had a big quarter on Wall Street, and credit costs were much lower. But that probably didn’t matter to many investors.
Instead, many Citi shareholders are focused on the bank’s regulatory woes. Beyond the $400 million penalty imposed by regulators last week, it is not yet clear how much it will cost to resolve the consent order the bank is now operating under. Among other things, the bank will need to invest substantially more in data infrastructure to help its risk management. Dealing with Washington can be costly in general, but technology upgrades at banks can be particularly drawn-out. Before the fine, Citigroup had already disclosed $1 billion in new technology investment for this year, but it hasn’t given specific further figures tied to the consent order.
Some investors might find this frustrating and give up on the stock too soon. Others might be tempted to jump back in once expenses get a bit easier to model. But maybe investors shouldn’t be so focused on expense levels or targets. Coming into the year, for example, Citi didn’t appear to be overly profligate. Its overall efficiency ratio last year—which measures expenses against revenues—at 56.5% was better than big banks overall at 57%, according to Barclays analysts’ industry figures.
Yet that wasn’t mission accomplished, as the bank still had a return-on-equity gap to peers such as JPMorgan Chase. Before the latest regulatory setback, Citigroup did appear on its way to addressing other crucial gaps and catching up to rivals’ returns, such as with a substantial share buyback program and bets on its digital retail bank.
Departing chief executive Michael Corbat told analysts on Tuesday that the bank’s focus on “reducing manual touch points, automating processes and ensuring accurate data can be accessed quickly” will also help “create a digital