Citigroup Inc. 2023 Form 10-K Summary
Business context and reporting period: Citigroup is a global financial services holding company operating in nearly 160 countries and jurisdictions. This annual report covers the fiscal year ended December 31, 2023. Beginning in the fourth quarter, Citi reported five operating segments: Services, Markets, Banking, U.S. Personal Banking (USPB) and Wealth; other activities are included in All Other. Prior-period segment information was recast to the new structure.
Financial results and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue, net of interest expense | $78.5 billion | $75.3 billion | Up 4% |
| Net interest income | $54.9 billion | $48.7 billion | Up 13% |
| Operating expenses | $56.4 billion | $51.3 billion | Up 10% |
| Provision for credit losses and benefits/claims | $9.2 billion | $5.2 billion | Higher |
| Net income attributable to Citigroup | $9.2 billion | $14.8 billion | Down 38% |
| Diluted EPS | $4.04 | $7.00 | Down |
| Net interest margin (taxable-equivalent basis) | 2.46% | 2.25% | Up 21 basis points |
| Efficiency ratio | 71.8% | 68.1% | Higher |
| Return on tangible common equity | 4.9% | 8.9% | Lower |
The decline in earnings reflected higher expenses, credit costs and the effective tax rate, partly offset by stronger revenue. The effective tax rate rose to 27.3% from 19.4%, primarily reflecting the geographic mix of earnings.
- Segment performance: Services revenue rose 16% to $18.1 billion, but net income fell 6% to $4.6 billion. Markets revenue fell 6% to $18.9 billion and net income fell 33% to $4.0 billion. Banking reported a $48 million net loss, versus $386 million of net income. USPB revenue rose 14% to $19.2 billion, while net income fell 34% to $1.8 billion. Wealth revenue fell 5% to $7.1 billion and net income fell 64% to $346 million. All Other on a managed basis reported a $2.1 billion net loss, versus $163 million of net income.
- Balance sheet and funding: Total assets were $2.412 trillion, broadly unchanged year over year. Period-end loans rose 5% to $689 billion; deposits fell 4% to $1.309 trillion. Long-term debt increased to $286.6 billion from $271.6 billion, while short-term borrowings declined to $37.5 billion from $47.1 billion.
- Capital: Standardized CET1 ratio was 13.37%, up from 13.03%, compared with a 12.3% required ratio at year-end. Supplementary leverage ratio was 5.82%, unchanged. Citi returned $6.1 billion to common shareholders: $4.1 billion in dividends and $2.0 billion in repurchases.
- Liquidity: Average HQLA was $560.5 billion and the average liquidity coverage ratio was 116%, above the 100% minimum. Citi reported approximately $965 billion of available liquidity resources at year-end.
- Cash flow: Operating activities used $73.4 billion, versus providing $25.1 billion in 2022; investing activities used $8.5 billion, and financing activities provided $0.7 billion. The operating cash-flow swing included large changes in trading account assets and liabilities, so it should be read alongside the balance-sheet and funding disclosures.
Material changes and unusual items
- Reported 2023 results included approximately $1.9 billion of revenue translation losses from Argentine peso devaluations; approximately $1.9 billion of reserve builds related to transfer risk in Russia and Argentina; a $1.7 billion FDIC special assessment; and approximately $780 million of restructuring charges. Citi estimated these notable items reduced after-tax results by $5.4 billion.
- Divestiture-related impacts were approximately $1.0 billion pretax and $659 million after tax, primarily reflecting gains on sales of the India and Taiwan consumer banking businesses. Citi’s non-GAAP calculation excluding notable items and divestiture-related impacts showed EPS of $6.44, compared with reported diluted EPS of $4.04; these adjusted measures are not substitutes for GAAP results.
- Credit costs rose to $9.2 billion from $5.2 billion. Net credit losses increased 70% to $6.4 billion, primarily as U.S. card losses normalized from historically low levels. The allowance for credit losses on loans was $18.1 billion at year-end, up from $17.0 billion.
- Deposits declined year over year, particularly in Services, reflecting quantitative tightening and customer shifts toward higher-yielding products. Higher funding costs also pressured the fourth-quarter net interest margin.
Outlook, management commentary and risks
- Citi expects higher net credit losses in 2024, mainly from cards; it expects card loss rates to exceed pre-pandemic levels and, on a full-year basis, peak in 2024. Management said the expected higher losses were reflected in the year-end loan allowance.
- Citi expects additional organizational simplification costs in the first quarter of 2024. The filing does not provide formal consolidated earnings or revenue guidance.
- Citi intends to maintain a quarterly common dividend of at least $0.53 per share, subject to financial and macroeconomic conditions and Board approval. Share repurchases will be assessed quarter by quarter amid uncertainty about regulatory capital requirements.
- Citi expects to complete the separation of its Mexico consumer, small-business and middle-market operations in the second half of 2024 and anticipates an IPO in 2025. It continued wind-downs in Korea, China and Russia and restarted the sales process for Poland consumer banking.
- Key risks include elevated rates and inflation, recession risk, geopolitical tensions, foreign-exchange controls and devaluations, credit deterioration, deposit competition, market volatility, and cyber and operational incidents. Proposed U.S. Basel III capital changes, if adopted as proposed, could materially increase Citi’s required regulatory capital.
- Citi remains subject to 2020 Federal Reserve and OCC consent orders requiring improvements in risk management, compliance, data quality, governance and internal controls. Management reported ongoing remediation efforts but noted that satisfactory implementation is not assured.
- The filing estimates reasonably possible unaccrued losses on certain legal, regulatory and tax matters of up to approximately $1.3 billion in aggregate. Management believes the ultimate outcome of disclosed matters is not likely to materially harm consolidated financial condition, but adverse outcomes could materially affect particular periods’ results or cash flows.
- Russia-related risks include restricted client dividends held at the Russian Deposit Insurance Agency and possible deconsolidation. Citi disclosed that loss of control of AO Citibank could result in an approximately $1.6 billion CTA loss through earnings and a $0.6 billion loss on intercompany liabilities. Argentina remains exposed to further currency translation losses and restrictions on access to U.S. dollars.
Important facts for investors to verify
- Reconcile reported earnings and EPS to management’s non-GAAP figures, including the treatment and tax effects of notable items and divestitures.
- Track card delinquency, net credit loss rates and allowance coverage against management’s 2024 peak-loss expectations.
- Assess capital headroom under current requirements and the potential effects of proposed Basel III, GSIB surcharge and other capital-rule changes.
- Monitor deposit balances, funding costs, liquidity measures and the mix of available liquidity across legal entities.
- Review progress on consent-order remediation, restructuring execution and planned divestitures, alongside Russia and Argentina exposures and legal contingencies.
Audit: KPMG issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The auditor identified critical audit matters involving Level 3 fair values, the allowance for credit losses and goodwill impairment.