Citigroup Inc. (C)
Bank of America 2023 Financial Services Conference
February 16, 2023 09:40 AM ET
Company Participants
Ebrahim Poonawala - Bank of America
Conference Call Participants
Anand Selvakesari - CEO, Personal Banking & Wealth Management
Presentation
Ebrahim Poonawala
I think we'll go ahead and get started here for a last bank’s session for the conference. I'm delighted to welcome, next up, we have Citigroup. From Citigroup, we have joining us Anand Selvakesari, CEO of Personal Banking & Wealth Management for Citigroup. As many of you might know, Personal Banking & Wealth Management is one of the 2 big business segments for Citi, and the bank has taken quite a strategic shift within -- strategically, which was announced and laid out at the Investor Day last year in terms of hiring of global wealth and advisers within personal banking, strengthening leadership position in payments, lending and maximizing value for the retail bank. So Anand, thank you again for joining us.
Question-and-Answer Session
Q - Ebrahim Poonawala
And maybe before we talk about the operating outlook, I would love to go back to the Investor Day and you laid out some strategic priorities. We were just discussing about you had quite a transition over the last 3, 4 years in terms of roles. Why don't you -- if you don't mind spending some time in terms of what this business is and what the strategic priorities are as you look forward?
Anand Selvakesari
Sure. Thanks, everyone. First of all, thank you very much for having me, and thanks, and it's good to be here. Good morning to everyone. So at the Investor Day, as we said, Jane had announced 5 core businesses. So 2 of them were in Personal Banking & Wealth Management. So last year, the Personal Banking & Wealth Management business generated $24 billion in revenues. 70% of that comes from the personal banking business in the U.S. and 30% is from the wealth business. So that's sort of the top line.
So we go a little deeper. So let's take the wealth business first. So we are about $7.4 billion of revenues last year. This is a business that we have presence in 52 cities across 20 countries. So a pretty global business. We offer total wealth solutions for our customers across the wealth continuum.
So what do I mean by that? So basically, for our wealth clients, we want to be able to offer and which we're offering is the -- any -- all products from checking, savings, credit cards, all the way to investments, lending and to sophisticated capital market products, the entire suite and do that globally. We don't think there's any other bank that can offer this kind of breadth of products and that on a global scale. So that's sort of our value proposition.
And we have 3 client segments within the wealth business. So one is a private bank, a global business, targeting the ultra-high net worth and the high net worth clients. Then we have the Citigold, which is basically focused around the affluent segment. And then we have Wealth at Work. This was a business that we started off by focusing on the law firm group in the U.S., where we have a dominant market share. It's basically a business that focused on professional services. Now we're extending that to other business lines, and we'll talk a little bit more about it.
So that's sort of the 3 client segments that we have. So for us, the priority is if we look at the priorities for the wealth business, there are 3 of them. So this is a business that we are not starting from scratch, right? We have $7.4 billion of revenues. We have a good foundation. We need to build scale. So building scale is a big priority.
The second is synergies within Citi. So one of the things that we have identified as significant synergies to be unlocked within Citi within the retail bank, within the institutional business to our wealth business.
And third, as we acknowledged in the Investor Day, this is a business we haven't invested well from a technology perspective. So significant investments in technology, digital and that will make this business more efficient at the same time, better client experience. So those are the top 3 priorities amongst many other things that we'll do.
If I switch to the U.S. Personal Banking business, so that consists of 3 businesses. So we have the branded cards. We have the retail services, which is the private label cards. And then we have our retail bank. We have the -- in the card side, we are #2 issuer in the U.S., so pretty strong big card business, a very well-diversified portfolio across the 3 portfolios that we have, which is the proprietary products, the private label and the co-brands.
And if you look at the retail bank, we have the retail bank, it's a top 10 deposit franchise. We are present in 6 core markets. The way we look at the retail bank is that it's a very important play for the U.S. Personal Bank. At the same time, it's a very distinct role. And while our footprint is very light, we have about 654 branches, the deposit per branch productivity is the highest in the country.
So when I look at the priority for the U.S. Personal Banking, 3 things. Again, the top 3 would be, we have to keep strengthening the leadership that we have in payments and lending, we got to get maximum value from the retail bank network that we have, and third is we've got to continue to drive the leadership on digital. We've been investing in digital for the last 3, 4 years, and that continues to be a big play for us.
So that's sort of where we are in the Investor Day. Again, if you just look at the -- I'll probably end by just giving you some positioning statements here. The Private Bank is a top 5 global private bank. If I look at wealth in Asia, we're top 3 wealth managers in Asia. If we look at Wealth at Work, we are a dominant player in the law firm room in the U.S. And in the card side, we are #2 issuer of cards in the U.S. So that's sort of our positioning for our business. So we have a pretty good, solid foundation to build on, Ebrahim.
Ebrahim Poonawala
Sure. So that was helpful. Maybe I guess you mentioned about the cards business and the second largest card issuer. When we think about the consumer, a lot of conversation around inflation pressures, the job market, give us a sentiment check on how you think -- how you perceive the U.S. consumer? And what the outlook is?
Anand Selvakesari
Great. I mean because you -- I think you've been getting from everyone to the U.S. consumers healthy, they are resilient -- they are healthy, they are resilient. The savings rates in the U.S. peaked obviously during COVID and that's sort of coming off. But still, the savings are much higher than pre-COVID. So that's why the health of the client and the resilience comes from.
So when we look at our cards portfolio, which is our large portfolios, and if you look at my credit losses, our credit loss in the branded cards business is running at half pre-COVID levels. And retail services slightly higher, but still much lower than pre-COVID levels.
So what's happening? So when we sort of look at our business, what's happened in the last couple of years, card spend has been growing very nicely. Pretty strong spend and resulted in growth in receivables. That basically results in growth in interest-earning balances, which is driving revenues. So that's sort of the logical step that happens in the cards business.
While that is happening, what we're also seeing everybody talked a lot about payment rates in the last couple of years. So payment rates have peaked during COVID, right? I mean, the last couple of years. We are starting to see that curve also band right now. So we're starting to see payment rates sort of declining. So combination of interest-earning balances is growing up, payment rates declining, will logically lead to a credit normalization. And that should be -- that's what we should expect. There should be no surprise with that because that's how the products work.
So we are seeing credit normalization. The way I would put credit normalization is in the lower FICOs and the lower income growth, we are seeing an accelerated normalization. They are normalizing faster versus compared to the higher FICO and the higher income growth. And for us, it's a smaller impact. The reason being, if you look at our portfolio in cards, they're pretty much a prime portfolio. 80% of our cards portfolio is 680 and above FICO scores. So it's pretty much -- so that's what we're seeing.
If I look at the wealth side, I think the clients are basically looking for yield right now. I mean that sort of fixed income is very popular at this point. We're also seeing deposits shift from into CDs because of the rates.
It's interesting. I mean cash is sort of becoming an asset class now because of the higher rates, right? So that's what we're seeing with the clients.
Ebrahim Poonawala
Got it. maybe, I guess, pivoting to the business. I think you mentioned earlier, building scale. So it's a great foundation. But at the same time, I think you're making a lot of investments across both sort of businesses. Give us a sense of like how much of those investments are going towards bringing infrastructure up to [indiscernible] versus innovation and kind of what the outlook looks like there.
Anand Selvakesari
Great, great question, Ebrahim. So I would basically bucket into 3 categories of investments we're making. So the first one is around consent order and transformation, a top priority for the bank. And so that's an investment that we're making around resourcing and technology, right? So that's one piece.
The second piece is around our own platforms, digital and innovation like you just mentioned. So one of the things that we are really focused on is on the wealth space, like I said, we are investing into our digital platforms, into our -- we have multiple different product platforms, consolidation of platforms, building out the client experience side. And that's a big area of focus for us from a client and client experience, the CRM, the building a unified wealth sort of a workstation for our client servicing officers, changing our teller platform as the branches. So a lot of work going on the client servicing side and obviously modernizing our platform, we have multiple platform, multiple lending platform bringing them down to one platform, et cetera. So that's another big chunk of investment.
The third is on the business side, in each of the 3 businesses I take to look at payments and lending. So our investments there is to grow our proprietary products. So we continue to refresh our products and grow our proprietary products, deepening our partner relations, there are some great partners, and we're extending our partner relationships. So that's another area of investment.
In the last 2 years, we have been investing into building our unsecured installment lending propositions. And that's growing really nicely, and we will continue to invest into that.
On the retail bank, as like I mentioned, we are focused around the 6 core markets. We want to sort of go deeper there. So you'll see the usual thing that you'll do in a retail bank, right, refreshing your branches, renovations, relocations and some strategic build-outs.
And then the wealth space, to me, the 2 big investments on talent. We hired a lot of advisers in the last couple of years. We will continue to hire that. And secondly, the -- apart from technology and digital on the product platforms, so like -- so we need to consolidate platforms and we need to build on the platforms that we already have. So those are, to me, the 3 buckets of investments, the way we look at...
Ebrahim Poonawala
And maybe on the digital side, when we talk to a lot of your peers, I mean I think there are different strategies that you see some are acquiring Fintechs, some are partnering up, like do you have a preference one way or the other? And maybe we don't see that as much from externally. But just talk to us about your approach towards partnering or acquiring smaller Fintechs to upgrade?
Anand Selvakesari
So we are open to all. So, right, so we don't try to build everything ourselves, right? Things that we can partner, we will partner and things that we can buy from outside, we will buy because that gives us a -- if it's a core competence that we don't have, we don't have to build.
In the past, it used to be some of those. But right now, we're pretty much open to all. So for example, I'll give you some of the examples that we are on the wealth space. So things that we build and things that we partner, right? So as an example. So we built our own what we call a Citi Self Invest, which is our own brokerage platform, which is online trading, et cetera. But then when we wanted to do insurance, right, and we wanted to sort of build our insurance, we went in partner with Covr, to get the wealth insurance on the side.
So we do that. So we do a mix of that. Even on infrastructure, we do the same. So we are not stuck to one particular way of approaching it.
Ebrahim Poonawala
Understood. I guess, maybe drilling down to -- starting with the cards business. One, just remind us in terms of how you think about the competitive positioning of the business. Are you taking share, losing share, areas where you do want to take share, maybe start there?
Anand Selvakesari
Yes. So see, first of all, we're starting from a really good position, right? So we are #2 issuer, a significant strength in our leadership position that we have. So if I just go a little -- drill down a little deeper into our cards businesses. So if I look at our proprietary cards. So our proprietary cards has a whole set of value propositions that we build on and it has co-brands and it's got our proprietary cards. So the co-brands, we have market names, Costco Magna or Alliance, AT&T. And if you look at our retail services business, against big market names, Home Depot, Best Buy, Macy's, Wayfair, et cetera.
So for us, both the proprietary cards as well as the co-brands and the retail services are all equally important because we really like the diversity of our portfolio. That's -- we are probably one of the most diversified portfolios that we have in the marketplace on cards. And many of our partners have been there for decades, like American Airlines, not many people know it's -- we want to celebrate 35 years with them. Home Depot's 20 years. So strong partnerships we've had for years.
What we have done, Ebrahim, in the last 3, 4 years is that one of the things that we have sort of consciously switched some of card becoming just a payment mechanism. We had sort of shifted to creating an integrated set of solutions and an experience for the customers. And let me explain that.
So earlier, the card used to be just a swipe. Today, what we want to provide the customer at the point of transaction is a series of choices. So you can actually -- you can go to a point of -- when you make a transaction, you can either pay with a plastic without of plastic, that's the starting point. That's the first choice because without the plastic, you can have new wallets.
The second choice is you can pay with the financing, you want to take a financing at the point of sale or for the point of sale financing. Or if you want to use your rewards, your points and you've got miles, we are making the points fungible is currency. So you can use your points. You can burn your points at the point of purchase. So that's another way you can do.
The third is after you've done the transaction, you go back, you have choices. You can either pay in full, you can revolve at the same time or you can also look at transactions and say, okay, I would like to actually finance the transaction, which I didn't finance at the point of sale, and we give that option too. And then if you're not worried about the transaction, I just want to take a cash loan within the credit card line, we also offer that.
The interesting thing is not only offering these products, but offering them with the right experience. So we put it all digitally. It's all 2, 3 clicks away. It's very seamless in real time.
And the other thing -- the important thing in the cards business is that you need to keep the customers engaged. That is the power of a business when you want to grow the business. So the way we're keeping the clients engaged, we have now built a merchant offer platform.
So throughout the year, customers are getting discounts. And so that's one we are engaging. We're going to launch a travel portal very soon. So we're building adjacencies around the card business. So providing choice and building adjacencies for engagement. So that's the way we are building our cards business, and that's resulting in the growth that we're seeing now.
Ebrahim Poonawala
And some of the things that you mentioned in terms of the features at point of sale before all of that is live today?
Anand Selvakesari
It is absolutely. It has been, a part of sale financing and the whole installment lending in Quarter 4, we had a 75% growth year-on-year. So that's growing very nicely, and it's pretty seamless, and it's a great experience from our -- on the only rap.
Ebrahim Poonawala
The one thing that you hear when we think about like payments and payment solutions, and I'm digressing from the question about like embedded banking and like partnering with software companies or vendors in terms of providing those services. Does that impact your business? Like how do you think about embedded banking and what that means?
Anand Selvakesari
So interesting. So this question I'm often asked a bit what happens. We've also seen buy now pay later and the lending options that have been coming. So if we look at our cards business, in 2019, I think we ended the year with about roughly $450 [indiscernible] of sales and spend on our cards. Last year, we ended about $575 [indiscernible] We grow significantly, grew organically despite the macro environment, despite only buy now pay later lending that is going on. So this business on its own is very resilient. The model that we've built is an experienced model that is there. But having said that, we do partner where we need to partner like merchant offers, we do partner like travel portal, we go to partners. So where -- for us, it's basically have core value propositions, provide choice and then partner where you can actually bring value to the customer.
So on its own, it's very resilient. And then when you partner, it becomes much more stronger, and that's what we're seeing.
Ebrahim Poonawala
Got it. I guess, going back to the partner calls you mentioned Home Depot, American Airlines. One, are there a lot more newer opportunities out there? And are the economics of the business attractive enough to engage in new partnerships?
Anand Selvakesari
So I would say there's lots to do even with the existing partners. That's where I'll start from, right? So when I came in 2019 to the U.S. and I looked at the cards business, we were basically having singular card-only relationship with these partners. And now we're expanding that relationships into why only cards? We can do lending, right? We can offer banking, we can do it rewards, and that's what we're now doing with our partners. So we have our existing partners. There's so much we can do in terms of just expanding the breadth of the product line and also adding more products. We just launched a new product, the AT&T, we launched 1 new product with a Home Depot, a new card.
So I think there's a lot more opportunities to do. And obviously, in the marketplace, you always come across some opportunities that are there that we can actually work on, but we have a latent opportunity sitting with us where we are basically deepening our partners now.
Ebrahim Poonawala
Got it. I guess before moving to some of the other topics, a little less exciting, I guess. The CFPB came out with a proposal on credit card late fees a couple of weeks ago. Obviously, Citi is a big card issuer like how do we think about one, what do you think about the proposal? And what do we think -- how do you -- how should we handicap the impact to Citi from if the proposal is implemented?
Anand Selvakesari
Yes. So we have been assessing the late fee proposal. Probably, I would like to start before getting into the proposal. I'd like to start by saying, our focus has always been to remind customers to make their payments on time. So that's what we've always focused on. So we have a number of sort of mechanisms and channels that we use, e-mails, text, statements to provide alerts to customers that their payment is due, make your payments on time. So that's a starting point. I mean that's where we all start from.
So look at our business itself because it's not a straightforward answer, and I'll tell you why because we look at the business. So if you look at our cards portfolio, branded cards is 2/3 of our portfolio and retail services, 1/3 of our portfolio. So the branded cards, if you look at the branded cards business, over 85% of our branded cards portfolio is FICO 680 and higher. So realized price.
In the retail services, 70% are 680 and above. But you also have to understand in this retail services business, we actually share economics with the partner, right? So the late-fee impact is not one-to-one on retail services because of economic sharing. So that's sort of the background here.
So having said that, we will -- we are assessing it. Obviously, we -- as we always do, we will comply with the regulatory standards when it's finalized and is ready to be executed. In the meantime, what we're now doing is we're collaborating with all the stakeholders, working with our partners, working with regulators, working with the industry trade associations to assess the impact.
There will be some impact when it's getting -- when it's executed. But the way we will look at it is that it does not really impact in any way our broader strategy or the targets that we set ourselves for the medium term. So that's the way I would sort of...
Ebrahim Poonawala
And is there a skew between retail and on the late fees with [indiscernible] exposed to one versus the other?
Anand Selvakesari
I don't really know. It's very different.
Ebrahim Poonawala
Got it. Maybe moving to the retail bank. So one, you mentioned like the 6 metro markets where you're focused on, one as someone who followed the industry for like over 2 decades. I always wrestled with this whether or not the U.S. consumer is ready for an online bank and growing that strategy. And you've seen some of the digital native companies trying and having mixed success. But one, give us a sense of the value proposition of the retail franchise you have, how that sort of collaborate with the rest of the bank? And just more broadly in terms of how you see that shaping out as we think about more digital and whether or not there's a future for a digital-only bank in the U.S.
Anand Selvakesari
So the Citi -- like we said at the Investor Day, the retail bank has an important role to play for the U.S. Personal Banking, but I also want to make a point is a distinct role to play. And that's the big difference. The way we'll consider very distinct role to play. From our perspective, the 2 primary roles that we expect from the retail bank is to become a good feeder for our wealth business. and I'll explain that. And then secondly, a good provider of low-cost, high-quality deposits, right, to back up our lending businesses. That's the 2 primary drivers the way we look at it.
So like I said, it's -- we are in the 6 core markets. We'll go deeper on the 6 core markets and acquire more market share on the 6 core markets. We have -- if you look at our -- like I said, at the beginning, while we have 650-plus branches. Our productivity deposit per branch is the highest in the industry. We are roughly -- it's about $290 million per branch that we saw. Our branch is very productive from that perspective.
And from a wealth referral perspective, last year, we got 60,000 client referrals from our branches to wealth business. That used to be 50,000 in 2021. So they're what we set out to do from a distinct sort of value proposition that's happening.
We also want to make sure that now like to the point that we want to maximize the value. I mean, beyond these 2, what else we want to do? So we -- so the retail branches fuel our small business lending. We believe that's a significant opportunity that we are sort of building out. So that's the other piece that it will build up.
And what -- the way we've approached this is that light footprint, we have -- we like the light footprint. We've got to complement the light footprint with our digital strategy, right? And that gives us the national access. We expect in the medium term, 30% of our deposits to come from additional deposits. So we have built out all our capabilities and we've got really built out the experience from a customer perspective. And we feel good.
So one of the things that we do not want is to be a digital offering just to be chasing rates, right? You want it to be a relationship and a value proposition that actually builds a relationship. And that's the way we're approaching it. That's how we built all these elements of having digital deposits. We have now Citi Self Invest where we can invest then you have all the lending capabilities. Everything is now digitally all coming together, and that's where we're going to build relationship with customers.
Ebrahim Poonawala
And so I guess, to that point, right, I think a lot of online banks become rate-sensitive -- attract rate sensitive deposits. How do you grow low -- so just give us a sense of how do you grow low-cost, high-quality deposits in the current framework in this rate backdrop that we are in?
Anand Selvakesari
Yes. See, in this current -- I mean, first of all, you have to be competitive with rates environment, so that's one. but you do not want to build the value proposition that rate is the only driver because that is not sustainable. But within market conditions, you've got to be flexible enough to sort of be competitive with rates. For us, as you bring the clients once you've got them in, you've got to deepen relationships, and you need to have it.
So that is why we've got the investments that we can do to self-invest because the lending capabilities, the client can take a credit card. So the whole sequence of things, which 4 years back, we don't have everything digitally sort of organized. Now we have everything digitally put together in a seamless manner. And that's where we believe the strength is going to come as we build those relationships.
Ebrahim Poonawala
Understood. And I guess maybe on the wealth strategy. One, if you don't mind, just the differences between the global and the U.S. strategy, like how we're going about that. And I'd also like you mentioned no one can compete with Citi on wealth management, given just kind of your platform. And just remind us, if you don't mind spending a few minutes because oftentimes, I'm talking to investors and they're like, how competitive Citi as a wealth manager in Asia and would appreciate spending some time because I don't think people fully understand that value proposition.
Anand Selvakesari
So let me probably repeat a little bit, but I'll get -- so see, let's start from the top. So if you look at our Wealth business, I'll start with the client segment. So we have the private bank, a full-service global private bank that we have, which is operating in 20 countries, 52 cities that we have presence in. This is a business where 25% of the world's billionaires bank with us, right? And an average net worth of these clients are over $400 million. So -- and it's a top 5 global private bank. So that's the -- and that's the ultra-high net worth segment.
Citigold is a solid foundation beyond Citigold in the affluent segment, which we target affluent plans in the U.S. and in our 3 wealth hubs in Hong Kong, Singapore and in the Middle East and UAE. So that's a 3 wealth hub.
Then we have the Wealth at Work that we talked about, predominantly a U.S. offering, which was a predominant market share with law firms. Now we are basically building out newer verticals, asset management, private equity, et cetera, right? So that's the piece.
So when I -- when you look at the $7.4 billion of revenues last year that we generated in the wealth business, a little over 50% comes from the U.S., right? And about 30% from Asia. So that's sort of your breakdown. So 80% -- so 2 big regions, important region, 80% comes from the U.S. and Asia.
So let's unbundle U.S. and then unbundle Asia. So in the U.S., what we want to do, like I say, we want to build scale across all the 3 segments, build Citigold, Citi, the Private Bank, Citigold, Wealth at Work, we want to continue to build scale. So that's the first thing.
Second thing we want to get the synergies going, like we have the 60,000 referrals from the -- we need to continue to build on the synergies because that's the latent power that we have within the firm, that's important.
Third is everything we talked about in investing in digital technology, et cetera.
The fourth interesting piece, as we brought the businesses together, see, when the business was Citigold and the business was Private Bank and we brought them together, we had this whole whitespace Citigold used to be basically customers who are roughly about $5 million to $10 million. And then your private bank is $25 million and above. So you have this whitespace in between $10 million to $25 million, which nobody was really focused on because we were very different organizations and dependently managed. And that's the big whitespace, which is a fast-growing space across. And that's a big option as we call the high net worth opportunity. So we have a full wealth continuum in which we build on.
And the last one on the U.S. for me, when I look at the U.S. wealth business is that if you look at the revenue mix of the U.S. wealth business, it skews towards interest income because of the skew towards banking and lending versus fee revenues versus investments. So that's an area of opportunity that we've identified where we're going to be basically penetrating investment products into our wealth clients to get a higher share of the fee revenues. We're getting a good share of their banking and lending revenues, we need to get a higher share of the investment revenues.
Those are the 5 things from a U.S. perspective. If you look at Asia, we're a top 3 wealth manager. We are big in Asia. We're top 2 wealth manager, a fantastic brand, a fantastic brand in Asia, solid business in Hong Kong and Singapore that has been established over a period of time. We have our digital capabilities, technology capabilities are much more advanced there compared to the other regions.
For me, the 2 or 3 priorities of Asia, one is we want to build scale in Private Bank and Citigold. Those are the 2 sort of segments where we want to really start build further scale.
The second thing in Asia is to capture the offshore market in China. That's a big wealth market. And we have Hong Kong as our wealth up to capture that presence there. So that's important for us from that perspective.
The high net worth segment that we talked about, the whitespace that applies to Asia, too, as we build the wealth continuum along with our clients. And obviously, while digital and technology is advanced in Asia, we need to continue to build on it because that region is like moves faster in digital than the rest of the world. So that's how we look at it.
So we are truly excited about the opportunity in both these regions and a little bit of a different scale in both.
Ebrahim Poonawala
I guess just 2 follow-up questions. One, you think about penetrating better on wealth management fee, revenue products? Like how do you do that? Is it technology? Is it personal people hiring, tying up in order to have those products available to offer to your clients? Just give us like in a practical sense, how do you do that?
Anand Selvakesari
So it's a combination of 2, 3 things. I think it starts from having the right coverage model. So you need to -- so bankers and the bankers need to be supported by investment counsels or investment specialists as we talk about. So one of the things that we have identified is that the ratio that we have is probably on the lower side, investment specialists as bankers, so we need to increase the ratio so hire more investment specialists. That's what we've been doing along with hiring the bankers, that's important because they are then going to sort of help penetrate the clients.
Secondly, the infrastructure and technology, digital capabilities that we're building, so that's too. I think on the product side, we're pretty good. We have a pretty strong product suite. So while we can always improve on it. But these are 2 things to me, where get the right coverage model, add more bankers and the investment advisers in the right ratios and then you have the digital capabilities supporting it.
Ebrahim Poonawala
Got it. And I guess, the other thing would be, you talked about a lot of building and rewiring of things, right? And I think when we think about -- obviously, Jane and Mark talked about the expense outlook during the earnings call. Give us a sense of like where we are in the journey of making those investments, having the right people already in the place like, are we 50% through or 70% through like where do we stand?
Anand Selvakesari
So on the wealth business as -- take you like 2 years back, so when Jane announced a couple of years back in 2021. These are 2 independent businesses. So the private bank as part of the institutional business and the Citigold business as part of the consumer bank. So 2 independently managed businesses, 2 different platforms and everything was different. And now what we've done in the last couple of years bringing them together, so we have 1 management structure, 1 sort of functional leads, et cetera. So organizationally, we brought them together.
Some of the examples to tell you the way we are handling this is, for example, let's take the value propositions, right? So we had products being developed and managed in different places. Now what we're saying is, let's create central product libraries. So that's what we're doing.
So we create central product liabilities, and what we do is based on the client segment, based on client needs and client suitability, you draw from that one library instead of having multiple different places where you're going to be developing products and managing products.
Same thing with research, same thing with content. So now we're starting to integrate all of that into libraries that you can actually sort of build end-to-end and then start to draw from.
The second thing that we're seeing is the technology. So like I said, we have -- on the lending side, margin lending, we have 4 platforms, for example, we are now converging to one platform, creates more efficiency, better customer experience. Because of the different platforms that we have, for example, we -- if you're a client or even if you're a client adviser, you probably today log into 5 or 6 different platforms. We are now converging them to 2 or 1 platform -- 1 login, so that make things easier.
So a number of things from the infrastructure side that we're actually building out and that's making good progress. So its value proposition.
The third big piece for me is the synergies. And I keep talking about synergies because the referrals that we get client referrals, not only from the retail bank, from the institutional business, commercial bank, the corporate bank. They're all wealth -- potential wealth clients. And all of that is now sort of getting into play.
So those are some of the things that we have been working, and we're making really good progress around the integration.
Ebrahim Poonawala
Got it or only a few minutes left. The one thing I want to touch upon, as you mentioned, the health of the consumer? And like when we think on credit normalization, one, what are -- from externally, what are the 1 or 2 data points we should be watching when we think about assessing health of the consumer and how it impacts your sort of the consumer exposure? And give us a sense of what normalized credit losses look like relative to where we've been?
Anand Selvakesari
Interesting point. The only we have [indiscernible] is no single data point. So we look at multiple data points. So both internal and external. External data points, the obvious ones, you look at it as unemployment rate has a high correlation to your cards business, you look at it HPI, you look at yield curve, you look at inflation, savings rates. So a whole bunch of things there on the out there.
Internally, we look at -- we basically look at our portfolio in subsegments, and we analyze the customer behavior. So payment rates -- payment pattern, how many customers are paying minimum pay, was they not paying minimum pay. So we look at all of that because each of those data points are very important. So the collective of all of this is what sort of defines the next steps that we take as we're taking decisions.
So unfortunately, it's a whole bunch of data, particular data. Now from a credit cost perspective, like I said, our credit cost has been half of what we saw pre-COVID. So Quarter 4, I'll give you Quarter 4 the actual. So branded cards Quarter 4, our credit NCL was 1.68%, right? Our normalized range typically was 3% to 3.3%, right? And then if you look at the retail services, Quarter 4, we're about 3.3%. That's actual NCL, the normalized range is about 5% to 5.3% there. So still ways to go there. And we believe, like I said, as the interest-earning balances grow, payment rates sort of bend, which we'll have revenues growing at the same time logically, you'll have credit normalizing. We think sometime next year, similar first half of next year, we'll start to see the normalized range.
Ebrahim Poonawala
Right. And would that -- in order to get to normalize, do we need to see a meaningful slowdown in the job market to get there? I mean -- and I know you mentioned it's not one data point, but in the job environment we are in today, just it's hard to get even the normalized levels.
Anand Selvakesari
Yes. So yes. So the low unemployment rate is keeping the consumer resilient. But as you start seeing the interest earning balances continue to grow, and that loan start and the payment rates that curve bends, then you will see the normalization. It's the extent of normalization. So that's the magnitude of the normalization is what will define based on the unemployment rates.
Ebrahim Poonawala
Got it. And I guess, maybe if you go back, I mean, the world has changed dramatically from today versus a year ago? And then even relative to when -- during our Investor Day. So it's hard to have like medium-term targets and being tied to that. Like how confident do you feel despite all the macro changes that you can achieve the targets you've laid out for sort of the business both in Personal Banking & Wealth Management?
Anand Selvakesari
See, I mean, if you take 2022, despite all the macros, Citi overall met its revenue guidance. And we also have pretty accelerated strong performance across many of our -- many areas.
If I look at the -- my business, the Personal Bank & Wealth business, we grew revenues 4% last year. The U.S. Personal Banking, which is 70% of our PBWM business grew 7%. And within that, if you look at the cards businesses, they grew double-digit revenues in the last 2 quarters. So strong momentum.
So as we're exiting. We exited 2022 with strong momentum. We are getting into 2023 with pretty strong momentum. January was a good month in terms of the momentum continues across those dimensions. We talked about spends, interest-earning balances, et cetera. So that's continuing.
On the wealth, obviously, the macros were we had some adverse macros last year. Asia was more impacted than the rest of the regions. If I look at outside Asia, we grew revenues 3% despite the macros. And then now that in the last few weeks and months with Asia opening up, with China and Hong Kong opening up, we are starting to see client activity picking up very nicely there.
So we feel confident. We feel confident given that we're exiting 2022 strong, we're entering 2023 with a good momentum with the Asia opening up on the wealth side and with the U.S. consumer being resilient, we feel confident on the targets that we have for the medium term.
Ebrahim Poonawala
Got it. That's good to hear. I know we have a few minutes, wanted to just open the room and see if anyone in the room had a question. If so, please raise your hand. But if not -- go ahead, yes.
Unidentified Analyst
You're talking about having a great global offering, and that sort of could be interesting why if you have like a global active customer who is traveling the globe. Very nice to have that Citigroup bank account. But you also as Citigroup as a whole, is closing countries, one after the other. So you're becoming less global every minute. So is that a problem for you? Or do you just deal with it?
Anand Selvakesari
So from a wealth business perspective, as you can see, the way we constructed the -- our strategy is around -- so that's U.S. and then we have wealth hubs. So typically from wealth business, these are clients who are basically investing in their territory or offshore, right? And they could also have booking centers outside their regions.
So Hong Kong is the wealth hub covers the China region, you have Singapore covering the Southeast Asia region. We have UAE covering the Middle East region, we have European presence, and we have -- so we are pretty well covered. We don't see that as a disadvantage at all. In fact, it's -- it just gives us this good global connect that we have, and these are all the centers that typically wealthy individuals actually [indiscernible] We have booking centers in Luxembourg, in Geneva, in London. So we don't see that as a disadvantage at all.
Ebrahim Poonawala
I guess -- go ahead, yes.
Unidentified Analyst
Are you looking to increase the financial advisers in the United States? And if so, do you envision that being in the branch offices or in some type of centralized location where their businesses referred to them?
Anand Selvakesari
Yes. Sure, absolutely. We have been already increasing our financial advisers, and we're going to both on the private bank side as well as Citigold side, both bankers. So basically, the way we look at client advisers, our bankers, investment counselors and also financial advisers. So we have been growing them, and we have plans to grow at least around 10% compounded growth in the next -- in the medium term, and they will be sitting in different places.
I mean, there are folks who sit in the offices that you centralized office and the folks are going to be attached to branches. Absolutely. And that's an important part of our strategy to build scale that you need to invest in talent and especially in the client adviser.
Unidentified Analyst
One of your -- one of the largest wealth manager recently has facing some issues and they have a presence in Asia as well. Did you see any benefit of their troubles benefiting you like in terms of the client flows?
Anand Selvakesari
See, usually, yes, I mean, I won't talk specifics. And generally, what we do is see these type of opportunities count where you do have talent that's available and you also have clients who are looking for alternatives. So yes.
Ebrahim Poonawala
I guess maybe just to wrap it up. Anand, one question I had was, I think you started Citi at 1991? So you must have started at 10, I think, when you were 12? But just give us some, obviously Citi has gone through a lot, like investors have looked seen the last 2 decades. You worked with Jane for a long time. I think the last year was a big day in terms of update. Give us a sense of -- I think the question you often get asked is why is this time different for Citi? I mean I think you have an awesome vantage point to address that question. So why is this time different?
Anand Selvakesari
Yes. You just called out my age, I've been here too long. And I've seen a lot. So it is very different. And I'll tell you why, and not because I'm sitting here, but I'll tell you why it is really different. It starts with the strategy first.
I think we now have a very clear strategy. That's a starting point. We have 5 core businesses that we're going to focus on, and that business has played to our strengths, right, the global footprint, global network and a simplified model. That's an important starting point.
The second thing that probably you all will not see is that there's a huge sense of urgency within the organization to execute and to deliver on it. And some of the things, which you'll see externally is the speed at which we are doing -- getting our divestitures done, right, of the speed at which we are doing. So there's a big sense of urgency in the front.
The third thing, which I've been for a long time here, we are this time around making all the right investments. No, we had underinvested in infrastructure technology in the past. We're making those right investments to become a modern and efficient bank, which is a little different from the past.
The fourth thing, again, it's a very important aspect. There's a big cultural change that's happening with the Citi, right? Jane is doing the culture change where we need to all work together, breakdown silos, they're getting the synergies done, succeeding together, winning together is a big mantra there.
And along with the culture change last but not the least, it's accountable in ownership. So management is held accountable to deliver and to execute. We have it in our scorecards. We have it in our KPIs. We have regular cadence on how we are measuring and tracking all of this. So it is really different. So the clarity, the purpose, the urgency, and just the mindset that we all want to win is very different. And the troops are all rallying behind that. So having been in the bank for a long time, this is really different this time around.
Ebrahim Poonawala
So we're really excited to see the progress. So thank you, Anand.
Anand Selvakesari
Thank you very much.
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Citigroup Inc. (C) Presents at Bank of America 2023 Financial Services Conference (Transcript)