Jane Fraser keeps Citigroup out of harm’s way — for now

Global financial markets have been turbulent this year, and for Wall Street veterans that raises a familiar concern: How is Citigroup going to screw up this time?

The company formed by the 1998 combination of John Reed’s Citicorp commercial bank and Sandy Weill’s Travelers — which engaged in everything from investment banking to subprime lending — has been accident-prone throughout its history. An investor would have been better off stuffing money under a mattress than backing the Reed-Weill behemoth from the start. Citi stock has lost most of its value since their merger.

However, when the bank reported second-quarter results on July 15, it was the Citi naysayers who took a beating. Like its big Wall Street peers, Citi’s profits fell from last year, when markets were being pumped up by extraordinary monetary and fiscal stimulus. But its revenues of $19.6bn and net income of $4.5bn were better than many analysts had expected. Citi’s stock rose 13 per cent on the day — and added to those gains in the trading sessions that followed.

Citi’s results were particularly noteworthy because they reflected strong performances in businesses that were targeted for more investment by chief executive Jane Fraser when she outlined her plans for a “multi-year journey” to increased profitability at the bank’s investor day on March 2.

Fraser’s strategy is a variation on the old Johnny Mercer song lyric advising listeners to “accentuate the positive” and “eliminate the negative”. Citi is exiting nearly all its international retail operations and focusing on areas of strength such as its Treasury and Trade Solutions business, known as TTS, which helps multinational companies in more than 90 countries manage cash and payments and finance supply chains.

Described by Fraser as the “crown jewel” of her company, TTS sparkled during the second quarter, reporting a 33 per cent jump in year-on-year revenues to $3bn.

Adding to the lustre of these second-quarter results were the contributions of Citi’s fixed-income traders, who trace their lineage back to the legendary Salomon Brothers investment bank, which was acquired by Travelers shortly before it agreed to merge with Citicorp. Fixed-income markets revenues rose 31 per cent from last year to $4.1bn.

Mike Mayo, a Wells Fargo bank analyst who has often criticised Citi in the past, said the results marked a big step forward for Fraser, who became chief executive last year. He called her a “change agent” who is taking on the problems of a “mishmash franchise” that her predecessors “never consolidated”.

“This is a bank that has perennially messed up more than any other in periods of unusual volatility,” Mayo said. “This has to give Jane Fraser extra credibility and momentum for her transformation plans. She can go into a room now and say, ‘Stay with me, we are going somewhere, come on the Jane Fraser voyage’.”

Among those who have recently decided to go along for the ride is an intriguing investor — Warren Buffett’s Berkshire Hathaway, which revealed in May that it had bought $3bn in Citi shares, representing a 2.8 per cent stake in the company.

Buffett has a complicated history with Citi — or at least the part of it that was once Salomon. He invested in the firm in 1987 as a “white knight” to keep it out of the hands of investor Ron Perelman. After Salomon was ensnared in a Treasury bond auction scandal in 1991, Buffett stepped in as interim chair for several months, helping engineer a revival of the firm that led to its $9bn sale to Travelers in 1997. Whether Buffett or one of his underlings pulled the trigger on the Citi purchases, as some have speculated, Berkshire’s appearance on the shareholder roll represents a significant endorsement of Fraser.

By her own estimates, Fraser has a long way to go. Even after its recent share gains, Citi was trading at 56 cents on a dollar of book value, compared with price-to-book multiples of 1.05 at Goldman Sachs, 1.12 at Bank of America, 1.33 at JPMorgan Chase and 1.51 at Morgan Stanley, according to Wells Fargo. As Mayo puts it, the bank remains “worst in class in returns, efficiency and stock market valuation”.

Overhauling its computer systems is going to be hard work — chief financial officer Mark Mason says Citi is trying to consolidate 37 bank loan processing systems on to one platform. Political and economic factors — ranging from the war in Ukraine to the possibility of recession — will only make Fraser’s life as chief executive more difficult.

But for those of you keeping score at home, as they say in baseball, Fraser just had a solid earnings day. She’s off to a good start.

gary.silverman@ft.com