Wall Street analysts are betting that Citigroup will miss a key long-term target, putting pressure on Chief Executive Jane Fraser to prove that her sweeping overhaul will succeed in turning around one of America’s biggest banks.
Analysts expect Citi to reach a return on tangible common equity — a closely watched measure of profitability — of just over 9 percent next year, well short of Fraser’s 2022 target of 11 percent to 12 percent by 2026, FactSet data showed.
The bay points out that the overhaul Fraser who has been at the helm since she took over as chief executive four years ago, has yet to revive America’s third-largest bank by assets, which has struggled to find its footing since its near-collapse at the height of the 2008 financial crisis.
“We doubt that if [Fraser] doesn’t show real progress relatively soon, she will be forced to leave to make way for someone who can,” Oppenheimer analyst Chris Kotowski wrote in a note to clients on Friday.
Doubts about whether Citi can grow revenue and cut costs enough to meet its profitability target have left its shares, even after rising more than a third in the past year, about 30 percent below book value. This compares to an average premium of 40 percent for the 24 large banks that make up the KBW Bank index.
Citi will report its fourth quarter earnings next week. The bank is expected to turn a profit from a loss in the last three months of 2023, but the bank’s return on tangible equity is forecast to be just 5.6 percent. Citi declined to comment on analysts’ forecasts.
While analysts expect Citi’s return on tangible common equity to rise to 9.4 percent by the end of 2026, rivals JPMorgan Chase, Bank of America and Wells Fargo are forecast to post 17 percent, 15 percent and 14 percent, respectively, according to FactSet. Despite Citi lagging its peers in terms of return on tangible equity, about 70 percent of Wall Street analysts have assigned the bank a “buy” rating.
“The outcomes for Jane are about as broad as you can get,” said Wells Fargo analyst Mike Mayo, who recently predicted that Citi would hit its return on tangible capital goal, but not until 2027.
“If Citi can’t make double-digit returns, then she’s a failed CEO, but if she does, she’ll be seen as a turnaround legend on Wall Street.”
James Hollier, whose firm Silver Beech Capital sold its entire stake in Citi in early 2024, said Citi’s share price — now just over $73 — suggests investors have lost faith in Fraser’s plan.
“The market is in the ‘show me’ camp with Citi around $70 a share,” Hollier said. The stock “would have been above $100 if investors had believed Jane’s goals.”
Brian Mulberry, a portfolio manager at Zacks Investment Management, which holds shares of Citi, said “in 2025 there will be more focus on results.”
He added: “I don’t think it’s just one target, but if there are a number of targets that Citi misses, then I think Fraser will have problems.”
Fraser, a Citi veteran and former McKinsey partner, tried to meet her profitability goal by rationalizing the big bank. Citi has exited banking operations in 13 countries, including China, India and the UK.
Fraser also flattened Citi’s management structure, lowering seniority levels from 13 to eight. She refocused the bank on five core businesses, as well as on its mission to attract the world’s largest companies and wealthiest individuals to become clients.
“We’re on a deliberate path,” Fraser told analysts on an October call. “We’re making the progress we need and we’re actually pretty excited.”
