point. Right?
So we have to see the totality of the rules come through, some of which have been published, others have not yet. And even post publishing, I think we will need to see how, the models are running the first run because remember, it is gonna be a brand new set of, components there and not only new models, but also how market shocks are managed and handled in the scenario piece. We have to see that come through and probably by I think, towards the middle of the year, we are gonna have, perfect clarity of exactly what the light path will look like.
And, obviously, we will keep you updated along the way. But yeah, no. No.
I was not implying that we will have perfect, clear vision by the end of the year because I do not think that we will. Right? I think we will have some more information.
But I do think that there is gonna be some unknowns still, especially on the numerical front, which ultimately is what you and us, want to have. Thank you.
Understood. Alright. So I guess.
And somewhere in there for us to take aways might be some volatility or tempering in the pace of buybacks. Understood. And then next, just the other question on services.
We are tracking about, whatever, 29-30% ROTCE. You talked about the strength in the business. I am just trying to understand what brings that business from close to 30% to the mid twenties target that you will add.
Is it just that the incremental growth will be so dilutive? Assuming rates do not do anything, like, why should that go from 30% to, let's say, 25%?
If that is a. The target we have is a through the cycle target. But I think we feel very good about our services business because we see think of it as a cumulative business with really 4 pillars of further growth that at high returns, deepening with existing clients, acquiring new clients, particularly commercial banking and the like, capturing share in some of these high growth verticals, particularly the fintech space, as well as investing in next generation platforms and solutions.
And that is giving us a model that is pretty almost impossible to replicate. It is a true moat. Between the unrivaled global footprint comprehensive market leading solutions, extensive client base with ever growing global needs, and then the indisputable scale, which is enabling us to invest significantly in the platforms in the innovation agenda. it is about $2 billion of investments a year, Then you add on AI into this, which is driving further process improvements, which is developing innovative solutions for us and also improving the client experience.
So all these different elements are really translating into our ability to win new mandates. up about 40% year over year in our win rate. With minimal client attrition sustainable revenue growth, high profitability through the cycle. So to my mind, this is this is a wonderful business in which we are the undisputed in, and it will continue to go from strength to strength because we are on the front foot in it.
Next, we will go to Ken Houston with Autonomous. Ken, feel free to unmute and ask your question.
Hi. Good morning. Just 1 follow-up on the services side.
Gonzalo, in a higher rate environment, the deposit growth has continued to be really strong even sequentially. Do you anticipate any changes to how your clients use the balance sheet given all the points that have already been made about just ongoing strength and development of the platform. And within that, how much more room do you have in terms of the securities repricing?
And, can NII continue to outgrow deposit growth as it has been because you still have some more room there? How much more room do you still have there? Thank you.
Gonzalo Luchetti
Head of US Personal Banking
Thank you very much, Ken, for the question. Let me maybe. Let me start first maybe on the NII ex markets deposit equation.
We are our NII ex-markets this quarter was about, 7% year on year. Viswas a vis deposits growing at 11% and loans growing at 7%. So we are not seeing that effect of NII outgrowing the drivers at the aggregate level for the firm. that is also true in our services business.
If you look at our DNII for the business. Well, DNII for the business is more or less in sync, actually, I guess for services in particular. But that also depends on some of the, the interplay, across the firm with services.
But I would say to your question, which I think is a great question on this. Sustainability of growth, and we spoke about this at Investor Day and since then, 1 time or 2 is we do expect over time for the level of growth that you are seeing, that 16% year-on-year deposit growth to normalize a bit. Right?
We are we are not saying that we are gonna be able to grow into eternity at 4x, money supply levels. At the same time, what you just heard from Jane, right, it is a. We are very confident the mode that we have, how embedded we are with clients.
We are deploying know, $2 billion per year of technology investments on both propelling the core capabilities and investing in the core, but also innovating You probably. If you look back the last 90 days, we would have made 4, 5 different announcements that give you a sense that there is a lot of tech investment and capability there. And to Jane' point, the client momentum And so we feel good about that, NII trajectory recognizing that remember, this is through the cycle business.
Right? And we spoke about this at Investor Day too. The business for the 9 years between 2016 and 2025 And remember, those years had 0% rates They had medium rates.
And they had high rates and all the different flavors. Right? And even within that, we were able to grow the business at about an 8% CAGR in revenue terms at about a 6% CAGR in deposit terms.
So that kinda tells you that we have we have pressure tested this business through different environment and weather patterns. And so that is why even though you may see moderation, on the level of growth on deposits and have those normalized As we said before, we are confident in the trajectory that we have there. Thank you.
Got it. And 1 just follow-up on the earlier cost point. So you are $500 million in the second half it is kind of, pretty level between Q3 and Q4.
Including the severance that you spent in Q3 and maybe some more in the fourth. What do we need to think about in terms of jump off points? I know we are not going to get 2027 guidance now, but I think there is an important debate about like, does that run rate do we still have the benefits of transformation and stranded coming down?
Can you kind of maybe just try to put that in a in a box for us about, like, how we exit this year and how we start next. Thanks.
I think you should feel good about how we exit this year. I think we are demonstrating a lot of this in the expense side. We are doing We are taking down the stranded costs.
You see the run rate now at $100 million a quarter level. You see the benefits the transformation costs coming down. And you see us investing in the structural efficiencies, particularly leveraging AI and automation, in material tangible way and to continue to drive improvements in the operating efficiency going forward.
We are making investments both to grow the top line as well as to drive efficiency in the firm going forward. So I would say you should feel good about the jump off point and the discipline that we are continuing. To demonstrate.
Our next question comes from the line of Scott Siefers with TD Cowen. You may now unmute and ask
Morning or I guess afternoon, everyone. Thank you for taking the question. I wanted to ask another rate based question, this time just on the effect on customers. it is it feels like everyone's customers, yours included, have been just kinda remarkably resilient the face of rising rates.
Maybe just sort of some updated thoughts on what point you would see higher rates affecting customer behavior more visibly.
Gonzalo Luchetti
Head of US Personal Banking
Thank you, Scott, for the question. So maybe let me go perhaps around our businesses a bit. On the, the rate impact on customers that you are pointing to.
Maybe starting with consumer, Again, this, so far have been, moderate increases. Right? But I guess to your point, you are probably looking forward and thinking what about the accumulation of, higher rates if the curve plays out as currently predicted with that is right.
High Right. Okay. Yeah.
No. That makes sense. that is a fair question. I think, as you see, cumulative effects over time, you may start to see on the marginal segment.
Now as a reminder for us, right, on the consumer end, as an example, 86% of our portfolio is prime plus And in addition, our strategy because we are, as we talked about at Investor Day, we are shifting as our clients and the market is taking us there. To general purpose cards Right? And you are seeing that in the drivers that already tells you that mix will also be driving towards, improvement in the NCL.
So what you are seeing in our NCLs is the combination of the resilience playing through but also our risk appetite framework and our strategy working. So you are right. I think that at some stage, probably not with, single rate hike, but if you accumulate, something that is over several, quarters and something that moves quite a bit higher.
Some of the marginal segments probably below the FICO band, they are gonna feel a bit of pressure in terms of the, the debt payments and maybe on the corporate end, Jennifer Yeah.
I have look. On the on the corporate side, I think we are starting to see some of the impact. So while spreads are remaining tight in investment grade, refinancing activity should stay elevated.
I think what we are seeing is a higher rate environment may impact the tenor, however. But where the change may be felt more in some of the customer behavior is you have got an upcoming 3-year maturity role. That is going to occur in a much different rate spread and liquidity environment.
It could bring more high yield issuers to the market, but it could also indicate some areas of potential stress so the behaviour shift we have seen this quarter is syndicated debt and loan insurance moderated in favor of loans and revolvers. The flexibility that they provide as rates move. And then, of course, you turn to the AI, the broad AI ecosystem, And I do not think that higher rates is going to trump the imperative to invest.
There, we are not seeing a slowdown in investment in the broader AI ecosystem. Ecosystem behavior there. The simply not enough commute.
Compute. Energy remains a bottleneck requiring more investment. that is globally, not just in The US. And so obviously, we keep an eye on sentiment and the other dynamics that are happening there, but we are not anticipating a lot of shift in behavior.
I would say though, we do have the luxury at Citi that we have a very investment grade heavy client base on the institutional and a prime heavy on the consumer front. So we do not tend to see we have a high quality client base Leave it at that.
Perfect. Thank you very much. I appreciate all that color.
Our next question comes from the line of Chris McGratty with KBW.
Great. Thanks for fitting me in. We think about capital me If capital allocation into the lending business into 2027, given the rate discussion, has there any change in where you see the best returns either by product or geography?
Gonzalo Luchetti
Head of US Personal Banking
Hi, Chris. Good afternoon. I suppose now I think probably a bit early to say as think about 2027, right, because we, as everybody else, we have to go through our planning cycles and look at what also was this quarter and the level of activity.
The market is pretty dynamic. And Jane was just alluding to a few of the elements there, right, with what is happening with rates. What are their reverberations, right?
Will it impact some of the questions around the maturity world that Jane was talking about and any supply competition right? Does it impact for some projects, especially maybe outside of the AI and tech turbo boost What does. What if what if any impact does it have in under industries on some of the marginal products?
So I think we have to see a bit how the fourth quarter plays out and how know, the rate environment also lands to have a clearer picture as to. into 2027.
Yeah. But I but I also just remind everyone is when we are looking at capital allocation to lending, we do not think of it just a product. there is tremendous cross sell off our platform. So this is 1 of the disciplines that Viswas has really into the business, and the team is, how do we think of it within that lens?
What I would say is we are very attentive at the moment given it is quite a dynamic environment, underwriting with a with a lot of discipline, We have a very diversified, not a concentrated portfolio. We have got rigorous limits that we are putting in place We stress test, so if the cycles disappoint, we are in a good position around it. And we lend with to companies with durable cash flows and collateral.
And so I think we feel we feel very good about where we are sitting right now and our ability to support clients in the growth cycle, but also to be that port in a storm if things do turn a different direction at some point.
Our next question comes from Matt O'Connor with Deutsche Bank.
Hi. I wanted to ask on credit card. You have obviously been leaning in on the general purpose and seeing good spend volume growth, good growth in loans.
And then, the cost of that is kind of contra revenue. How far along are you in kind of the drag of those initiatives as you think about the revenues.
Gonzalo Luchetti
Head of US Personal Banking
Alright. Thank you. Thanks very much, Matt, for the question.
I think maybe just to anchor for. Let me start with the with the technical, and then I will give you the broader piece. You are correct.
I think in the. We talked about how in the NIR front, there will be. Especially some of the contra revenue plays through in this particular quarter, you can see the rewards piece playing through.
As well as remember, we have, in place some profit sharing agreements with some of our partners. So the fact that losses are performing quite well that some of that gets shared. Still accretive for us because we do not share 100%, but that is what has a little bit of an impact on the revenue.
But to your point, when you look at the drivers and what we said about our strategy, which is the pivot towards, purpose card and you are seeing those drivers healthy. And if you look back the last 2 or 3 years, those same drivers we have been growing. If you think about a car's business, always the 3 engines that 1 thinks about is spend.
Borrow, and acquire And on all 3, we have been growing at about a 5-6% annual rate for the last, 3 years. Compounded. And so that is what is driving the NII. that is what gives us confidence.
What I also like about it is this is a scale franchise. And we are operating at around our through the cycle targets. So whilst we are investing and to Jane earlier point, we are not losing the discipline on returns and on expenses as we go along.
Thank you.
Okay. And then on the private label side, it is obviously a lot smaller a much smaller piece of the overall business, and that is kinda been grinding down. Just remind us that there is, opportunities to move some of those balances to the general purpose.
Portfolio over time or if there is other kind of strategic options with that business over time? Thank you.
Yeah. I think what we have been seeing is this shift to more of the co brand proposition. And so a fair number of the partners we have been in or are in discussions about pivoting to more of a co brand, which is in line with much of the consumer behavior.
So that is our. 1 of our areas of focus there. You are right.
For our next question, we will go to the line of David Ciaverini with Jefferies. You may now unmute and ask your question.
Hi. Thanks for taking the question. I wanted to ask about the investment banking pipeline.
How should we think about the pipeline for the fourth quarter?
Look. If I. It I think you should feel pretty good about the pipeline. it is a it is a solid pipeline, to say the least. I am US is the center of the action for both advisory and capital markets.
We are seeing a bit of pickup in some. Europe and obviously. And Asia, but a lot of this is about The US.
Terms of pipeline, markets is more follow on driven. The IPO market continues to be a bit more selective. So certainly an option for issuers with durable earnings.
The DCM pipeline is strong, but it is supported by clients acting before rates move higher and stay there for longer. I mentioned that expecting refinancing activity to stay elevated particularly in investment grade because the rates are the spreads are pretty tight there, And as we look further out, you have got this 3-year maturity wall occurring. And the overall sentiment for deal making is constructive.
We are seeing continued cap CapEx elevated strategic dialogues, and so, yeah, I would say we expect to see an above average wallet even if it pulls a bit back from the 2026 near-record levels for the rest of the year. And the bit that is quieter has been sponsors. They have continued to sit on aged assets, so they are just slower to monetize, but we see continued engagement with them for M and A and IP so as long as macro is stable, we do not see that changing.
Thanks for that. And then I also wanted to ask about the AI infrastructure build out. In what ways is Citi participating in or not in the financing of this build out and talk about the appetite Citi has for it.
Yes. We. The tech and the tech and the related AI activity has been has been very busy for us.
We if you look at it, we were in equity capital markets room, involved in the lead roles on SK Hynix and Intel. In equity capital markets this quarter. Same in DCM.
We are on 17 of the top 25 investment grade deals. Including the largest lead left in the. The lead left of the largest ever high yield bond issue that was for SoftBank.
So we have been very active in AI space. Really across the board, financing, advisory, and helping advise clients on how they can be growing. Yep.
Our next question comes from Kun Peng Ma with China Securities.
Hi. Afternoon, Jane and Gonzalo. This is for the Internet Security.
Hi. Hi. Nice to meet you.
Yeah. I have a question on the services business. You know, it is a good time for global transaction banking.
But I am wondering if we could add some color from the client side. I mean, what kind of client activities and client demands supporting this kind of very good strong performance? And also, how about the sustainability of that kind of typical client demands.
Thank you.
Well, our client. If you think about what do our clients need, they are they are looking at liquidity payment custody, solutions, across the board and across the world. They are looking for increasingly always on real time, interoperable, efficient, and secure solutions for their cash management, for their custody, and all of their liquidity and payment needs. it is a little bit if they want to have their cake, eat it without putting on the calories.
And we are in a position to provide that comprehensive market leading set of solutions to those clients holistic needs. We are seeing the client base growing a lot as we get new high growth birth verticals coming in, particularly in the fintech space and some of the digital asset players, but also we have seen it in ecommerce. As the world gets more fragmented, ironically, we are seeing a lot more activity clients moving money differently around the world.
We have seen clients connecting The Middle East to Asia in a way that did not happen 5 years ago, or Latin America to Asia, there had not been a major corridor that is been growing. In addition to all the usual ones that we see. So the client base is really ripe for a platform like Citi's, that is where we are seeing very little climb to attrition.
We are seeing a lot of growth and deepening with existing clients, but we are also excited to see a lot of new client cuts acquisition coming through as well.
You, Jane. Very helpful. May I have a quick follow-up on digital assets?
You just mentioned about Yep. You know, those guys are very active. Mike, stable coins, like RWAs, and all that kind of digital assets.
I am wondering if you can share some color with us about the contribution of such kind of digitization or, or the impact of such kind of activities. Yeah. so to say.
I think the area that we have been seeing, it goes back to what does the client need. You know, ideally, want an efficient secure way to move their money around as much in an instant and always on mode. That really does an look at a connection between the fiat world and the stablecoin, that is the interoperability point being important and the choice that we give our clients.
Our idea is let's give the clients a choice between all the different platforms and capabilities, and then they can choose which is the best for their particular need. there is not a 1 size fits all here. As I have said before, the Citi token services and the tokenization deposits is probably the area we would be most excited about. Because it is so easy for a client to move money from 1 account within Citi to another, taking advantage of our blockchain, but this is a capability now operating in 7 markets around the world.
And it also connects into our 27 clearing capabilities. So that means it is not only instant always on between Citi accounts, but connects into 300 banks. Of our peers around the world.
So that is a fabulous proposition for a client What I we would see less on stablecoin, honestly. I think that is the nature of our client base. They fight.
Stablecoin is it is a bit more clunky, there is more complexity in compliance, accounting, and tax for moving money around the world with it, whereas tokenization provides them the least hassle and easiest way to do it. So that is why we have been seeing more growth there. Obviously, in custody, with digital asset custody, and our platform going live later this year.
This will be an area that we will be a 1 stop shop in custody, and that will include for coin.
For our next question, we will return to the line of Mike Mayo with Wells Fargo.
Hi. I would like to return back to the implication of AI on Citigroup. When it I mean, is Citi an AI victim or beneficiary?
And the victim is the AI scare trade that deposits will flow out of Citigroup. Due to more advanced cash sorting. Maybe you can address that part of the question.
With how much you spend on cybersecurity, what you spend to protect customers, privacy and identity, And on the other side of that is how you can deploy AI for additional efficiencies, and I saw you move to the top 10 up a lot of places in the most recent, AI survey. And if you could just describe what you have done on an enterprise level or how you are getting benefits out of AI. Thank you.
Okay. Well, we are I was offended that we were merely in the top 10. I think you have grossly understated where we should be, Mike, but I am sure we will talk about that later.
We are deploying AI at scale with measurable results. So let me talk about the benefits first, then I will I will talk a bit about the cybersecurity side. I think we have talked about, 1, we are supporting our clients on the build out and the transformation of their businesses, so we are making capturing a significant share of the activity of our clients in.
As that ecosystem is mobilizing capital at pace. The second is our own adoption of AI. And that is both earning and saving us money.
We are tangibly improving productivity and efficiency through the bank, Let me give you a couple of examples. AI is accelerating our product development life cycle. So we are launching new products at lower cost and at faster speed.
And we are typically seeing about a 30-40% in increase in the speed with which we are launching products. Another example, 14 thousand of our engineers use our main agentic coding tool, Devon. That makes it much more efficient for us to do the work in house.
So it would be an in sourcing work, We have reduced our tech vendor spend by 30% year over year as a consequence, and that is still got a long way to run. Then probably the big 1, around 100 of our most manual processes have or are being re engineered end to end leveraging AI and automation. This is a firm wide systematic program. it is a very important pillar of the structural efficiencies that will further improve our operating efficiency in the near term, This year alone, we are seeing the financial benefits from AI and automation significantly out the investments we have made year to date, and that will only accelerate in coming years because having made the investment, the benefits just will recur a year, and we will keep improving on them.
And then we are also using AI to generate revenue and improve the client experience. Earlier days still on the revenue generation, but like in services, our AI tools for our client service agents are live in 2 countries, Response times have improved for our clients by 21%, client satisfaction scores are better You have heard us talk about CitiSky in pilot now in our Wealth franchise. So AI is happening all across our firm, and it is drive. it is helping us earn, and it is helping us save money.
In terms of making us safer, we continue to invest in leading edge capabilities to bolster our cyber defenses, and we are deploying AI responsibly. So on the cyber front, what we are alright. Look.
AI is tremendously exciting. But AI does put powerful tools in the hands of bad actors. We.
If we are gonna innovate at speed, we have to manage risk at speed and retain trust. So I am very happy with how we are deploying the frontier models securely. Through a structured harness across our entire perimeter so we are identifying and addressing vulnerabilities at speed and scale, and working closely with our peers and the leaders of major industries to make sure that defenses cross industries too, because, AI's arriving in a world that is deeply interconnected.
I am not worried about deposit flight risk in services The benefit that we have of just this so hard to replicate the network we have got the multiple dimensions of it. But you can see, we demonstrate constantly we are at the forefront and the cutting edge of applying those innovations and the new capabilities to disrupt ourselves to advance our proposition to clients, and that is why we just have this very high win rate and continue bringing in new clients and new business on the platform with very little attrition. So I am I am.
Yeah. You are always worried. We always.
You. My job is to worry. But my job is also to make sure that we do something about that, and we are doing that in a very constructive and a way that retains trust.
And there are no further questions. I will turn the call over to Mark Pilich for closing remarks.
Thank you, operator. Thank you all for joining us today. We look forward to speaking with you and addressing any follow-up questions you have.
This concludes the Citi third quarter 26 earnings call. You may now disconnect.
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