Citigroup Inc. (NYSE:C) Q3 2023 Earnings Call Transcript

Citigroup Inc. (NYSE:C) Q3 2023 Earnings Call Transcript October 13, 2023

Citigroup Inc. beats earnings expectations. Reported EPS is $1.52, expectations were $1.26.

Operator: Hello, and welcome to Citi’s Third Quarter 2023 Earnings Call. Today’s call will be hosted by Jenn Landis, Head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also as a reminder, this conference call is being recorded today. If you have any objections, please disconnect at this time. Ms. Landis, you may begin.

Jen Landis: Thank you, operator. Good morning, and thank you all for joining our third quarter earnings call. I’d like to remind you that today’s presentation which is available for download on our website, citigroup.com, may contain forward-looking statements which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And I’m joined today by our Chief Executive Officer, Jane Fraser; and our Chief Financial Officer, Mark Mason. Now let me pass it over to Jane.

A and N photography/Shutterstock.com

Jane Fraser: Thank you, Jen, and good morning to everyone. I should touch briefly on the macro environment before reviewing the quarter and last month’s organizational announcement. The global macro backdrop remains the story of desynchronization. In the U.S., recent data implies a soft landing, but history would suggest otherwise, and we are seeing some cracks in the lower FICO consumers. In the euro area and the U.K., the picture has turned distinctly more negative. The summer weakness in industrial economies is spreading fast and the weight of structurally higher labor and energy costs, suggest a more enduring competitiveness challenge for that region. China’s economy may have reached a cyclical bottom supported by the government’s modest stimulus efforts, but it still has to work through weak sentiment, youth unemployment, and the pain in its property market.

All of these macro dynamics have clearly impacted client sentiment. September is always a busy month seeing clients, and I’m struck how consistently CEOs are less optimistic about 2024 in a few months ago. The shift in the rates question from how high to how long has catalyzed more client activity. However, corporates have stopped waiting for rates to come down and are beginning to access the debt capital markets around the globe. Our multinational clients are adapting their operations to the evolving geopolitical landscape and are building redundancy and resiliency. And this plays to our strengths and strategy, in particular our invaluable global network. And between our high quality asset portfolio, our strong reserve levels, our ample liquidity, and our diversified earnings base, we are proving to our clients that we are truly a bank for all seasons.

Turning to the quarter. Today, we reported net income of $3.5 billion, an EPS of $1.63, and an RoTCE of 7.7%. Our revenues were up 10%, ex-divestitures and each of our five core interconnected businesses posted revenue growth. We remain on-track to meet the revenue and expense guidance we set for the year. Let’s start with our fastest-growing business, services. TTS was up 12% from a year-ago. That’s the highest revenue quarter in over a decade and it continues to outpace the target we set at Investor Day. Half of that growth was business drivers, and the other half rates. And even with the impact of the long-expected Argentine devaluation, we again drove fee growth, which is the best sign of the potential of our globally leading franchise.

We keep relentlessly innovating for our clients. Amongst other launches this quarter, we announced the creation of Citi Token Services, which will use distributed ledger and smart contract technologies to deliver a digital asset solution for our TTS clients. And this is the first for the industry as it allows us to seamlessly integrate a permission tokenized bank deposit network with traditional cash services such as 24/7 dollar clearing. Security Services had revenue growth of 16% with some good underlying fee growth. We took share again, and we have grown our AUC and AUA by over $2 trillion in the last year. This business has considerable momentum and a strong pipeline of clients who are benefiting from the cloud and data investments we’re making.

Markets was up 10% year-over-year, on the back of rates and currencies, having the best quarter in 10 years, and commodities, which also grew nicely. This was partially offset by equities, which was down slightly. Despite this, we continued to see good momentum in cash and we have grown our prime balances year-to-date. Banking had a good quarter with revenues up 17%, with activity playing to our mix. Now while corporate lending was essentially flat as we remain very disciplined about how we use our balance sheet, DCM was healthier. And the IPO market also showed some signs of life. This helped drive investment banking revenue up 34%, albeit off a low base and a small wallet. Sitting here today, it remains hard to predict when deal activity will sustainably rebound, still I am proud of our role advising on some of the biggest deals globally so far this year.

As you know, we are committed to growing our banking franchise. We brought together the management of the investment, corporate and commercial banks under one umbrella, and this structure will help us better drive important synergies between all three. We’ve been bringing in new talent in key sectors. And we’ve begun to provide more leverage finance for key clients in the right situation. U.S. Personal Banking was also up double digits at 13%. Cards revenues were strong in both our branded and retail services portfolios. The growth in spending is decelerating. And the consumer is more mindful what they spend on. Indeed, the affluent, who still have excess savings at their disposal, drove the growth in spending with a continued tilt to travel and entertainment.

During the quarter, we introduced Simplified Banking, to improve the client experience for our retail banking clients. We believe that by peering offerings and simplifying our fee structure, we’re going to incentivize our clients to deepen their relationships with us. And the early reaction from clients along those lines has been very positive. Wealth revenues have stabilized and were up slightly. Most notably investment revenues picked up across all geographies and the drivers of the franchise, such as referrals, client acquisition and net new inflows were all quite strong around the world. And we won important new mandates for Wealth at Work, an offering we had highlighted at Investor Day. Andy Sieg has now officially joined our firm. This is the time of massive global wealth creation and our franchise is uniquely positioned for it.

Andy will ensure we are at the forefront of what’s happening around the world. In terms of our balance sheet, our discipline of growing operating deposits has enabled us to maintain a stable deposit base over the past five years. We grew loans during the quarter and our credit quality remains extremely strong, aided by our disciplined client selection. Our CET1 ratio grew to 13.5%, which is $14 billion above our regulatory minimum and still includes a 100 bps internal management buffer. During the quarter, we returned $1.5 billion to our shareholders through common dividends and stock buybacks. We continue to evaluate buybacks quarter-by-quarter. And I expect we will continue to do a modest level in the fourth quarter, subject to approval by our Board.

And while the ultimate impact of potentially high capital requirements won’t be known until the Basel III end game is finalized, we have been actively working through, mitigating actions. As you can see on Slide 3, we are relentless in executing our strategy. This quarter, we closed on the sale of our Taiwan consumer business, and that’s the second largest of the Asia consumer divestitures. And earlier this week, we announced that we will sell our consumer wealth portfolio in China to HSBC. And this includes approximately $2.6 billion in assets under management and $1 billion of deposits. In the fourth quarter, we expect to close down the sale of our Indonesia consumer business. In terms of the International consumer businesses, we are exiting.

In addition to the three wind-down market, we have restarted the sales process in Poland and we remain on-track to separate Mexico next year, followed by an IPO in 2025. Transformation remains our number one priority. We’re deep into the large body of work of automating manual controls and processes, consolidating fragmented tech platforms, and upgrading our data architecture. We’re committed to doing this the right way, knowing it will take time to meet our regulators’ expectations and to deliver a modern, more efficient infrastructure. Last month, we announced consequential changes that align our organizational structure with our strategy and changes how we run the bank. I said at the Investor Day, the organizational simplification would follow the divestitures.

The changes will eliminate layers, duplication and complexity, allowing us to operate the bank more agilely and freeing our people up to focus on clients and execution. Elevating the five core businesses to my leadership team will enable me to drive greater accountability and sustainable results, so to bring it to life. The actions we’ve taken in the last few weeks will eliminate over 15% of the regional and functional roles at the top two layers of the company. It also take out 60 committees, which frees up over tens of thousands of people hours annually. We’ve identified approximately a 1,000 or 50% of our internal financial management reports that we won’t need any longer. And we have taken out co-heads and dual reporting lines to enable faster decision-making.

We’re cascading these changes through the organization at pace. We announced the first two layers in September, and the next set of changes will be implemented by mid-November and we aim to bring the entire process to a close by early next year. When we speak in January, Mark and I will be in a position to update you on the financial and other metrics, sharing the impact of the simplification amongst other details. Now, while expenses is not the primary driver of the organizational changes, they will help us start bending expense curve in the fourth quarter of next year. And at the end of the work, we will have a simpler firm that can operate faster, better serve our clients, and unlock value for our shareholders. We’ve made tough decisions here, and I want to note how pleased I’ve been with how the leaders of the firm, especially the next generation have embraced these changes and are stepping up to implement them.

They fully understand that we need to change how we run, Citi, in order to truly transform it once and for all. Before I close, I’d like to address our people in Israel. We are a significant bank in the country. And many of our people have lost friends and loved ones. Others are being called up to serve. Despite all they are dealing with, they are keeping our bank running in the country. And I’m frankly in all of their commitment to our clients and each other. More broadly, the price innocent civilians are paying as this crisis unfolds is absolutely devastating to witness. And with that, I would like to turn it over to Mark. And then we will be delighted as always to take your questions.

Mark Mason: Thanks, Jane, and good morning, everyone. I’m going to start with the firm-wide financial results focusing on year-over-year comparisons for the third quarter, unless I indicate otherwise, and then spend a little more time on the businesses. On Slide 4, we show financial results for the full firm. In the third quarter, we reported net income of approximately $3.5 billion, EPS of $1.63, and an RoTCE of 7.7% on $20.1 billion of revenues. Embedded in these results are divestiture-related impacts of approximately $214 million after tax, primarily driven by the Taiwan consumer business sale. Excluding these items, EPS was $1.52, with an RoTCE of 7.2%. In the quarter, total revenues increased by 9% on a reported basis and 10% excluding divestiture-related impacts, driven by strength across services, cards and markets as well as modest growth in banking, partially offset by the revenue reduction from the closed exits and wind-downs.

Our results include expenses of $13.5 billion, up 6% on a reported basis and $13.4 billion excluding divestiture-related costs, also up 6%. Cost of credit was approximately $1.8 billion, up 35%, primarily driven by the continued normalization in card net credit losses and volume growth. At the end of the quarter, we had over $20 billion in total reserves with a reserve-to-funded loan ratio of approximately 2.7%. And year-to-date, we reported an RoTCE of 8.3%. On Slide 5, we show expense drivers for the third quarter as well as our key investment themes. Expenses were up 6% and our level of expenses continue to be driven by a number of factors, including investments in transformation, as well as risk and controls, business-led and enterprise-led investments, macro factors including inflation and FX, severance, which was approximately $190 million in the quarter, and roughly $640 million on a year-to-date basis.

This included actions across banking, markets, wealth and the functions. And all of this was partially offset by productivity savings and expense reductions from the closed exits and wind-downs. And our technology spend across the firm was $3 billion in the quarter, up 8%, largely driven by investments in product development, platform enhancements, and improving the client experience. Also driving the increase is continued investment in technology for the transformation as we address the consent orders and modernize the firm. As we said last quarter, our transformation and technology investments span the following themes: platform and process simplification, security and infrastructure modernization, client experience enhancements, and data improvements.

And we remain in line with our full year guidance of roughly $54 billion, excluding divestiture-related impacts and the FDIC special assessment. On Slide 6, we show net interest income, deposits, and loans, where I will speak to sequential variances. In the third quarter, net interest income decreased by $72 million. Excluding markets, net interest income increased $332 million, primarily driven by growth in PBWM as we continue to see loan growth and higher loan spreads, a pickup in services driven by higher deposit spreads as a result of higher interest rates and active beta management, partially offset by reductions from closed exits and wind-downs. Average loans were up 1%, largely driven by growth in U.S. Personal Banking across Cards and retail banking as well as TTS.

Average deposits were down 2%, largely driven by Services, as we saw non-operational deposit outflows as expected in light of quantitative tightening. And our net interest margin increased 1 basis point. On Slide 7, we show key consumer and corporate credit metrics. We are well reserved for the current environment, with over $20 billion of total reserves. Our reserves to funded loan ratio was nearly 2.7%, and within that U.S. cards is 7.8%. In PBWM, 45% of our loans are in U.S. cards, and of that exposure, 80% is to customers with FICO scores of 680 or higher. And both Branded Cards and Retail Services NCL rates are still below pre-COVID levels, but are normalizing in line with our expectations. The remaining 55% of our PBWM loans are largely in wealth, predominantly in mortgages and margin lending.

In our ICG portfolio, of our total exposure, approximately 85% is investment grade. Of the international exposure, approximately 90% is investment grade or exposure to multinational clients or their subsidiaries. Corporate non-accrual loans increased by $490 million, but remain low at 68 basis points of total corporate loans. And we ended the quarter with a reserve to funded loan ratio of approximately 1%. As you can see on the page, we break out our commercial real estate lending exposures across ICG and PBWM, which totals approximately $65 billion, of which 86% is investment grade, with a total reserve to funded loan ratio of 1.4%. To give you a sense of the macro scenario that underpin our over $20 billion of reserves, our current scenario weighted average unemployment rate is approximately 5%, which includes a downside scenario, with an average unemployment rate of roughly 7%.

So while the macro and geopolitical environment remains uncertain, we feel very good about our asset quality, exposures and reserve levels, and we continuously review and stress the portfolio under a range of scenarios. On Slide 8, we show our summary balance sheet and key capital and liquidity metrics. We maintain a very strong $2.4 trillion balance sheet which is funded in part by a well-diversified $1.3 trillion deposit base across regions, industries, customers and account types, which is deployed into high-quality diversified assets. Our balance sheet reflects our strategy and well-diversified business model. We leverage our unique assets and capabilities to serve corporates, financial institutions, investors, and individuals with global needs.

The majority of our deposits, $782 billion, are institutional and operational in nature and span across 90 countries. These institutional deposits are complemented by $416 billion of U.S. Personal Banking and global wealth deposits. We have approximately $569 billion of HQLA and approximately $666 billion of loans and we maintained total liquidity resources of $937 billion. Our LCR was 117%. We ended the quarter with a 13.5% CET1 ratio based on standardized RWA, which is our binding constraint. Although not binding, our advanced RWA did increase this quarter, largely driven by business activity. And our tangible book value per share was $86.90, up 8% from a year ago. On Slide 9, we show a sequential CET1 walk to provide more details on the drivers this quarter.

Starting from the end of the second quarter, first, we generated $3.2 billion of net income to common, which added 28 basis points; second, we returned $1.5 billion in the form of common dividends and share repurchases, which drove a reduction of about 13 basis points; and finally, the remaining 2 basis points increase was primarily driven by lower DTA deductions and a net reduction in RWA. We ended the quarter with a 13.5% CET1 capital ratio, approximately a 120 basis points or $14 billion above our current regulatory capital requirement of 12.3% as of October 1st. Before we move on, I’d like to spend a minute on capital. We continue to optimize our RWA and capital, which we expect to be a tailwind over-time. Contributing to this is the execution of our strategy, such as further diversifying our business mix and simplifying our business model, including exiting our 14 international consumer markets.

Our investments in the transformation will continue to enhance our data analytics and stress testing capabilities, enabling continued capital optimization. And of course, in light of the evolving regulatory environment, we’re also looking at other mitigating actions. But those will largely depend on how the final capital rules play-out. These actions could include exiting or restructuring certain products, divesting certain equity investments, and re-evaluating both how we deploy capital and our management buffer. We’ve consistently demonstrated our ability to manage our RWA and capital levels through various macro environment and the evolving regulatory landscape, and we’ll continue to do so. On Slide 10, we show the results for our Institutional Clients Group for the third quarter.

Revenues were up 12% this quarter, driven by double-digit growth across services, markets and banking. In the quarter, normal course foreign currency translation impacts drove a net revenue headwind in ICG. On an ex-FX basis, ICG revenues would have been up 15%. Additionally, there was an approximately $180 million negative impact from the currency devaluation in Argentina on our net investment in the country, mainly across TTS, markets and security services. Expenses increased 10%, primarily driven by continued investments in risk and controls and volume-related expenses, partially offset by productivity savings. Cost of credit was $196 million, including $51 million of net credit loss. This resulted in net income of approximately $2.4 billion, up 12% driven by higher revenues, partially offset by higher expenses and higher cost of credit.

Average loans were down 4% as we were very deliberate about how we deployed resources across the businesses, including the reduction in subscription credit facilities. Average deposits were flat as new client acquisition and deepening of relationships with existing clients were offset by non-operational deposit outflows. ICG delivered an RoTCE of 10% for the quarter and 11% year-to-date. On Slide 11, we show revenue performance by business and the key drivers we laid out at Investor Day. In Treasury and Trade Solutions, we recorded our highest revenue quarter in the last decade. Revenues were up 12%, driven by 17% growth in net interest income. Non-interest revenues were up 1%, and on an ex-FX basis, non-interest revenues would have been up 8%.

We continue to see healthy underlying drivers in TTS that indicate consistently strong client activity with cross-border flows up 16%, outpacing global GDP growth and year-to-date, cross-border flows were up 12%. U.S. dollar clearing volumes are up 6% both year-over-year in the quarter and year-to-date. And commercial card volumes were up 8% year-over-year, driven by growth in business-to-business payments and travel and entertainment spends. And year-to-date, commercial card volumes were up 20%. In fact, similar to the last few quarters, client wins are up approximately 40% across all client segments. These include marquee mandates, where we are serving as the client’s primary operating bank. We continue to make good progress on our commercial client strategy, as year-to-date wins more than doubled, driven by expansion into new markets and growth in multiproduct mandates from clients with cross-border needs.

In Securities Services, revenues were up 16%, driven by higher net interest income across currencies. Non-interest revenues were up 3%. We’re very pleased with the progress we’re seeing in Security Services as we continue to onboard assets under custody and administration which are up approximately 10% or $2.1 trillion. Markets revenues were up 10%, driven by fixed income. Fixed income revenues were up 14%, largely driven by strength in our rates and currency franchise. While volatility remains subdued versus a year ago, we did see overall volatility tick higher relative to the beginning of the quarter. Equities revenues were down 3%, driven by a decline in equity derivatives, partially offset by growth in cash and prime. And we continue to make solid progress on our revenue to RWA target.

And finally, banking revenues, excluding gains and losses on loan hedges were up 17%, driven by investment banking, which increased 34% on a reported basis and 12% excluding marks. Here too, we saw a pickup in activity in the last couple of weeks of the quarter, particularly in DCM, but also in M&A as we closed a few deals earlier than expected. So overall, while the market environment remains challenging, and there’s more work to be done, we’re making solid progress against our strategy in these businesses. Now turning to Slide 12, we show the results for our Personal Banking and Wealth Management business. Revenues were up 10%, driven by net interest income growth of 9% and a 20% increase in non-interest revenue, primarily due to lower partner payments in retail services and higher investment product revenues in wealth.

Expenses were up 5%, predominantly driven by risk and control investments and severance, partially offset by productivity savings. Cost of credit was $1.5 billion, driven by higher net credit losses as we continue to see normalization in our card portfolios. Average loans increased 7% driven by cards, mortgages and installment lending. Average deposits decreased 2%, largely reflecting our clients putting cash to work in investments on our platform. And PBWM delivered an RoTCE of 8.8% and 6.6% on a year-to-date basis. On Slide 13, we show PBWM revenues by product as well as key business drivers and metrics. This quarter was our fifth consecutive quarter of double-digit growth in Personal Banking, driven by cards. Branded cards revenues were up 12%, primarily driven by higher net interest income.

We continue to see strong underlying drivers with new account acquisitions up 5%, card spend volumes up 4%, and average loans up 12%. Retail services revenues were up 21%, driven by higher net interest income and lower partner payments on the heels of higher net credit losses. In the card portfolios, we continue to see the investments we’ve been making as well as lower payment rates contribute to growth in interest-earning balances of 15% in Branded Cards and 12% in retail services. Retail banking revenues decreased 3%, driven by the transfer of relationships and the associated deposits to our wealth business, partially offset by higher deposit spreads. Wealth revenues were up 2%, driven by higher investment fees across all regions and segments.

The benefit from relationships transferred from retail banking and higher lending revenue. We also saw strong net new inflows across all regions. And year-to-date, new client acquisitions were up almost 30% in the private bank and over 60% in wealth at work. Overall, we are pleased with the progress we are making across these businesses. On Slide 14, we show results for Legacy Franchises. Revenues were down 13%, largely driven by the difference in one-time gain on sale impacts in the Asia consumer businesses as well as the reductions from closed consumer exits and wind-downs, partially offset by higher revenue in Mexico. It’s worth noting that Mexico’s revenues were up 32%, primarily driven by Mexican peso appreciation, higher interest rates, and volume growth.

Ex-FX, Mexico revenues were up 16%. Expenses decreased 3%, primarily driven by closed consumer exits and wind-downs, partially offset by separation costs in Mexico and Mexican peso appreciation. And expenses in Mexico were up 27% and but ex-FX expenses were up 11%. On Slide 15, we show results for Corporate/Other. Revenues increased, largely driven by the absence of mark-to-market impacts on certain derivative transactions in the prior year. And expenses decreased, largely driven by lower consulting fees. On Slide 16, I’ll briefly touch on our full year 2023 outlook. With one quarter remaining in the year, we continue to expect full year revenues of $78 billion to $79 billion, excluding 2023 divestiture-related impacts. Having said that, based on what we’ve seen play out year-to-date in terms of U.S. and non-U.S. rates and lagging non-U.S. betas, we now expect net interest income to be slightly above $47.5 billion for the full year, excluding markets.

And we are maintaining our expense guidance of roughly $54 billion, excluding 2023 divestiture-related impact and the FDIC special assessment. Net credit losses in cards should continue to normalize with both portfolios reaching pre-COVID levels by year-end. And as it relates to buybacks, we expect to do a modest level of buybacks in the fourth quarter. Before we move to Q&A, I’d like to end with a few points. We’re executing on our strategy and delivering topline revenue growth of 5% year-to-date. We continue to invest for the long-term with discipline while remaining on track to deliver our expense guidance. We’re focused on simplifying our organizational and management structure, which will further support our speed of execution. We’re managing our capital in a disciplined way in light of regulatory headwinds, while continuing to optimize and return capital to shareholders.

And we remain confident in our ability to achieve our RoTCE target of 11% to 12% in the medium term. And again, we look forward to hosting a more expansive fourth quarter earnings call, where we plan to share additional details related to the organizational simplification, including expected related severance and expense saves as well as our outlook for 2024. With that, Jane and I would be happy to take your questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] And our first question comes from Mike Mayo with Wells Fargo.

Mike Mayo: Hi. Jane, you spoke more about the restructuring that you commented on recently. The real question is, why is this restructuring different than the other five or 10 or 15 restructurings you’ve heard about since Citi’s creation in its current form 25 years ago, I think, just like a week ago. So, I’d say, why is this different? We hear the talk about cascading downward and the simplification, reducing dual heads and the committees, but we’ve heard this so much that — why is this time different?

Jane Fraser: Yes. It’s a very important question. Mike, thank you for asking it. As I’ve said, we view these as the most consequential changes we’ve made, not just to our organization model, but how we run the bank in almost two decades. And the first piece is simple, which is our org model was set up for a financial supermarket. That is simply not the bank we are today. So we’re aligning the organizational model with that simpler business mix and strategy. But what’s truly different is we’re changing how we run the bank. And these are permanent changes that will be driven all the way down through the organization. So let me give you some examples to bring it to life. We talked about delayering the first two layers, three layers of the bank.

That will continue through the organization through the spans and layers, particularly getting rid of aggregator roles. And let me give you an example. HR, we had HR in a region. You had the region head, you have the institutional client group head, you had the banking head. In addition, you had a North Asia head and a South Asia head. We’re just going to have the North Asia head and the South Asia head. And all of those roles collapsed into those two. We’re eliminating activities in the geographies that we just don’t need anymore because we are no longer running local consumer franchises in them. So let’s take the financial reporting — sorry, the management reporting that Mark and I referred to in the opening remarks. We can reduce our management reports by about 50%.

That’s a 1,000 reports. What does that mean? Shadow P&Ls by country, quarterly outlooks, monthly performance updates, all the associated tracking and reconciliations that are there that are effectively for a shadow P&L rather than the one that matters to our shareholders. And so, that greatly declutters. It also means we can eliminate processes for our transformation, where we’re looking at how do we automate those processes, automate those controls. If they’re a duplicative process, we’re getting rid of them, so you don’t need to do that anymore, and it will accelerate the work on transformation. We’re taking activities out of some of the businesses and centralizing them. A lot of the client activities that will go embedded into a business and we moved that up to centralized utilities that the whole firm can benefit from and that will get scaled economies.

These strategy teams, marketing teams, many of the little cottage industries that build up over time, we can speed up decision-making with fewer committee layers. We’ll take down the number of layers and drive that from places 13, we’re looking to getting to eight and as many places as we possibly can. We’re giving clarity of decision rights and changing decision rights from two or more people to just one, so much more single points of accountability. Again, more aligned with our shareholder interest because those points of accountability are more sitting in the products. And the types of metrics we’re looking at to help us measure this, spans, layers, revenues, producers or non-producer, grade mixes, synergies that we’re realizing voice of the client.

But I’d say that our expectations and our execution of the business strategy is also at the heart of what we’re trying to drive here. Our strength is our global network. I don’t want our geographies focused on the full monty of management processes that are a duplication of what’s happening in the product organization. I want them focused on delivering to our clients, engaging with our clients, and also managing their responsibilities of the legal entities. The same way for our banking organization, putting the investment bank, the corporate bank, and commercial bank together will really make it easier for us to realize the synergies across them. So the cross-sell or the movement of a commercial mid-market company up to a corporate lending company and a corporate banking company, much easier when they’re all in the same organization or selling our banking product suite into that commercial bank customer and other examples.

So it’s really changing decision-making, freeing up people to focus on clients and transformation, much greater transparency, changing decision-making and rights, driving synergies. We put a huge amount of work all the way through the summer in design as to how do we want the organization to work. That is now getting driven down into the designing in detail and in depth all of these types of activities through being second layers and third layers at the moment into the fourth and then until we finish at the end of the first quarter. So it’s very different. You’ll get more flavor of it in the fourth quarter earnings call, but I hope that gives you a sense of why this is really different. This is how we’re running the place. It’s not just an org restructuring, both are necessary.

Operator: And our next question comes from Glenn Schorr with Evercore.

Glenn Schorr: So I’m curious, you mentioned that you’re still marching towards the 11, 12, which is good because everyone was going to ask that. My question is a little bit different of — with the denominator going up 25%, where is your — in other words, a lot of things are working towards the transformation, but they threw a curveball in there with upping the denominator by 25%. So you seem to be a beneficiary of higher for longer for sure. And you also mentioned you’re working on mitigation as we speak. So maybe you could talk about what are the offsets that we don’t see that give you confidence still working towards that, because the topline stuff is working?

Mark Mason: Yes. So let me — good morning, Glenn. It’s good to hear from you. Let me make a couple of comments on that, and then Jane, feel free to chime in if you’d like. The first thing is that when I talked about this at the last conference we attended, I mentioned that analysts were somewhere in the 16% and 19% range in terms of a capital increase, and we’re likely to be inside of that range, assuming the Basel III proposal as it’s structured as it’s written. And obviously, that’s not the final. There’s a period of review that’s going on now. What I’d say is a couple of things, Glenn. One, we haven’t fully executed against the strategy that Jane has just described. And obviously, continuing to simplify the business, managing through the transformation, changing that business mix that we have to something that’s more consistent and predictable and repeatable as it relates to PPNR.

Those things matter and impact the SCB. We talked about the exiting of our business, the international consumer businesses. That will be a factor in what our balance sheet looks like and what stress losses might look like, as well as lowering the expense base, which we know is an important factor in that PPNR math as well. And so those things help, I think, to reduce the amount of capital that might be required as we get into that medium-term period. Importantly, as you point out, there are other elements of the proposal that are going to require that we take a hard look at as well and identify mitigating actions to the extent that they make it into the final. So think about the increase in operational risk and the fact that some of that’s already included in SCB is something of a point of advocacy, but that’s obviously a big headwind that we’ll have to kind of work through; the FRTB and the enhancement of models.

Now there’s a global market shock as well, but again, another point of advocacy that we need to work through, the equity investments, and now that they go from 100% risk weighting to 400% risk weighting. I think we’re going to take a hard look at whether those are worth keeping in light of the higher capital associated with them, that’s going to challenge the returns, that’s going to force us to look at those through a different strategic lens, and we’re going to do that. And then that’s not to even mention the credit component that impacts both corporates and consumers as it relates to unfunded commitments, for example. And so as we’ve done with CCAR and other types of reg changes, we’re going to have to look at what it means for our product mix, the returns associated with those, whether there are opportunities to pull levers like pricing or whether we have to take other decisions around those.