'Why not step aside now?' Analysts just grilled outgoing Citi CEO Mike Corbat over how he ran the bank and made comparisons to embattled Wells Fargo

  • Citigroup chief executive Mike Corbat and chief financial officer Mark Mason fielded a series of pointed questions from analysts on the bank's third-quarter earnings call on Tuesday.
  • Analysts challenged Corbat and Mason over subjects like Corbat's exit and succession plans for incoming CEO Jane Fraser, and murkiness around how Citigroup plans to shore up its infrastructure.
  • Citigroup was recently slapped with a $400 million fine from federal regulators over risk, compliance, and infrastructure issues.
  • "Why not step aside now and have the new CEO Jane Fraser take over as a way to demonstrate the increased sense of urgency?" Mike Mayo, an analyst at Wells Fargo, asked Corbat.
  • Visit Business Insider's homepage for more stories.

Citigroup executives were pummeled by industry analysts on the bank's quarterly earnings call Tuesday, as chief executive Michael Corbat and chief financial officer Mark Mason left some analysts with more questions than answers.

Analysts asked a barrage of questions around uncertainty surrounding the bank's CEO succession plans in 2021 and its strategy for cleaning up messy infrastructure issues that recently led to a $400 million fine from federal regulators. 

The bank caught many analysts off-guard when it announced this September that Corbat would be retiring in February 2021. Corbat's departure came after it became clear regulators were losing patience with his inability to fix risk, compliance, and technology systems, Business Insider previously reported. 

Jane Fraser, the bank's president and CEO of its consumer banking division, was named Corbat's successor, making her the first woman to serve as the chief executive of a major US bank.

The group of analysts pulled no punches on the more than 90-minute call in asking pointed questions, at one point even calling out Corbat for not throwing in the towel on his leadership roughly five months before he is due to step aside.

"Why isn't Citigroup the new Wells Fargo in terms of regulatory issues?" one analyst, Bank of America's Erika Najarian, asked about Citi's ongoing infrastructural and risk and compliance woes, which were at the center of the steep fine from Federal Reserve Board and Office of the Comptroller of the Currency this month. 

See more: From an executive shakeup to a $400 million fine from regulators: Here's all you need to know about tumultuous times at Citigroup

In response, Corbat tried to distance Citigroup from Wells Fargo's wide-ranging sales practices scandals, which first came to light in 2016. Wells is under an unprecedented asset cap as it continues to work to prove to regulators that it's put its problems behind it. 

Citigroup had not caused "widespread consumer harm" and "did not profit from the activities," Corbat said. Earlier this year, Wells Fargo agreed to pay regulators $3 billion in settlements following an investigation that found the bank's employees had opened millions of unauthorized bank accounts.

Citi shares were trading down nearly 4.5% on Tuesday afternoon.

On Tuesday's call, Corbat described the fine on Citi as stemming from the bank not having "moved fast enough and not [having] been holistic enough" in addressing lapses in Citi's operational efficiency, compliance risk management, data governance, and internal controls.

"What ties these areas together is the need to modernize our infrastructure, governance, and processes. … And while we've been making progress in these areas, we're simply not where we need to be," Corbat said. "While this is disappointing, we're committed to thoroughly addressing the issues identified in the orders and modernizing our bank."

Not everyone on the call seemed sold by Citi's reassurances

Mike Mayo, an analyst from Wells Fargo, said that under Corbat's leadership Citigroup has lacked "a sense of urgency" in responding to "the pace and need for more restructuring."

"Where is the sense of urgency?" Mayo asked. "Speaking on behalf of investors, people I speak with, there's a collective sense of extreme disappointment with technology, the new regulatory order in tech, the route problems were not transparent to investors."

"Why not step aside now and have the new CEO Jane Fraser take over as a way to demonstrate the increased sense of urgency?" he added.

Read more: Wall Street shatters a glass ceiling as Jane Fraser is announced as Citigroup's new CEO, becoming the first woman to lead a major US bank

Corbat responded by saying that he had committed to "close out the three-year plan" for his exit, which dates back to 2017. He first took over as CEO in 2012.

He also touted some of the bank's successes under his tenure — "we went from returning hardly any capital in 2012 to returning nearly $80 billion over the last six years," he said — adding: "I don't think you accomplish those things without a sense of commitment and a sense of urgency."

Corbat's legacy is under fire a few months before he leaves Citi

Analysts also pushed for more details about Citi's vision for Fraser's ascension to the bank's top job; possible plans for a rescheduled investor day after the pandemic disrupted the event originally scheduled for May; and steps that the bank will take to improve its lagging infrastructure.

On the call, Mason noted that the bank had set aside about $1 billion this year, which is dedicated to shoring up infrastructure, risk, and controls. Analysts unsuccessfully pressed for more details about what costs would look like in the years to come. 

The topic of managerial pay also came up on the call.

Vivek Juneja, an analyst from the research division at JPMorgan Chase, said "it's quite disappointing to read in the consent orders that the incentive comp did not account for risk management."

"Given that, what changes should we expect in senior management incentive comp?" he asked.

See more: The real reasons behind Citigroup CEO Mike Corbat's retirement

In 2019, Corbat earned $24 million in total compensation, Citigroup said.

In his response, Corbat diffused blame for issues with the bank's risk management across a variety of parties.

"I think what they're speaking to goes more broad than just the executive management team," he said. "You've got a fair number of people involved in those processes."

Some analysts hoped to hear from Citi's incoming CEO Jane Fraser, who was absent from Tuesday's call

As Corbat winds down his eight years at the helm of the fourth largest US bank by assets, Fraser, his successor and the bank's current president and CEO of its consumer banking division, will undoubtedly inherit a full plate.

In addition to navigating the economic effects of the pandemic, Fraser will also be tasked with continuing to lead changes to address the company's infrastructural challenges. All of it will also need to be be done under the watchful eye of regulators.

See also: Citigroup is stepping up its war with the hedge funds that refuse to return Revlon money by ignoring their Bloomberg chats and cutting off pricing information on bonds

Under a consent order, Citigroup must seek the OCC's approval before making any big new acquisitions. The regulator also reserves the right to make any significant changes in senior leadership, or the board, if it believes the bank has not complied quickly enough with the order.

Several analysts hinted at wanting to hear more from Fraser, though she was absent from Tuesday's call.

Matthew O'Connor, an analyst with Deutsche Bank, asked when industry watchers should expect to hear from Fraser about the leadership transition and regulatory issues.

"I think we should [let her] get her feet under her and go through some of these processes and get educated," Corbat replied.

"We'll probably start to introduce her on the January call," he added. "And then obviously, the quarter after that, she'll have the reins."

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