Citibank (C.US) Q3 conference call: Revenue hit the best in the same period in ten years, customer financial conditions are still healthy, and AI efficiency is beginning to show

The Zhitong Finance App learned that Citibank (C.US) announced financial results for the third quarter of fiscal year 2026 and held a performance conference call. Thanks to increased investment banking revenue, increased trading activity with multinational companies, and increased profits in the wealth management business, Citi's third quarter results were better than market expectations. According to financial reports, Citi's Q3 revenue increased 7.7% year over year to US$23.845 billion, which was 80 million US dollars higher than market consensus expectations; net profit was US$5.245 billion, up 40% year on year; GAAP earnings per share were 2.85 US dollars, which was 0.20 US dollars higher than market consensus expectations.

Below are the details of Citi's third quarter earnings conference call.

Management statement

Margo Pilic (Head of Strategy, M&A and Investor Relations) opens

Thanks to the operator. Good morning, and thank you all for attending Citigroup's 2026 third quarter results conference call. With me today are Chairman and CEO Jane Fraser, and Chief Financial Officer Gonzalo Luchetti.

As a reminder, today's presentation materials can be downloaded from the company's website at citigroup.com and may contain forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and risk of environmental change. Actual results may differ materially from these statements due to various factors described in performance materials and SEC documents.

Next, leave it to Jane.

Jane Fraser (Chairman and CEO) speaks

Thanks Margo and good morning everyone. This morning, we reported third-quarter net profit of $5.2 billion, earnings per share of $2.85, and RoTCE of 11.5%. Our returns have been significant improvements in Services, Banking, Wealth, and US consumer credit card businesses. The company's RotCE increased 180 basis points year over year, and net profit increased 17%. Revenue increased 8% year over year, the best third-quarter revenue performance in ten years. Four of the five major businesses achieved revenue growth.

As mentioned before, we brought forward some of our planned investments and severance expenses to this quarter. We're still managing expenses very consciously and investing in talent and technology. Even with this kind of advance, we achieved positive operating leverage, and after excluding annual special projects, cost growth was controlled at 3%. Overall performance continues to prove the discipline and consistency of our strategy execution.

The five major businesses are described below. Services handed over another bright quarter, with revenue growth of 15%. Growth is broad-based, with growth driven by all drivers, from deposits to business card spending; trade loans and cross-border activity continue to gain momentum in the network. We continue to lead the way through innovation to launch Citi Token Services and launch Custody+ in the UAE and Japan. Custody and management assets grew 16%, and we are working hard to secure and accept more new orders.

Markets revenue increased 6%. Revenue from the stock business increased 14%, driven by Prime business and Asian business, and we have been investing in these areas to gain our share. FICC grew 4%. The interest rate business is pressured by the trading environment, but both foreign exchange and spread products have achieved good growth, both of which are stable sources of revenue.

Banking revenue increased 6%. We have performed particularly well at ECM, playing an important role in all six of the biggest deals this quarter, including leading SK Hynix, the largest IPO in the history of an Asian issuer. In terms of leveraged financing, we led SoftBank's $11 billion high-yield offering, the largest of its kind in history. I'm proud of these results, and I'm proud of our customer relationships, bankers, and new talent to take on these commissions. As this quarter showed, we continue to invest responsibly in high-quality talent to strengthen our strengths and fill our business gaps.

Wealth's performance continued to improve steadily, and all three businesses achieved growth. RoTCE is over 14%, which is significantly higher than last year. Net new investment assets of US$38 billion were added this quarter, an increase of more than 100% year over year. We continue to launch new services, such as Premium Boost, to deepen customer relationships; retail banking customers are highly accepting of our wealth products.

US consumer credit card revenue remained flat due to increased partner payments. At the same time, our universal card portfolio drove an overall average loan increase of 6%. We are increasing our investment in this business, both through deepening relationships with key partners and through differentiated rewards such as the acquisition of Kard. With returns of over 21% this quarter, this is already a very attractive business, and the return on investment will continue to expand over time.

In terms of Legacy Franchises, we have sold 1.4% of Banamex's shares, so far we have sold a total of 49%. We are busy preparing to merge Banamex from Citi next year. Afterwards, an IPO will take place when market conditions permit and meet normal regulatory requirements. At that time, the divestment of our international consumer business will be nearing completion.

In terms of capital, we returned more than $4 billion to shareholders this quarter, including $3 billion in share repurchases. So far this year, we have used approximately $900 million in non-deductible DTA, which is slightly higher than the path discussed on Investor Day in May. The tangible book value per share increased 6% to $101.59. The CET1 ratio is 12.8%, which is still about 120 basis points above current regulatory minimum requirements.

I know that the opportunities and risks brought about by AI are the focus of everyone's attention. Our transformation has driven the modernization of core technology platforms and laid the foundation for deploying AI across the company. As I said before, we look at AI in four dimensions: how to help grow; how to deploy to improve operational efficiency; how to teach employees to use these new capabilities; and how to strengthen defenses in light of the increased threat environment we and our customers face. I've talked about the first three dimensions many times, and we're excited about revenue gains, increased efficiency, and the opportunity to do more for our customers. But let me spend a minute talking about the fourth dimension.

Our cybersecurity strategy is to be proactive, act fast, and maintain trust. We don't wait for risk to occur, but we're constantly preparing and improving our defenses. We manage risk every day, and this is no different. We're always strengthening our systems, running challenging and disruptive scenarios, and stress-testing our defenses and responsiveness. Then revise the action manual based on what you've learned to prepare for the incident before it happens, not after the fact. We focus on resilience and work with peers and regulators to reduce systemic risk while deploying AI to improve company performance.

Finally, let's talk about the macro environment. Conditions softened in the third quarter. Despite various headwinds, the recent rise in energy prices and the tightening of monetary policy, the global economy has remained very good. In the US, despite the high profile of the AI boom, consumers are still driving most of the growth, the labor market is stable, and businesses remain active. Our immediate economic outlook remains positive. China is also benefiting from AI, but lacks the consumer spending needed for balanced growth, so the economy is heavily dependent on exports. Europe is still facing structural challenges.

This background is why our customers depend on our network. They are actively engaged and financially healthy, as can be seen from our credit data. They are open to strategic opportunities while being aware that there may be more disruptions in the future. Our focus is on delivering network capabilities and providing intellectual support to help customers compete, finance, or manage supply chains more effectively. They know we'll be there for them no matter what circumstances they face.

This quarter proved once again that we continue to execute and deliver in a dynamic environment. Looking ahead, as you all know, we expect to exceed this year's RoTCE target of 10%-11%, even if we invest early to support the immediate target of 11%-13%. But these are just the next steps on the way to a sustainable return of 14%-15%, and we will definitely make it happen.

Next, leave it to Gonzalo, and we'll be happy to answer questions.

Gonzalo Luchetti (Chief Financial Officer) speaks

Thanks Jane and good morning everyone. I will first talk about the company's overall financial results. Unless otherwise specified, they all use year-on-year comparisons, and then review each business performance in more detail.

Page 4 shows the company's overall financial results, reflecting our progress and strategic momentum. Net profit for the quarter was US$5.2 billion, EPS of US$2.85, RoTCE 11.5%, and revenue of US$23.8 billion, achieving positive operating leverage. Total revenue grew 8%, driven by growth in Services, Wealth, Markets, and Banking, partially offset by the decline in All Other.

Excluding Markets, the 7% increase in net interest income (NII) was driven by growth in Services, Wealth, and US consumer credit cards, partially offset by declines in All Other and Banking. Excluding Markets, the 12% increase in non-interest income (NIR) was driven by growth in All Other, Services, Banking, and Wealth, partially offset by a decline in US consumer credit cards. Markets' total revenue increased 6%.

The cost was 14 billion US dollars, the reporting caliber decreased by 2%, and the efficiency ratio was 58.5%. Excluding the impact of Banamex's US$726 million goodwill impairment special project in the third quarter of the year, expenses increased by 3%. Credit costs of $2.6 billion, including the company's net reserves of $369 million. Since the beginning of the year, the company has achieved positive operating leverage, with RoTCE of 12.6%.

Page 5 shows cost and efficiency trends over the past five quarters. As I said, excluding special annual programs, the cost increase was 3%, mainly driven by increases in transaction and product services, deposit insurance costs, and compensation and benefits, partly offset by a decrease in professional service costs. Since the beginning of the year, we have confirmed more than $1 billion in severance expenses, mainly in functional, technical and operational areas, as we continue to drive structural efficiency, reduce transformation costs and stranded costs, and create capacity for business growth.

Page 6 shows US credit card and corporate credit indicators. Total reserves at the end of the quarter were over $22 billion, and the reserves/capital loan ratio was 2.5%. Reserves include an eight-quarter weighted average unemployment rate of 5.3%, including an average unemployment rate of nearly 7% in the downturn scenario. We maintain a high quality credit card portfolio. Approximately 86% of the balance is issued to consumers with a FICO score of 660 or above, and the US credit card portfolio reserve/fund loan ratio is 7.7%. Consumer credit performance was strong, and net credit losses and overdue rates for the overall credit card portfolio declined year over year.

Looking at the right side of the slide, 79% of corporate exposure is investment grade. Both corporate non-accrued loans and corporate net credit losses remained low during the quarter. We are confident in the high quality of our portfolio, which reflects our robust risk appetite framework and stringent customer choices.

Page 7 talks about capital, liquidity, and balance sheets. I'll talk about month-on-month changes. Total assets of $2.9 trillion, up 2%, driven by growth in trade-related assets and loans. Net loans increased 3% at the end of the period, driven by growth in Markets and Banking. The $1.5 trillion deposit base remained well-diversified, growing 1%, mainly driven by Services growth. We reported an average LCR of 114%, with over $1 trillion in available liquidity resources.

In the third quarter, we continued to deploy capital to support value-added client activities while prioritizing capital returns to common shareholders, which was reflected in $3 billion repurchases and a 12% increase in quarterly common stock dividends. The quarter-end CET1 ratio was 12.8% under the binding standardization method, which was approximately 120 basis points higher than the 11.6% regulatory capital requirement.

Page 8 shows Services' third-quarter results. Revenue increased 15%, and both TTS and securities services grew, reflecting the benefits of continued investment. NII grew 17%, driven by higher average deposit balances and deposit spreads. NIR grew 12%, driven by increased expenses, and we continue to see strong corporate and commercial customer activity and engagement, driving the underlying KPI momentum.

The 10 per cent increase in expenses was mainly driven by severance costs and volume and income-related expenses. The average loan growth was 14%, mainly driven by working capital loans and financing from export agencies. Average deposits grew 16%, mainly driven by growth in the US. Services achieved positive operating leverage, with net profit of US$2.6 billion, RoTCE of 31.2% this quarter and 29.7% since the beginning of the year.

Markets, page 9. Revenue increased 6%, and both stocks and fixed income grew. Fixed income revenue increased 4%, of which spread products and other fixed income increased 13%, driven by increased financing revenue from spread products. Interest rates and foreign exchange remained the same. Foreign exchange increased due to increased trading volume, which was offset by a decline in interest rate revenue. Stock revenue increased 14%, driven by the continued momentum of Prime Services, and balance increased by more than 40%, partly offset by a decline in derivatives revenue.

Expenses increased 7%, driven by increased transaction costs and compensation. The average loan growth was 30%, mainly driven by interest spread products. We implemented the Investor Day Strategy to promote more stable financing income. Markets' net profit for the quarter was US$1.7 billion, RoTCE 12.3%, and year-to-date.

Banking page 10. Revenue rose 6%, driven by growth in investment banks and loan hedging earnings, partly offset by a decline in corporate loans. Investment banking revenue increased 9%, with ECM growing 77%, partly offset by a 4% decline in advisory business and a 3% decline in DCM. Corporate loan revenue, excluding loan hedging benefits, fell 16%, driven by lower loan spreads and partly offset by increases in average loan balances and commitments.

Expenses increased 8%, driven by increased compensation and continued investment in the business. Credit costs of $23 million include $43 million in net credit losses and $20 million in net reserve releases. Banking's net profit for the quarter was US$378 million, RoTCE 19.2%, and year-to-date 17.7%.

Page 11: Wealth. Revenue increased 15%, and all businesses grew. NII in the lower left corner of the slide increased by 20%, driven by higher deposit spreads and average deposit balances, partly offset by lower mortgage spreads. NIR grew by 5%, mainly driven by higher income from investment expenses. Client investment assets increased 15%, mainly driven by net new investment asset inflows. The current quarter was 38 billion US dollars, and over the past 12 months exceeded 75 billion US dollars, representing an 11% organic increase.

Expenses increased by 3%, driven by increased pay. Credit costs of $102 million include net credit losses of $70 million and net reserve accruals of $32 million. The average loan grew 4%, and we continued to grow our securities mortgages and mortgages. Average deposit growth of 3% was driven by private banking growth and partly offset by moderate declines in Citigold and retail banks. Wealth's profit margin before tax was 22%, achieving positive operating leverage, and net profit of US$585 million. RotCE was 14.3% this quarter, and 13.2% since the beginning of the year.

Page 12 US Consumer Credit Cards. As a reminder, the year-over-year results continue to reflect the impact of the additional American Airlines co-branded card portfolio acquisitions undertaken in April. Revenue remained flat during the quarter, and NII growth was offset by a decline in NIR. NII grew by 6%, driven by increased interest-bearing balances. The 62% decline in NIR was driven by increased partner payment accruals and incentive costs, reflecting our investment in growth, partially offset by increases in exchange fees and annual fees. In line with the Investor Day strategy, GM cards increased by 13%, and average loans increased by 9%, all partially offset by a decline in private brand cards.

Expenses increased by 2%. Driven by increased transaction costs and advertising, we invested to drive future customer acquisition and continued customer engagement, mostly offset by lower pay. Credit costs of US$1.9 billion, including net credit losses of US$1.7 billion and net reserve accrual of US$208 million, are mainly driven by changes in macroeconomic outlook.

The net profit of US consumer credit cards for the quarter was US$851 million, RoTCE 21.8%, and 21% since the beginning of the year. As I said last quarter, while we expect RoTCE to stay close to the full-cycle target for this business, some quarterly fee growth may exceed revenue growth because we invest in the business to drive engagement and customer acquisition, some of which investment is reflected in revenue credits and partly as expenses.

Page 13: All Other's management basis, including Corporate/Other and Legacy Franchises, excludes the effects of divestment, particularly Banamex's US$726 million goodwill impairment in the third quarter of last year. Revenue fell 3%, driven by declines in Legacy Franchises and Corporate/Other. Expenses fell 14%, driven by lower Corporate/Other transformation costs and lower exit and liquidation costs. The latter fell to an operating rate of about $100 million this quarter, partly offset by the appreciation of the Mexican peso.

Credit costs of $532 million include net credit losses of $433 million, driven by Mexican consumer loans, and $99 million in net reserve accruals. Since the beginning of the year, as US profitability continues to improve, we have reduced the total amount of company-wide DTA deducted from CET1 capital by approximately $900 million. Additionally, an overview of the financial impact associated with the Banamex divestment is provided on page 20 of the appendix to the presentation materials.

I would like to emphasize three points. First, after fully withdrawing from Banamex, we expect the cumulative net capital impact to reflect CET1 capital releases related to Banamex RWA, removal of certain CET1 deductions, and cumulative gains or losses during the divestment period. Second, as mentioned before, as part of the de-merger process, we expect to confirm approximately $9 billion in CTA related losses through the Profit and Loss Statement in early 2027. Third, we expect the impact associated with the de-merger process to slightly increase the CET1 capital ratio.

Finally, page 14 contains the full year outlook for 2026. We expect ROTCE to be higher than 11% for the whole year. Supporting factors include NII growth excluding Markets in the medium to high single-digit 6% range, and NIR excluding Markets continuing to grow, driven by the momentum of Services, Banking, and Wealth expenses, partially offset by US consumer credit cards. At Markets, we expect a typical seasonal decline in the fourth quarter, similar to last year, where it was 20% last year, and may be slightly higher given the strong performance so far this year. Based on this revenue outlook, combined with ongoing expense discipline, we expect a full year efficiency ratio of less than 60%.

On the credit side, based on strong performance so far this year and fourth quarter expectations, we now expect the total NCL rate for US credit cards to be around 4% for the whole year, providing the lower end of the range previously; ACL will continue to depend on the macroeconomic environment and business volume. We will continue to provide capital to the business to pursue value-added growth opportunities while returning capital to shareholders.

We remain confident in our Investor Day strategy and ability to deliver on all our promises. Looking back, the results for the third quarter and this year so far represent significant progress in our goal of improving overall company and business performance. The strategy is working, and we have a clear path to higher sustainable returns.

Next, Jane and I would be happy to answer questions.

Q & A session

John McDonald (Truist Securities)

Q: I'd like you to put the strong RoTCE results so far this year in the background. RotCE was 12.6% this year and 11.5% this quarter. If it falls at 11%-12% for the whole year, it means there was a slowdown in the fourth quarter. Considering factors such as seasonality and early spending, please discuss the recent expectations and trajectory of RoTCE for the fourth quarter and the next two years.

Gonzalo Luchetti: Thanks John, great question. A few ideas. First, our top priority is to drive sustainable return improvements. Second, as can be seen from this year's results, the strategy is working. In a constructive context, customer intensity and execution milestones have a compounding effect. Third, we raised our guidelines again, from the high end of 10%-11%, or slightly above 11%, to higher than 11%. This shows our confidence and discipline at the end of the year.

Regarding what you mentioned, there really is natural seasonality. I just mentioned Markets, and there are other factors. The market segment alone declined by about 20% month-on-month from the third quarter to the fourth quarter of last year. This year, as I said a few minutes ago, is likely to be slightly worse given the strong year so far and current market dynamics. Calculating RotCe in a similar way, even if you look at the past few years and adjust special projects, it will fall into high single digits. This generally supports our higher than 11% full-year forecast. You can also see our confidence in raising our estimates several times over the past 30 days.

Looking ahead to 2027, it is undeniable that we have business momentum. Revenue growth is visible: 7% a year ago, excluding special projects, about 14% in the first half of the year, and about 8% this quarter. Looking at the drivers, customer momentum is driving revenue growth, and we feel good. We haven't deviated from our Investor Day promises. Remind everyone that the immediate return target is 11%-13% in 2027 and 2028. We're comfortable with that. We've also tested in a variety of environments, and don't always expect the sun to be bright and smooth. Thank you.

Q: Regarding capital, what do you think of the capital target path proposed on Investor Day? How do interest rates affect this and what does it mean for buybacks?

Gonzalo Luchetti: Thanks for asking. First, give everyone a baseline. Today CET1 is 12.8%, which is about 120 basis points above the minimum regulatory requirement. As we said on Investor Day, the current regulatory minimum is 11.6%. We assume the regulatory minimum will rise to 12.1% starting January 2028. On Investor Day, we set a directional target of 13.1%. This gives direction. We're still comfortable in that direction.

Second, with regard to buybacks, let's first restate the framework: we hold capital for resilience and flexibility, and deploy it to returns and distributions to shareholders. This is the ladder we talked about on Investor Day. Hope you all see us applying it every quarter of this year. Taking this quarter as an example, I feel good because we were able to deploy balance sheets to drive revenue growth, improve year-over-year returns, while returning $4 billion in capital to shareholders, of which $3 billion was repurchased, and still maintain a buffer that was moderately higher than regulatory requirements to cope with the environment.

In addition, the quarter also absorbed changes in OCI due to interest rates. We feel like we can balance this equation. This was also done in the first few quarters, and there is probably less OCI activity. The business is dynamic, we have a balanced framework, and we always put resilience first. Thank you.

Michael Mayo (Wells Fargo Securities)

Question: Gonzalo, during the second quarter conference call, you talked about advancing investment spending by 5 billion US dollars over 3 years, to about 500 million US dollars this year. How much did the third quarter cost? Why early? What are the aspects of the flower? Does that mean there will be another $4.5 billion in investment spending after this year, or will the total amount increase?

Gonzalo Luchetti: Thanks Mike. Let me take a moment to talk about costs and efficiency. Return first, sustainable return improvement. However, in terms of expenses, I hope everyone can see our very sharp expense discipline. It's not a project, it's how we do business every day, every dollar. On Investor Day, we said that in order to unlock customer-driven growth, an additional investment of around $5 billion is needed over three years. We have also said that these investments need to be “hard-headed” and self-funded through sustained structural efficiency, including stranded costs, transformation costs, and structural efficiency.

Regarding the advance, 100% is within $5 billion. I recently mentioned about $500 million ahead of schedule, which is fully included in $5 billion. We haven't changed our investor day expectations.

As for how much of this quarter was achieved, it can be assumed that about half was in this quarter. Severance expenses amounted to approximately $200 million this quarter, accounting for a significant portion. There are also investments in technology, marketing, and customer experience. Severance expenses are directly related to one of the biggest of the three self-funded investments — structural efficiency — that is, the 100+ end-to-end processes Jane mentioned in the past. We review weekly to unlock efficiency through automation and AI. Thank you.

Q: You said the year wasn't always sunny and smooth. But the reversal of fourth-quarter returns looked poor to reach 11%. You said Markets wouldn't be that strong, I understand. But are you assuming that the fourth quarter will be bad? Or is it regular prudence?

Gonzalo Luchetti: I chose the latter. Thanks Mike. Our guidelines are higher than 11%, slightly higher than 11% and an improvement from what we said 30 days ago. Of course, there is a range, which is probably better, but it is difficult to predict at the beginning of the quarter, especially market activity. So mostly based on that, yeah, be careful enough. Thank you.

Erika Najarian (UBS)

Q: I would like to ask John further questions about capital. In response to John, you said that capital can continue to be deployed for growth while maintaining the pace of repurchases. I want to confirm because apart from AOCI, many investors value the pace of repurchases. Please confirm that the current repurchase level can be maintained even if interest rates are higher. Regarding the CET1 minimum path of 12.1% in January 2028, do you understand that the Basel III Endgame revisions and G-SIB revisions are mainly forward-looking and will not be subject to retroactive adjustments to help increase G-SIB surcharges in the future?

Jane Fraser: Let me start with the big picture. You've heard us talk about a lot of upside potential. We have plenty of high-return opportunities to invest. As Gonzalo said, once we're comfortable with the resilience of our capital base — we feel good — we have plenty of opportunities to deploy capital to high-return opportunities, drive growth and scale, and support the Investor Day presentation. We know that buybacks are important and that return on capital is important to shareholders. We'll determine the right balance. But I think all investors want us to ensure that they invest in long-term high-return growth opportunities to drive bank performance and competitiveness. Gonzalo, leave it to the details.

Gonzalo Luchetti: Thanks Jane, thank you Erika. Let's talk about repurchases first, then return to the capital path. Remind me of what was said this year. Let's talk about the present first, and then describe future shapes with decimal precision. Currently, approximately $3 billion of buybacks have been completed this quarter, and $13.3 billion since the beginning of the year. Last year's $13 billion. We said this year would be more than last year; that was achieved in the third quarter. So we're doing what we said.

Looking ahead to the framework, you emphasized the investor day capital path I talked about earlier. Use the minimum regulatory standard, from 11.6% to 12.1%. This is based on having the business and balance sheet support the high level of activity over the past few years. You've seen us grow multiple businesses, not only Markets, but also Banking, Services, and a few franchises. This is directly related and expected, so it was discussed on Investor Day.

As for the rules, it is currently unknown. We'll see more rules in the coming months. Then, through models and market shock scenarios, we probably won't know the full impact on the path until next year. Currently, we operate according to current rules. Based on current rules, the path from 11.6% to 12.1% means we need to establish a capital trajectory unless the rules change.

You'll see the future the same as this year so far: we manage a balanced framework, first holding capital for resilience and flexibility, then deploying, like this quarter and the previous quarter, to support strong activity, pursue value-added returns, support customers, and distribute to shareholders. From our progress over the past few quarters on the $30 billion plan announced on Investor Day, you can see how much of a priority this is. Thank you.

Q: About Markets reviews. You said that Markets fell 20% month-on-month, and the support implied high single-digit RotCE. Is this typical seasonal conservatism or is it because you're still optimizing the size of your stock business? I want to disassemble the fourth-quarter market review.

Jane Fraser: Erika, you think too much. That's just the normal seasonality we've seen over the years between a strong third quarter and a typical fourth quarter, that's all. Don't over interpret it.

Glenn Schorr (Evercore ISI)

Question: Inquire about the stock business. Prime balances increased by more than 40%, revenue increased 14%, and there is still quite a gap with the largest peers. Please talk about where you are investing and your ambitions for the stock business, because if it continues to strengthen, there is a lot of room for improvement.

Jane Fraser: Yes. As Andy said on Investor Day, we are investing late in the stock business. We are systematically expanding our stock business, mainly by investing resources to grow our prime balance and making necessary investments in technology. We see that the Prime business has a lot of room to grow in share. We do it with very strict customer selection and risk management.

However, it is clear that customers are interested in Citi. I meet clients around the world, and they keep telling me they want an alternative to this market, hoping for Citi, because they know and trust us, especially in terms of fixed income history. This provides an easier path for us to expand our stock business and sustain momentum. So you'll see us investing steadily in execution, and we believe in our ability to continue growing.

Q: A similar but different question about Wealth. Net capital growth was very strong. Investment assets increased 15%, but wealth expenses only increased by 5%. Not sure if it's because it first draws customers in and then provides more advice? Please provide background on the trend.

Gonzalo Luchetti: Of course. I'll answer directly first, then give a broader perspective. To put it bluntly, this is just the impact of a few strategic decisions we made a year ago in the same base, which drove down the growth rate by 5%. As the base numbers roll over, you'll see a better match between drivers and revenue. This is the easiest version. Thanks for asking.

More broadly, we are pleased with the momentum of the Wealth business. Revenue increased 15%, and expense discipline was good, only 3% increase. We have achieved very positive operating leverage for several consecutive quarters, driving improved returns. The business returned about 7.6% a year ago, 10.8% in the first quarter, and slightly higher than 14% this quarter and the previous quarter. This gives us confidence that we will soon enter the immediate target range of 15% to 20% mentioned on Investor Day. The business has good momentum, the NII quarter is good, and the overall traction is good.

Manan Gosalia (Morgan Stanley)

Q: I want to clarify the capital review. Next year's 13.1% capital target excludes the final capital rule. Once the final rules are determined and the results are seen through stress tests, is it still possible to re-examine 13.1%?

Gonzalo Luchetti: Thanks Manan, good morning. Part 1. Yes, 13.1% anchors the minimum regulatory requirement of 12.1% for January 2028, based on current rules. It doesn't include any rules in progress, some have been published and some haven't. We need to see the new SCB run for the first time, as well as Basel III and G-SIB components. So from the current 11.6% minimum to the 12.1% build, only the current rules are included.

Second, there are parts of capital not included, but which we have more control over and which I feel better. You can see that in this year's release results, SCB dropped from a peak of 4.3% to the current 3.6% within a few years, and the latest is 3.3%, which is obviously not included. But in terms of direction, this repeated the signal I said at the beginning of the call: the strategy is working. The strategy's working means we've drastically simplified banking, improved accountability, and visible return progress and quarterly proof points. PPNR is increased and stabilized, and loss absorption capacity is improved. These are more within our control and are expected to be reflected over time, but are not factored in.

Q: Shifting to interest rates and interest rate sensitivity. Short-term interest rates are rising in the US and internationally. How should business interest rate sensitivity be considered? Given strong Services and deposit growth, this should drive a lot of interest rate sensitivity. Please talk about the next year or so.

Gonzalo Luchetti: Thanks, great question. What time. Let's talk about the present first, then the future. Now, you've just seen that we've once again raised the NII guide excluding Markets to a medium high single digit of 6%, compared to 5%-6% at the beginning of the year. A few weeks ago, it was said that it would be at the high end. This shows confidence.

Second, remind that most businesses are driven by customer volume. Success depends on deepening relationships and attracting new customers. Excluding Markets' NII this quarter, deposits grew 11%, and excluding Markets loans increased 7%. The entire franchise has good momentum. Considering a higher and longer-term environment, given our overall asset sensitivity position, this should be net positive, although we need to absorb OCI in the short term, as we just did.

Regarding asset sensitivity, provide more color: The overall asset sensitivity is visible in the disclosure and is non-dollar, and comes from structured positions in our global Services business. So we are well positioned to benefit from global interest rate hikes, many of which have happened since February. On the dollar side, it is relatively neutral for at least 12 months, because the portfolio lasts for a short period of time. As reinvestment arrives in the second year, we will quickly become asset sensitive.

In net terms, all of this should put us in a constructive position at higher and longer interest rates. Of course, some businesses, such as the Services you mentioned, will be the main beneficiaries. Reasons include volume, deposit competition, and possible tightening of the money supply. Currently, beta performance is in line with expectations. Services and Wealth teams pay great attention to quality and don't compromise easily. This discipline in pricing and quality concerns proved in the third quarter that operating deposits grew faster than total deposits. This reflects Shahmir and the team's focus on customer quality.

Ebrahim Poonawala (BofA Securities)

QUESTION: Jane, I apologize if I missed the capital round trip. Gonzalo, you mentioned that if the capital rules don't change, the requirement clearly increases by 50 basis points. The point is if the Federal Reserve finalizes the rules before the end of the year, will you have more flexibility, otherwise nothing? Should we understand it that way?

Gonzalo Luchetti: Ebrahim, not exactly. My idea is that paths anchor the current rules. This is also based on our decision to support business growth. In terms of capital, the rules are currently unknown. We need to see the full set of rules, some published and some not. Even after release, we need to see the model run for the first time, because it will be a brand new component, not only a new model, but also market shock management and scenarios. Full clarity will probably be around the middle of next year. We'll keep updating it.

But I don't mean there will be a perfectly clear view at the end of the year, because I don't think so. There will be more information, but there are still unknowns, especially in terms of numbers, and this is ultimately what you and I want. Thank you.

Q: Understood. Therefore, the buyback pace may fluctuate or slow down somewhat. The next question is about Services. We track around 29%-30% of RotCE. Jane, you talked about strong business. I'd like to understand what would bring this business down from nearly 30% to your mid-20s target? Will only incremental growth be diluted, assuming interest rates remain the same? Why from 30% to, say, 25%?

Jane Fraser: That's a full cycle goal. We feel good because Services is a cumulative business with four pillars of high-return growth: deepening existing customers, acquiring new customers (especially commercial banks), gaining share in high-growth verticals (especially fintech), and investing in next-generation platforms and solutions.

This gives us a model that is almost impossible to replicate, a true moat: an unrivaled global footprint, comprehensive market-leading solutions, a broad and growing global customer base, and undisputed scale, enabling us to invest heavily in platforms and innovation agendas of around $2 billion a year. Plus AI drives process improvements, innovative solutions, and customer experiences.

All of this translates into the ability to win new orders. The win rate increased by about 40% year over year, customer loss was minimal, revenue growth was sustainable, and profits were high throughout the cycle. So in my opinion, it's a great business, and we're the undisputed leaders and will continue to grow because we're at the cutting edge.

Ken Usdin (Autonomous)

Question: Ask Services. Gonzalo, in a higher interest rate environment, deposit growth continues to be strong, even month-on-month. Given the platform's strength, do you expect the way customers use balance sheets to change? How much room is left to reprice securities? Can NII continue to outpace deposit growth? How much room is left?

Gonzalo Luchetti: Thanks Ken. Let's start by excluding Markets' NII and deposit equations. Excluding Markets NII this quarter, deposits increased 11% and loans increased 7% year over year. So the company as a whole did not see NII surpass the driving factor. The same goes for Services. Looking at Business NII, Services NII is roughly in sync. It also depends on the company-wide interaction with Services.

Good question about the sustainability of growth. Investors said on Investor Day that we expect the 16% year-on-year increase in deposits to normalize over time. We're not saying that the money supply will grow 4 times faster forever. But at the same time, as Jane said, we're very confident about the moat and customer engagement. We deploy $2 billion a year in technology investments to drive core capabilities and innovation. Over the past 90 days, we may have 4 or 5 announcements showing technology investments and capabilities.

In terms of customer momentum, we feel good. Remember, this is a full cycle business. On Investor Day, we said that during the nine years from 2016 to 2025, interest rates were zero, medium, and high. Even so, the revenue CAGR is about 8%, and the deposit CAGR is about 6%. This shows that we've stress-tested different environments. So even if deposit growth normalizes, we are confident about the trajectory. Thank you.

Q: About the cost. If $500 million in the second half of the year was roughly averaged in the third and fourth quarters, including severance pay in the third quarter, it might be more in the fourth quarter. What do you think of the springboard? No guidance will be given to 2027, but the important debate is whether the operating rate still benefits from the transformation and reduction in stranded costs? Please help us frame this year's exit and next year's start.

Jane Fraser: You should feel good about quitting this year. We showed a lot of discipline when it came to fees. We're reducing stranded costs, and the operating rate is now around $100 million per quarter. Falling transformation costs bring benefits. We're investing in structural efficiency in a very substantial way, particularly using AI and automation to continue to drive operational efficiency improvements. We both invest in the top line of growth and drive future efficiency. So it should be said that I feel good about the springboard point and continued discipline.

Scott Siefers (TD Cowen)

Q: Ask about the impact of interest rates on customers. I feel that all of our customers, including yours, are amazingly resilient in the face of rising interest rates. Please update your mind: To what extent will higher interest rates more significantly impact customer behavior?

Gonzalo Luchetti: Thanks Scott. I'm talking about the impact of interest rates on customers on a business-by-business basis.

Consumer first. Interest rate hikes are currently moderate. But you're probably looking ahead; if the curve is as expected and interest rates are raised again, what will happen if higher interest rates accumulate. A reasonable question.

I think the cumulative effect may begin to affect marginalized groups over time. Reminder, 86% of consumer combinations are prime+. Additionally, our strategy, as stated on Investor Day, is as customers and markets shift to generic cards. Drivers are shown. This also means that the combination will drive NCL improvements. Therefore, NCL reflects not only resilience, but also the effectiveness of risk appetite frameworks and strategies.

You're right, at some stage, it's probably not a single rate hike, but rather accumulating several quarters and rising sharply. Some marginal groups, which may fall below the FICO range, will feel pressured to pay their debts. On the corporate side, Jane?

Jane Fraser: Yes. On the enterprise side, we're starting to see some impact. Investment-grade interest spreads are still tight, and refinancing activities should remain high. However, a higher interest rate environment may affect the term. Where customer behavior changes more clearly may be the next 3-year expiration wall. This will happen in a very different environment of interest rates, spreads, and liquidity. It may bring in more high-yield issuers, and may also indicate areas of potential stress. The shift in behavior this quarter was a slowdown in the issuance of syndicated bonds and loans, and a shift to loans and revolving credit, which provided flexibility when interest rates changed.

A broad ecosystem of AI, of course. I don't think higher interest rates will outweigh the need to invest. We're not seeing a slowdown in investment in the broader AI ecosystem. Computing power is simply not enough. Energy is still a bottleneck and requires more investment, all over the world, not just the US. We focus on mood and other dynamics, but don't anticipate drastic changes in behavior.

However, Citi has an advantage: institutional customers are very investment-grade, while consumers prefer Prime. So we don't tend to see it — our customer base is of high quality, so that's all.

Chris McGratty (KBW)

Q: Considering allocating capital to the loan business in 2027, will the optimal return change by product or region in light of interest rate discussions?

Gonzalo Luchetti: Chris, good afternoon. It's probably too early to say 2027. Because like everyone else, we have to go through a planning cycle to see the level of activity this quarter. The market is very dynamic. Jane just mentioned some factors, whether interest rates, reverberations, maturity walls, and supply competition affect certain projects, especially in addition to AI and technology turbo boosts, and how they affect the marginal project industry. Therefore, we need to look at the fourth quarter and the interest rate environment to have a clear picture of 2027.

Jane Fraser: Yes. However, as a reminder, we see that loan capital allocation is not only based on products; there is huge cross-selling. It's one of the disciplines Vis pushes to the business and team. We are very concerned about current environmental developments, and underwriting is very disciplined. The mix is very scattered and unconcentrated. We have strict restrictions and carry out stress tests. If the cycle disappoints, we're in a good position. We lend to companies with long-lasting cash flow and collateral. So I feel very good about the current position, which can not only support the customer growth cycle, but also become a safe haven when the situation changes.

Matthew O'Connor (Deutsche Bank)

Question: Ask about credit cards. You are clearly working on GM cards. Consumption and loans are growing well, and the costs are offset by income. To what extent have these measures dragged down revenue?

Gonzalo Luchetti: Thanks Matt. Technical first, then technical. You're right. On the NIR side, in particular, some revenue offsets will be reflected. This is partly reflected in this quarter's rewards. Additionally, we have profit sharing agreements with some of our partners. The losses performed very well. Some were shared, but the value was still added because we didn't share 100%. This affects revenue.

But look at drivers and strategies, move to generic cards, and drive health. These drivers have been growing for the past 2-3 years. The credit card business has three engines: spending, borrowing, and customer acquisition. Over the past three years, the compound annual growth of these three categories was about 5%-6%. This boosts NII and gives us confidence.

What I also love is that it's a large-scale franchise, and we're operating close to our full-cycle goals. Despite the investment, as Jane said, there was no loss of return and expense discipline. Thank you.

Q: Private label cards are much smaller and continue to decline. Reminder is there an opportunity to transfer the balance to a generic card portfolio or other strategic option for this business?

Jane Fraser: Yes. We're seeing a shift to more co-branded card propositions. Many partners are already or are discussing switching to co-branded cards, which are in line with consumer behavior. This is one of the key areas. You're right.

David Chiaverini (Jefferies)

Question: Ask about investment banking channels. How should the fourth quarter be considered?

Jane Fraser: You should feel pretty good about plumbing. It's a stable pipe, to say the least. The US is the center of advisory and capital market activity. There was a slight recovery in Europe and Asia, but much in the US. The stock market pipeline is more driven by growth. The IPO market is still quite selective. Therefore, it is an option for issuers with long-lasting profits.

The DCM pipeline is strong, but it is supported by clients' actions long before interest rates were higher. I mentioned that refinancing activities remain high, especially at the investment level, because interest spreads are tight. Looking even further, there is a 3-year expiration wall. The overall trading sentiment was constructive. We continue to see active CapEx and strategic conversations. So yes, we expect the wallet to be above average, although the rest of the year may be down slightly from near record levels in 2026.

The quieter ones are Sponsors. They continue to hold ageing assets and are slow to cash out. But we've seen them continue to participate in M&A and IPOs. As long as there is macroeconomic stability, we don't think it will change.

Q: How can Citi participate or not participate in the financing of AI infrastructure construction? What's your appetite?

Jane Fraser: Yes. We are very busy with technology and AI related activities. At ECM, we are participating in leading roles with SK Hynix and Intel this quarter. As with DCM, we participated in 17 of the top 25 investment-grade deals, including the leader of SoftBank's largest high-yield bond in history. Therefore, we are very active in the AI field, financing, consulting, and helping customers grow.

Kunpeng Ma (China Securities)

Q: Jane and Gonzalo, I'm Kunpeng of China Securities. Ask Services. The timing for global transaction banks is excellent. Can the color be supplied from the customer side? What customer activities and demands underpin strong performance? How sustainable is this customer demand?

Jane Fraser: Our customers need liquidity, payments, hosting, global solutions. They seek increasingly real-time, always-on, interoperable, efficient, and secure cash management, escrow, liquidity, and payment solutions. It's a bit like asking for both cake and no calories. We can provide a full range of market-leading solutions to meet overall needs.

The customer base has grown a lot, and there are new growth vertices, especially fintech and digital asset players, as well as e-commerce. The world is becoming more fragmented, and ironically, there is more activity. Customers move money globally in different ways. We see the Middle East connecting Asia, not 5 years ago; Latin America, which was not a major corridor before, is growing. Plus a regular hallway.

The customer base is perfect for the Citigroup platform, and there is very little customer churn. We're seeing growth and deepening of existing customers, and we're excited to see new customer acquisitions.

Q: About digital assets. You mentioned that stablecoins, RWA, etc. are active. Can you share digital or transactional contributions from this type of activity?

Jane Fraser: Yes. We see what customers need back in the field. The ideal is to move money efficiently, securely, instantly, and always online. This involves connecting fiat to stablecoins. Interoperability matters, giving customers choices. Our idea is to give customers different platforms and capabilities to choose the most suitable for their needs. There is no one-size-fits-all.

As I said before, Citi Token Services and deposit tokenization are probably the most exciting areas, as customers can easily use blockchain to transfer funds between Citibank accounts. This capability now operates in 7 markets around the world and is also connected to our 24/7 clearing capabilities. This means not only being instantly always online between Citibank accounts, but also connecting to 300 interbank banks around the world. It's a great proposition for customers.

We've seen less on the stablecoin side, to be honest. This is the basic nature of our customers. Stablecoins are bulkier and more complex in compliance, accounting, and taxation. Tokenizing is the least cumbersome and easiest. So we're seeing more growth. Obviously, the digital asset escrow platform will go live later this year, and we will become a one-stop escrow, including coins.

Mike Mayo (Wells Fargo Securities) asks again

Q: Back to AI's impact on Citi. Is Citi an AI victim or beneficiary? The victim alleges that AI is panicking transactions, and deposits have flowed out of Citi due to more advanced cash sorting. Please talk about cybersecurity spending, protecting customer privacy and identity, and the efficiency of AI deployment. I saw that you are in the top ten in the latest AI survey, and your rankings have risen quite a bit. Please describe what is being done at the enterprise level and how to benefit from AI.

Jane Fraser: Okay. I'm offended by our mere top ten. Mike, I think you've seriously underestimated us, but we can talk about that later. We're deploying AI at scale with measurable results. Let's talk about benefits first, then cybersecurity.

First, we support our clients in building and transforming their businesses. We're capturing customer activity sharing as the ecosystem mobilizes capital quickly. Second, we use AI ourselves, which both makes money and saves money. We are actually improving the productivity and efficiency of the entire bank.

Example: AI accelerates the product development lifecycle. We are introducing new products at a lower cost and faster. It is common to see products launch about 30%-40% faster. Another example is the 14,000 engineers using Devin, our primary proxy coding tool. This makes our internal work more efficient. We've always been in-house working. Technology vendor spending was reduced by 30% year over year, and there is still plenty of room.

The largest possible: Around 100 of the most manual processes are being or have been restructured end-to-end, using AI and automation. This is a company-wide systematic project, an important pillar of structural efficiency, and will further improve operational efficiency in the near future. This year alone, the financial benefits of AI and automation have significantly surpassed year-to-date investments. The next few years will accelerate as post-investment returns will be recovered and improved year by year. We're also using AI to generate revenue and improve the customer experience.

Revenue generation is still early. But at Services, our AI tool for customer service agents has been launched in 82 countries. Customer response time improved by 21%, and customer satisfaction was higher. You've heard us talk about Citi Sky in the Fortune pilot. AI is happening all over the company, helping us make money and save money.

Regarding security, we continue to invest in leading capabilities to strengthen cyber defenses and deploy AI responsibly. On the web side, AI is very exciting, but it also gives bad guys powerful tools. If we want to innovate quickly, we must manage risk quickly and maintain trust. I am very satisfied with our structured framework to deploy cutting-edge models across border security, quickly identify and resolve vulnerabilities at scale, and work with peers and key industry leaders to ensure cross-industry defense, as the world of AI is deeply interconnected.

I'm not worried about the Services deposit outflow risk. Our advantage is that the network is difficult to replicate and is multi-dimensional. But as you can see, we continue to show that we are at the cutting edge of application innovation and new capabilities, disrupting ourselves and improving customer proposition. That's why we have a high win rate, continue to bring in new customers and new business, and lose very little. So you're always worried. My job is to worry, but also to ensure action is taken, and we are acting in a constructive and trusting manner.

terminations

Margo Pilic: Thank you, operator. Thank you all for participating today. We look forward to speaking with you and answering follow-up questions.

Operator: This is the end of Citi's 2026 third quarter results conference call. You can now disconnect.