Citi seeks rapid resolution of its US regulatory burdens

By Tatiana Bautzer and Nupur Anand

NEW YORK, Oct 12 (Reuters) - Citigroup is seeking to ‌rapidly resolve its efforts to address regulatory ​demands that have long ​dogged the third-largest US bank, in order to fully re-focus on growth, according to two people familiar with the matter.

The demands have lingered since 2020, leading to costly fines and distractions for Citi.

As recently as the summer, Citi was targeting submitting paperwork to regulators before the end of the year, or during the first quarter, one of the people told Reuters.

The bank has been aiming to ‌present a comprehensive audit to the Federal Reserve and Office of the Comptroller of the Currency, so it will not hit any delays in approval, the person said. ⁠It will then wind down part of its remediation structure, the two sources said.

This would finally set the bank on a path to have consent orders lifted. The orders cover the regulatory demands to fix risk management, data governance and other problems.

Investors and analysts are laser focused on ‌when Citi might shake off its regulatory burden, which could free ‌up resources, boost the stock and become a key achievement for Chief Executive Jane Fraser.

Fraser has said Citi is about 90% done with the regulatory work required under the orders.

SPEEDING UP

Wells Fargo analyst Mike Mayo said an exit "would be seen as a validation of their restructuring process, and Citigroup shares may then attract a larger group of investors".

Earlier this year, Reuters reported that the bank had hoped to finish the job by ​the end of 2026.

While Citi has never acknowledged an official timeline, the person familiar with the matter said that it is under pressure to achieve this as soon as possible, but ran into a brief audit-related delay over the summer.

Citi did not comment on any motivation for getting out of the consent orders as soon as possible, but said such a decision rested with regulators.

"The way Citi is run today is fundamentally different from ⁠where we started our Transformation, and we are committed to ensuring the changes we have been making to strengthen our risk and control environment are sustainable," a Citi spokesman said.

"As we have said consistently, we will not speculate about the lifting of the consent orders because that remains solely at ​our regulators’ discretion," the spokesman added.

AREAS OF PROMISE

Citi's regulatory distractions have come at a time when rivals have taken advantage of the government's lighter-touch banking policies, including over supervision and rules, analysts say.

Filings show the bank spent $3.3 billion on "transformation" work last year. It is set to report its earnings on Tuesday.

In a research report, Bank of America analyst Ebrahim ​Poonawala said Citi's wealth division "shows the greatest room for improvement" among its five core franchises, for which it needs to accelerate ‌growth of investment assets, and tilt revenues toward fee income and away from spread income.

The division still has the lowest return of all five businesses, at 12.6% in the first half of the year, with a long term goal of 20%.

The two people familiar with the matter said the wealth management and retail businesses could benefit from increased scale, ⁠with one potential solution being to add branches or acquire a wealth manager.

While such moves to expand are not formally prohibited under the consent orders, they are more closely scrutinized by regulators, reinforcing the need to quickly address their demands.

"It is tougher to focus on any relevant growth before you fix the problems," said Tim Long, a former deputy comptroller at the OCC. "It makes sense for the bank to try to get the orders finalized in this (Trump) administration and avoid potential change of regulators and a different approach."

FAVORABLE ⁠POLICIES

Any potential acquisition would force Citi to consider both regulators' and investors' appetite, especially after speculation of an imminent deal was badly received by the market earlier this year.

Fraser later told investors on an earnings call: "We are only interested in and focused on ​organic growth. Period. End of story".

The Trump administration, now nearing the midpoint of its term, has so far been broadly favorable for banks, despite the president attacking some firms including JPMorgan and Bank of America.

Trump has on the other hand praised Citi in a social media post for its investment banking growth.

Financial regulators under Trump have addressed several of the industry's longstanding gripes, including trimming barriers to mergers as part of the administration's overall bid to ease regulation.

Some industry executives say they are wary that a future Democratic administration ‌could reconsider these policies.

DATA TRACING

Citi's road to fixing past errors has been long and bumpy.

It traces back to a botched $900 million transfer to Revlon creditors, which triggered a 2020 demand by the Federal Reserve and OCC to remediate longstanding risk management and data governance problems. It was fined $400 million and the bank agreed to fix the identified issues.

Four years later, the ‌OCC fined it again for a delay in addressing data problems, and the regulator required a plan to address them.

One of the people who spoke to Reuters said that the bank had carefully checked remediation work to be shown to the regulator, with one ⁠internal audit in the summer rejecting a version presented on data tracing – specifically, the ability ‌to track the origin of aggregated accounts.

Making sure the internal audits ​are rigorous will be key to streamlining the process and avoid extensive checks on Citi's work, the person said.

The lifting of the consent orders would require sign-off from the Fed and OCC. The Fed declined to comment for this article. The OCC did not respond to a request for comment.

(Reporting by Tatiana Bautzer and Nupur Anand, additional reporting by Pete Schroeder; editing by Megan ‌Davies and Jonathan Spicer)

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