Citigroup CEO Sees Signs of Economic Softening, Plans for Operational Streamlining

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Citigroup Inc (NYSE:C).'s Chief Executive Officer, Jane Fraser, has recently shared her insights on the economic landscape and the bank's strategic direction. In an interview with CNBC's Squawk Box on Friday, Fraser expressed concerns about the current state of the economy, noting a softening in demand and changes in consumers' spending patterns.

Fraser highlighted that despite the resilience of consumers, there has been a discernible shift in their buying patterns. Particularly among lower-end consumers, there has been a move towards saving money as their bank accounts dwindle. The CEO indicated that this could be due to the depletion of excess savings accumulated during the Covid-19 pandemic.

The U.S. government's trillions of dollars in stimulus during the pandemic helped bolster the economy for longer than many expected. The Federal Reserve's aggressive interest rate hikes have made credit card, mortgage, and auto debt more expensive, leading to an increase in late payments and defaults. This has prompted Citigroup, the third-largest U.S. bank by assets, to closely monitor its credit card customers for signs of distress.

According to InvestingPro data, Citigroup's market cap stands at 79.22B USD. The bank's P/E ratio is at 6.48, indicating a low earnings multiple, and the revenue for LTM2023.Q2 is 70.8B USD. The bank is also experiencing a negative revenue growth of -1.13%.

In terms of corporate sentiment, Fraser shared that other CEOs have reported a softening in demand. She noted that this could potentially aid the Federal Reserve in its battle with inflation. While employment and gross domestic product figures suggest a "soft landing" for the economy, Fraser remarked that if a recession does occur, it is likely to be manageable.

On an organizational level, Fraser discussed her ongoing reorganization efforts at Citigroup. The aim is to move away from the "financial supermarket" model towards a more streamlined operation. The CEO explained that this involves simplifying the bank by eliminating complexity and flattening the organization to improve teamwork and client delivery.

Details on job cuts and expense savings resulting from this reorganization will be disclosed with Citigroup's fourth-quarter earnings results in January. Fraser also indicated that Citigroup is targeting growth in its services franchise and new-client acquisitions, and is preparing for increased capital markets activity, particularly in the bond market and initial public offerings in its investment banking businesses.

As an InvestingPro Tip, it's worth noting that Citigroup is a prominent player in the Banks industry and has maintained dividend payments for 13 consecutive years. Yet, the bank may face challenges due to poor earnings and cash flow, which could force dividend cuts.

Overall, Fraser's comments reflect a cautious outlook for the economy, with a focus on operational streamlining at Citigroup to navigate potential challenges. With the bank's stock price being quite volatile and trading near its 52-week low, investors are encouraged to stay informed and consider InvestingPro for additional insights and tips.

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