Citigroup Chief Financial Officer (CFO) Mark Mason, during an investor call on March 8, predicted that the Federal Reserve would continue its efforts to combat inflation, leading to an increase in US interest rates and a potential “mild recession” later this year. Mason stated that the Fed was “going to be very resolute” in adjusting rates to achieve its goal of a 2% inflation rate.
However, Fed Chair Jerome Powell noted that the decision on rate hikes was still under discussion and would depend on upcoming data.
Mason also acknowledged that, while consumer finances were generally healthy, rising inflation and slowing economic activity had led to some households experiencing difficulties. Customers with lower credit scores are beginning to make more late payments, which will likely result in losses for the bank.
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Additionally, Citi and other Wall Street firms are expected to see a continued slowdown in dealmaking, with investment banking fees predicted to drop around 40% this quarter.
Citi’s trading volumes are expected to decline by a “high single digits” in Q1 2023 compared to the same period last year when the war in Ukraine caused a surge in activity. Despite this, Mason maintained that Citi’s revenue would increase to $78 billion to $79 billion in 2023 from $75 billion in 2022. However, in Q4 2022, the bank reported a 21% decline in earnings as it set aside more money to prepare for loan losses in an uncertain economy.
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Citigroup, according to Mason, has been strengthening its investment banking business over the past few years, focusing on areas like energy, biotechnology, and healthcare. However, due to a recent lack of deal activity, the bank is now considering altering its investment strategy.
In an interview with Bloomberg Television, Mason stated that the bank may need to “re-pace” its investments in certain areas to adapt to the current environment, and that they will make necessary adjustments as needed.
Mason was responding to a question about the bank’s investment banking headcount, and he emphasised that the bank would take a measured approach in recalibrating its investments, rather than making any sudden or drastic changes. The bank has a strong and diverse franchise, and it will continue to focus on areas that are performing well while making changes where needed to respond to changes in the market, he said.
(With agency inputs)
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