Executive Summary / Key Takeaways

• Citigroup is executing a multi-year transformation to simplify its structure, modernize infrastructure, and enhance risk controls, aiming to unlock shareholder value and improve returns.
• The company's diversified global business model, particularly its strength in Services and Markets, provides resilience and competitive advantages in navigating uncertain macroeconomic and geopolitical environments.
• Recent financial performance, highlighted by positive operating leverage in Q1 2025 and growth across core businesses, demonstrates tangible progress against strategic priorities despite ongoing challenges.
• Management is committed to achieving a 10-11% RoTCE target by 2026, supported by disciplined expense management, continued revenue momentum, and strategic capital return, including a $20 billion share repurchase program.
• While regulatory remediation and macroeconomic uncertainty pose risks, Citi's robust capital and liquidity position, coupled with a focused strategy on higher-returning businesses and technological advancements, underpin the long-term investment thesis.

The Global Network Undergoing Strategic Renewal

Citigroup (NYSE:C) stands as a titan of global finance, a legacy institution whose history is deeply intertwined with the evolution of international commerce. For over a century, Citi has built an unparalleled network, establishing a physical presence and deep local capabilities in markets spanning the developed and emerging world. This extensive footprint, supported by trading floors in approximately 80 countries and a proprietary network in 94, is not merely a historical artifact but a foundational element of its competitive strategy, particularly in serving multinational corporations, financial institutions, and public sector clients.

In recent years, Citi has embarked on a profound multi-year transformation, a strategic pivot designed to reverse decades of underinvestment in its core infrastructure and streamline a complex organizational structure. This initiative, the company's stated number one priority, goes beyond addressing regulatory requirements; it aims to fundamentally reshape how Citi operates, focusing on simplifying its business model, enhancing data quality, strengthening risk and control frameworks, and ultimately, improving value for its stakeholders.

Within the competitive landscape, Citi operates alongside global financial powerhouses like JPMorgan Chase (JPM), Bank of America (BAC), Goldman Sachs (GS), and Morgan Stanley (MS). While these rivals possess significant scale and strengths, particularly in their respective domestic markets or specific high-margin segments, Citi differentiates itself through its unique global reach and deep expertise in emerging markets. This allows Citi to serve clients navigating complex cross-border transactions and supply chain shifts in ways few competitors can match. While some peers may boast lower operating costs or higher domestic efficiency, Citi's strategic focus leverages its international presence to capture growth opportunities and provide a distinct value proposition, particularly evident in the performance of its Services and Markets segments.

Central to Citi's strategic overhaul is the modernization of its technological infrastructure. Recognizing that a fragmented and outdated technology stack hinders efficiency and risk management, the company is consolidating platforms, retiring legacy applications (over 1,250 since 2022), and automating manual processes. This isn't just about cost-cutting; it's about building a foundation for future growth and resilience. Key initiatives include migrating risk analytics to cloud-based infrastructure, enhancing platform resiliency, and implementing tools to improve data quality and regulatory reporting – an area that has faced significant scrutiny and required increased investment. The adoption of Generative AI is accelerating, with examples like Agent Assist in USPB aiming to improve customer service efficiency and automated code reviews boosting developer productivity. This technological push is intended to sharpen Citi's competitive edge, enabling faster transaction processing, better risk management, and more seamless client experiences across its global network.

Performance Reflecting Strategic Traction

The first quarter of 2025 provided tangible evidence that Citi's strategic initiatives are gaining traction. The company reported net income of $4.1 billion, or $1.96 per share, resulting in a Return on Tangible Common Equity (RoTCE) of 9.1%. Firm-wide revenues grew 3% year-over-year to $21.6 billion, driving positive operating leverage for the fourth consecutive quarter. Crucially, each of Citi's five core operating segments also achieved positive operating leverage in the quarter, signaling broad-based momentum.

Breaking down the performance by segment reveals the impact of strategic focus and market dynamics:

• Services: Revenues increased 3% to $4.9 billion, driven by strong underlying momentum in Treasury and Trade Solutions (TTS). Net interest income grew 5% on higher deposit spreads and increased balances, while non-interest revenue, despite a 4% decline due to episodic fees in the prior year and FX impacts, benefited from robust underlying fee drivers like a 5% increase in cross-border transaction value and an 8% rise in U.S. dollar clearing volume. Services continues to be a high-returning business, delivering a 26.2% RoTCE in Q1 2025.
• Markets: Revenues surged 12% to $6.0 billion, reflecting strong performance in both Fixed Income (up 8%, driven by rates, currencies, and spread products) and Equities (up 23%, led by derivatives and prime services momentum). This performance highlights the value of Citi's diversified trading platform in capturing opportunities across varying market conditions.
• Banking: Revenues increased 12% to $2.0 billion (including loan hedges). Excluding hedges, revenues were up 5%. Investment Banking fees saw a notable 14% increase, propelled by an impressive 84% jump in Advisory fees, demonstrating share gains in key sectors. Expenses decreased 12%, reflecting the benefits of prior repositioning actions.
• Wealth: Revenues grew a significant 24% to $2.1 billion, with contributions from the Private Bank, Citigold, and Wealth at Work. Net interest income rose 30% on deposit spreads, and non-interest revenue increased 16% driven by higher investment fees as client investment assets grew 16%. Net new investment assets (NNIA) were strong, adding $16.5 billion in the quarter and over $56 billion in the last 12 months, representing 11% organic growth.
• U.S. Personal Banking (USPB): Revenues increased 2% to $5.2 billion. Branded Cards revenues were up 9% due to interest-earning balance growth (8%) and higher spend volume (3%). Retail Banking revenues increased 17%, benefiting from higher deposit spreads. Retail Services revenues declined 11%, primarily due to higher partner payment accruals. Cost of credit decreased 18% year-over-year, driven by a net ACL release, although net credit losses in the card portfolios increased 6%. USPB delivered a 12.9% RoTCE in Q1 2025.

Overall expenses decreased 5% year-over-year to $13.4 billion, benefiting from a smaller FDIC special assessment and the absence of a restructuring charge in the prior year, alongside ongoing efficiency efforts. This disciplined expense management, coupled with revenue growth, is central to achieving positive operating leverage.

Average loans increased 2% year-over-year to $691 billion, driven by growth in USPB, Markets, and Services. Average deposits decreased 2% year-over-year to $1.3 trillion, with growth in Services partially offset by declines in other segments and All Other.

Strategic Momentum and the Path Ahead

Citi's strategic narrative is one of determined execution against a clear plan. The divestiture of non-core consumer businesses continues, with nine sales closed and wind-downs progressing in others. The legal separation of Mexico Consumer/SBMM Banamex was completed in Q4 2024, positioning the business for a potential IPO, although timing remains subject to market conditions and regulatory approvals. This simplification reduces complexity and allows greater focus on core, higher-returning institutional and wealth businesses.

The transformation efforts are ongoing, with significant investments in technology and risk controls. While acknowledging areas where progress has been slower, particularly in data quality management related to regulatory reporting, management is committed to allocating necessary resources and implementing refined approaches. The closure of the FRB AML/BSA consent order in Q3 2024 marked the third consent order closed since 2021, demonstrating progress in key compliance areas.

Looking ahead, management has provided concrete guidance for 2025 and targets for 2026. For full-year 2025, Citi expects revenues of $84.1 billion, with net interest income excluding markets projected to be up approximately 2% to 3%. Expenses are expected to be slightly lower than $53.4 billion, reflecting continued investment in transformation offsetting efficiency gains. Card net credit losses are anticipated to remain elevated in line with 2024, with higher losses in the first half, and future ACL builds will depend on the macroeconomic environment and business volumes.

For 2026, Citi is targeting a Return on Tangible Common Equity (RoTCE) in the range of 10% to 11%. This target, adjusted from prior guidance to account for necessary elevated investments, is viewed as a waypoint on the path to further improved returns beyond 2026. Achieving this relies on expenses declining from 2025 levels, targeting below $53 billion, driven by continued reduction in legacy and stranded costs, normalized severance, and increased productivity from prior investments. Continued revenue growth from both NII and NIR is also expected, consistent with recent performance drivers.

Citi's capital and liquidity positions remain robust. The CET1 ratio of 13.4% as of March 31, 2025, is comfortably above regulatory requirements. The company is actively returning capital to shareholders, repurchasing $1.75 billion in common shares in Q1 2025 and targeting a similar level in Q2 2025, alongside maintaining a quarterly common dividend of $0.56 per share. The $20 billion share repurchase authorization underscores management's confidence in future earnings generation and commitment to shareholder value, although the pace will be influenced by regulatory clarity and market conditions.

Risks and Considerations

Despite the positive momentum, several risks warrant investor attention. Macroeconomic uncertainty persists, fueled by potential impacts from U.S. trade and tariff policies, geopolitical conflicts (e.g., Russia-Ukraine, Middle East), and the potential for a recession. These factors could adversely affect client activity, loan demand, and credit quality, potentially leading to higher credit losses and ACL builds than currently anticipated. Country-specific risks, such as foreign currency volatility and restrictions in markets like Argentina and Russia, also pose potential headwinds.

Regulatory risks remain significant. While progress is being made on the Consent Orders, delays in areas like data quality management could lead to further scrutiny or potential restrictions, although management is confident in its ability to address these issues and does not expect them to impede capital return plans. The final outcome of the Basel III Endgame rules also introduces uncertainty regarding future capital requirements.

Operational risks, including the complexities of the ongoing transformation and potential disruptions from technological changes or cybersecurity threats, could impact efficiency and execution timelines. Competition across all segments remains intense, requiring continuous investment and strategic discipline to maintain or gain market share.

Conclusion

Citigroup's Q1 2025 results provide compelling evidence that its multi-year transformation is yielding tangible benefits, driving positive operating leverage and improved performance across its core businesses. The strategic focus on simplification, divestitures, and investment in key growth areas like Services, Markets, and Wealth is beginning to unlock the potential of its unique global franchise.

While the path ahead involves navigating macroeconomic uncertainty and completing complex regulatory remediation, management's clear guidance, commitment to expense discipline, and robust capital return program underscore a determined effort to enhance shareholder value. The target of a 10-11% RoTCE by 2026 is a significant step, and the ambition to drive returns higher thereafter, supported by a strengthening technological foundation and a refined competitive strategy, positions Citi as a compelling turnaround story for investors willing to look beyond near-term headwinds towards the realization of its long-term potential.