Jane Fraser is going to innovate at Citigroup

But Citigroup, which was once the world’s largest financial services company, is struggling to keep up with the competition. While Goldman Sachs Group Inc.

and Morgan Stanley hit new highs in market value, Citigroup’s is half what it was in 2006. Profits and revenues, once roughly double those of other major banks, have now been taken by JPMorgan Chase & Co. and Bank of America Corp. And last fall, regulators ordered overhaul of the massive systems that underpinned its massive operations, raising new questions about the bank’s complexity.

Ms. Fraser, the first woman to run a major US bank, must now revive the $ 2.3 trillion giant.

It will have to juggle to respond to regulators’ concerns – an expensive, multi-year project – with a reassessment of the bank’s strategy. Ms. Fraser, 53, has already launched a “refresh” that she hopes can simplify the sofa inside and out, making it easier to run and improve.

Simplifying Citigroup is a path similar to what its predecessors, Michael Corbat and Vikram Pandit, both tried. But Ms Fraser believes more needs to be done.

“I’m not looking for what’s wrong,” said Ms. Fraser in an interview. “I’m looking for what Citi will become and what works.”

What Citigroup is today is part of the trouble.

The bank is a giant on Wall Street, serving multinationals and credit cards. It is the second tier in US consumer banking.

Yields tend to rise as consumer banking grows, and rivals Bank of America and JPMorgan have boosted their retail operations with thousands of branches in cities across the country. Citigroup has fewer than 700 branches in just a handful of cities, but instead is betting on a future of heavy digital banking, including an upcoming partnership with Google.

Citigroup’s power comes from its global investment bank. It has offices in 96 countries and helps governments and companies move money around the world. It is also a leader in raising corporate debt and trading it on Wall Street. But those companies are not earning returns as high as they once did, under pressure from crisis-era regulations.

The combination underperformed rival megabanks, which kept profits high with a better balance between their Wall Street and Main Street businesses. Analysts and investors have argued that Citigroup should restructure, with suggestions such as shutting down all of its international consumer activities or buying a US bank. Activist investor ValueAct Capital has pushed for changes to focus on institutional affairs.

“There is little doubt that the two-decade Citigroup experiment has failed in every way,” said Mike Mayo, a veteran banking analyst and Citigroup critic.

Ms. Fraser has not disclosed her plans, but executives said the strategic review will bring about significant changes. Citigroup recently announced an expansion of asset management activities. The bank is likely to shut down its consumer operations in parts of Asia, including South Korea and Vietnam, according to people familiar with the case. According to one of the people, it is not going to stop institutional banking in any country.

Chief Financial Officer Mark Mason said decisions will not be based solely on the financial performance metrics that have fueled the debate surrounding Citigroup for years.

“I think what our investors are listening to is, tell us how and why the strategy you’ve come up with makes sense,” said Mr Mason. “Then tell us what that means in returns.”

But it’s unclear whether the immediate plans will be enough to appease critics. The regulatory consent warrant could prevent any major acquisition for the time being. And some investors and analysts want Citigroup to sell its Mexican consumer bank or stop trading stocks, which have not grown as expected. According to people familiar with the bank’s plans, this is not likely at this point.

Ms. Fraser said the Mexican consumer bank, which was brought down several years ago by allegations of fraud, has a “beautiful scale,” an important barometer for their assessment. It would be expensive to get rid of the company, because the unit is tied to a chunk of goodwill on Citigroup’s balance sheet. In stock trading, executives say the benefits to customer relationships are too great, even if investors don’t see it.

That could make investors hope for a second round of restructuring.

Today’s Citigroup was founded in 1998, a merger of the consumer-focused Citicorp and the high-flying Wall Street bankers at Travelers Group. Executives envisioned a one-stop mega bank where businesses could manage their finances and world travelers could always find a Citi ATM.

But Citigroup’s businesses continued to operate like silos, and the benefits of the merger did not materialize as hoped. The bank repeatedly clashed with regulators. During the financial crisis, it almost collapsed under the weight of toxic mortgage-backed securities. Since then, it has sold assets it considered too risky or collateral, such as a British music empire, a stake in a Mexican airline, a sub-prime lender, and Smith Barney’s brokerage.

Ms. Fraser came to Citigroup in 2004 after stints at Goldman Sachs and McKinsey & Co. During the financial crisis, she led the bank’s strategy division and helped lay the foundation for asset sales.

She hopped from job to job, running Citigroup’s private bank for the ultrarich, battered mortgage unit and scandal-stricken Latin American operations. This has given her experience with many parts of the business, although some say it makes it difficult to judge its operational success.

People who have worked with her said she makes quick decisions and can think long-term strategically while also running a business. Even in job cuts, they said, she packs her posts with empathy.

She is also known for practical jokes. When Mr. Mason logged into the Zoom morning meeting of the executive team in January, he saw all of his colleagues sitting in front of a 20-year-old photo of him. It was his birthday at Citigroup. Mrs. Fraser kept it as a background all day.

Citigroup announced in September that it would become CEO. Regulators increased the pressure on the bank’s risk management systems and Mr. Corbat decided to step down, believing such an expensive, multi-year project was best left in the hands of a successor.

Ms Fraser said the regulatory issue is her top priority. The bank delivered a February deadline to diagnose its risk problems, and executives said the relationship with regulators is productive. She has labeled the work a “transformation,” an opportunity for the bank to make changes that are overdue and competitively important.

For example, regulators had complained that the bank did not have clear data about customers. Citigroup had never developed a unified customer identification system for all of its businesses. Fixing this would reassure regulators and allow bankers to deepen their customer relationships, executives said.

Ms. Fraser said she knows the job will be a tough lift, but she doesn’t expect her first day as CEO to feel any different. She is scheduled for a town hall, meeting with new employees and some phone calls from customers. She also plans to call some former colleagues and others to say thank you.

Write to David Benoit at [email protected]