Source- The Wall Street Journal
In a surprising turn of events, Citigroup issued a warning to investors on Wednesday, revealing that charges related to the devaluation of the Argentine peso and the bank’s ongoing reorganization efforts were significantly higher than initially disclosed by the Chief Financial Officer (CFO) just weeks ago.
Scheduled to release its fourth-quarter results on Friday, Citigroup disclosed that it had incurred $880 million in currency conversion losses due to the decline of the Argentine peso. Additionally, the bank reported $780 million in restructuring charges associated with CEO Jane Fraser’s corporate simplification project. These figures were notably higher than the “couple hundred million dollars” apiece that CFO Mark Mason had communicated to investors during a conference on December 6.
Veteran banking analyst Mike Mayo of Wells Fargo expressed concern, stating, “They gave guidance just a month ago, and now it’s several hundred million dollars higher for two categories. If your problem is credibility with investors, then you shouldn’t be doing this type of thing.”
As Citigroup gears up to report its fourth-quarter and full-year 2023 earnings, CEO Jane Fraser faces a critical moment amid the ongoing restructuring efforts aimed at transforming the bank into a leaner and more profitable entity. Over the past two decades, Citigroup has grappled with high expenses and eroding credibility, stemming from the underperformance of Fraser’s predecessors. This has left Citigroup as the least valued among the six largest U.S. banks.
Build The Reserves
In addition to the currency conversion and restructuring charges, Citigroup disclosed the need to build reserves by $1.3 billion due to its exposure to Argentina and Russia. Furthermore, the bank expects to post a $1.7 billion expense for a special Federal Deposit Insurance Corporation (FDIC) assessment linked to regional bank failures in 2023.
Analyst Mike Mayo predicts that these charges will result in a $1 per share loss in the fourth quarter. Despite his skepticism regarding the bank’s ability to achieve its targets, Mayo recommends Citigroup stock, asserting that it is undervalued and has the potential to double within three years.
Following the disclosure, Citigroup’s stock experienced a 1% dip in after-hours trading on Wednesday. While a Citigroup spokeswoman declined to comment on the shifting guidance, CFO Mark Mason emphasized, “While these items are meaningful for our 2023 results, we remain on track to meet the 2023 expense guidance (excluding FDIC and divestitures) and all of our medium-term targets. The items we disclosed today do not change our strategy.”