WHEN: Today, Friday, September 29, 2023
WHERE: CNBC’s “Squawk on the Street” – Live from Pebble Beach, CA
Following is the unofficial transcript of a CNBC exclusive interview with Citi CEO Jane Fraser on CNBC’s “Squawk on the Street” (M-F, 9AM-12PM ET) today, Friday, September 29 at the Citi TMT Leadership Summit in Pebble Beach, CA. Following are links to video on CNBC.com: https://www.cnbc.com/video/2023/09/29/citigroup-ceo-jane-fraser-sees-cracksa-emerging-among-some-consumers-as-savings-dry-up.html and https://www.cnbc.com/video/2023/09/29/citigroup-ceo-jane-fraser-we-will-give-the-layoff-number-in-q4-earnings.html.
All references must be sourced to CNBC.
SARA EISEN: We are here in Pebble Beach, California at Citigroup’s tech and media conference and joining me now is the host of the event, Citigroup’s CEO Jane Fraser. Thank you for having us here.
JANE FRASER: Thank you very much. It’s lovely to have you here.
EISEN: I’m looking forward to a lot of good conversation with tech leaders but but I’m happy to talk to you especially now because you’ve made a lot of news lately and announced in the last few weeks this big reorganization, dividing your company into five business units. What’s the vision here?
FRASER: So the, as you say the last two weeks ago, we took the next big step in a very deliberate path that we have at Citi to unlock the value and the potential in the bank. So in the last couple of years, we have set the strategy, we launched the transformation to address the issues that have held us back both regulatory and operational. And this is the next step which is to put in place the organization structure that fits with the strategy and the bank we are today and not the financial supermarket we are, that we were in the past. So as I look at it, it strips out—
EISEN: The Sandy Weill days.
FRASER: Indeed. It strips out a lot of complexity and simplifies the bank. It makes us more agile, and most importantly, it focuses our clients, it focuses on our clients. It frees up our people to do that and to focus on execution.
EISEN: You haven’t put a number around layoffs, although you did make it clear that that was very much part of this reorganization. Do you have that?
FRASER: We’re focused on simplifying the bank so it’s much more about eliminating the complexity, flattening the organization, taking out layers, getting easier for people to work together and to deliver to clients. We will give a number in the fourth quarter earnings once we’ve begun the work all the way through the organization cascading it down so we expect to be in a place that all of that org change will have finished by the end of the first quarter. But we’ll be in a place to give the street a better sense of exactly what does it mean, not just in terms of savings, but really how this delivers that simpler organization that we’re all looking for.
EISEN: That’s what I was going to ask because you also didn’t put a number on the cost savings here as well. So do you anticipate doing that?
FRASER: We will do that. You need to do the work to cascade the different changes that we put in at the top layers all the way through the organization. They’re material, this is the most consequential organizational change that Citi has undertaken in almost 20 years. And we need to do the work, bring that all the way down through the organization in an orderly but paced manner.
EISEN: Some some might say what took so long?
FRASER: Oh, we had to make sure that we had completed the divestitures as to say we had been a financial supermarket in the past, hedge funds, private equity, insurance, 50, 60 different consumer franchises. Now, it’s a much simpler business focused on the five core businesses that now report directly to me. And it was once we completed the majority of the divestitures and the consumer franchises that enabled us to do this holistically, once and properly.
EISEN: So you said unlocking the value. Is this, is this why you think your share price has lagged over the recent years?
FRASER: I came in very clear right into the CEO-ship two, two and a half years ago that my job was to unlock the value in Citi and that this would be a multiyear journey because not only was it focusing the strategy on where we have incredible competitive advantages and making sure that we could deliver the returns that our shareholders expected from that in the medium term, but we also have to address the issues that have held us back over the years. That is not an easy fix. As you’ve seen, we have taken very hard decisions and tough decisions over the last couple of years. I’m very proud of progress that we’ve made. I also know that we’ve got a long way to go and the steps that we took last week and the changes that we’ll make in the next couple of months are very important to unlocking that.
EISEN: Yeah because David mentioned the market value, the market cap of the stock, $80 billion. It really is a shell of what it once was even though it is the third biggest bank in the country with more than 200,000 employees.
FRASER: And the potential is what I think is exciting and where our people want to win. Our stakeholders want the Citi to succeed and we see the clear path to do so. And we have just been very deliberately taking the step by step over the last two years. The hard decisions to get the bank in the position so that we can fulfill that potential.
EISEN: How has it gone down the announcements and the steps internally? Because there’s reports that your tone has shifted, you’re more, you’re talking tougher.
FRASER: Look, the case for change is pretty clear. Our people want to succeed and our highest performers get behind this very quickly. We don’t have room for bystanders. We don’t have room for people who want to stand on the sidelines. This is a organization that’s galvanized to succeed. We know we have a lot of work to do. We know that we can and we’re focused on delivering that step by step.
EISEN: How should investors judge whether the restructuring is succeeding and when? Does that, is that going to come in next quarterly numbers?
FRASER: I think they’ll see this, they’ll see this over the next over the next few quarters, they’ll begin to see some of the changes that we’re announcing, along with the proof points of the divestitures that we’ve been doing. We’re, Sara, we’re building this case and we’re showing that we’re delivering what we said we would do terms of delivering against our earnings guidance, delivering against the divestitures, delivering against the organization simplification. We’ll bend the curve on our expenses in the fourth quarter of ’24 and we will do what we say we’ll do.
EISEN: What about growth? Where does that come from and where can Citi take share?
FRASER: I’m excited about a number of different businesses. So in our services franchise, you see us grow those businesses very rapidly in both security services and then treasury services. That is really, they’re two crown jewels for Citi, high returning businesses, good growth, we’re seeing it in new client acquisition. And this is market leading. Our client win rate has an 80% plus win rate ratio. Pretty remarkable. We’re investing and making sure we’ve got cutting edge capabilities there. We also see growth in our commercial bank and those businesses around the world, new client acquisition and important engine for growth. We’re seeing a lot of deepening of our relationships with clients across markets and in banking. And we’re here in Pebble Beach today with one of the most vibrant sectors. We have 100 clients from around the world. And they’ve got a lot of business that we’ll be doing with them and us helping them succeed.
EISEN: Yeah, how, what is the investment banking outlook right now because we’re starting to see some signs that activity is picking up slowly, IPOs, M&A. What does it look like from here?
FRASER: Look, I think you’re right, it’s picking up but everyone’s feeling that it is early. We saw the investment grade markets open up and they’ve been the strongest ones as it’s usually the client sitting there saying okay, I’m going to bite the bullet on the higher rates. – starting to see some more activity, we’re certainly gearing up ourselves to be much more active in that market. I think when you speak to the sponsors, which particularly in the tech space is where a lot of the – money goes. That feels more like a next year or the year after where we think there’ll be a lot more activity. I think it’s still going to be a bit slow, and on M&A that’s one that always takes longer to see that hit the revenue line. There’s certainly a lot of discussion of transformation in the corridors here from smaller companies, the larger companies, the pipeline’s are good, but I think focus still have a note of caution When you speak to CEOs, I have the benefit of speaking to ones from all over the world, it’s the piece that’s common from everyone, there’s still a little bit of motion around a rate still gonna go higher. A feeling that next year may not be as easy particularly if you’re in Europe. China I think has taken some folk by surprise about how that has not come out of Covid with the strength that was expected, it has actually been the reverse. So it depends a little where you are in the world as to what that, how quickly that will that will unlock.
EISEN: What about in the U.S.? What are you hearing from CEOs and how does it measure up to your expectation?
FRASER: We certainly hearing the word transformation a lot. You’re hearing AI a lot, you’re hearing a tight labor market a lot from people still. Yeah. So you see a lot about softening of consumer demand, but there’s still resiliency in it, particularly the bottom end of the consumer. That’s the one that we’re starting to see cracks, you’re seeing some shift in the buying patterns to lower categories in the spend. So it’s a resilient consumer, but it’s a softer one and I think that’s something that CEOs are taking into account. September was, felt a little bit more like 2015, 2016 than it did the earlier years so we’re getting back to whatever the new normal is again.
EISEN: You also have a pretty big credit card business, so you have a good window into spending habits. What does that look like?
FRASER: Spending is still good. It’s still positive. It’s certainly come off and I think September in terms of the softening of the growth and demand is in evident. The numbers more in the whole system are about 4% of spend growth as opposed to the double digits we’re seeing in the recovery services still getting a fair amount of that spend over goods. So travel has been good. Our great partner American Airlines had a good summer. We’ve seen that in businesses and entertainment, foods has been strong, obviously with the rise in gas prices being a bit of pick up there. But it feels more like a normal environment again, and we are paying attention to the lower FICO consumer where there are cracks and we saw that in the Fed numbers savings are down. They’re very low at the moment. And I think some of the excess savings from the Covid years are getting close to depletion.
EISEN: Where does all that leave us? Do you think that the Fed can stick the landing without a recession? Is that possible?
FRASER: Look, all the numbers right now would suggest you’re in for a soft landing, there wouldn’t – inflation is coming down. We’re about halfway to where we want to get to inflation. And that when you look at it in terms of unemployment, and job creation, you look at the GDP, all the indicators are a soft landing. So what gives everyone pause is probably history. History would suggest that second half is a tougher half to achieve in the numbers than the first half on inflation. However, we’re starting to see the economy do some of the work of it for the Fed now. So it is definitely softening. And if we start seeing another few sets of data’s in the coming weeks, then I think that will make the Feds job easier.
EISEN: But you don’t sound quite as negative or as worried as Jamie Dimon for instance.
FRASER: I do think the recession, if there is one here, is going to be very manageable. So, it’s been elusive so far, but I am not sitting there worried about the health of our consumers, worried about the health of corporates. They are strong there in – their balance sheets have been very resilient. And a strong job job market is also a good thing. I also am sitting on top of a global franchise. So I compare that to our European colleagues and the European economies. That was a tale of two Europe’s. The industrialized nations we’re doing very poorly, very worried about them. Whereas the service driven economies – Italy, Spain, had a good summer. A lot of most Americans seem to turn up in Europe this summer. That’s the malaise is starting to filter into those economies as well. So we’re worried about Europe. They’ve got structural challenges in terms of labor market, and in terms of energy that the U.S. doesn’t face. And then in China, that’s been a lot slower than even those of us who are a bit more concerned about their economy. And they are obviously facing economic headwinds in the coming quarters as well.
EISEN: Is the stimulus going to work? Are they going to be able to fight it?
FRASER: It’s a tougher build for them than I think any of us and probably they expected. On the other hand, you go to India, and it’s vibrant. You look at Japan and our client activity in Japan is tremendous at the moment. Indonesia, Vietnam, Thailand, Philippines, all benefiting from the build of resiliency in supply chains to have alternatives to China and then India is by almost – it’s vibrant. It’s exciting being on the ground. And we’re seeing the global lanes really changing. Food lanes are changing. The financial flows are changing. The trade flows are changing. We’ve changed our organization structure and broken it up, because we’re finding that the Middle East has got more to do with Asia now – North Asia or South than it has to do with Europe. Brazil has got more to do with India and China than with Argentina. So our geographic change has been to make sure that we can position ourselves for all these shifts that are happening in the world.
EISEN: Are you positioning for worsening in relations between the U.S. and China?
FRASER: I think everybody is making sure that there’s more resiliency redundancy in their business models to take that into account. So some sectors are more –
EISEN: What does that mean for –
FRASER: For us, it’s more of a focus on our clients. So we’re helping make sure that our clients are positioned for the shifts in the trade flows, the energy flows, and that they’re able to take advantage of the opportunities this presents. We move $4 trillion every single day for 5,000 multinationals around the world. That business is growing. So that also tells us that our clients are very active in repositioning. But this is a decade long repositioning. This doesn’t happen overnight. They’re looking at this strategically. We’re helping them do so –
EISEN: — getting worse
FRASER: For us it’s an opportunity but it’s also one way of playing both offense and defense.
EISEN: And finally just on the markets, Jane. You know, you and I talk about the stock market, the bond market, it’s been somewhat surprising to people I think to see bond yields continue to rise even in the face of the Fed pausing and maybe ending the rate hiking cycle. How much higher do you think they go and what will that mean for broader equities and the rest of the markets?
FRASER: Yeah, our Chief Economist is certainly expecting to see rates going up in November. It is likely. I think everybody will have the same answer, which is let’s see what some more of the data because we’ve been in a lag. We’re waiting to see what the data looks like. Our expectation is it probably will need to go up a little further.
EISEN: The Fed will have to raise –
FRASER: Yes.
EISEN: — in November. One more?
FRASER: We’re expecting one more in November and it could be one more beyond that. We hope not. We hope the economy does continue to do the work.
EISEN: Well, we don’t even know maybe the data because it looks like we’re gonna have a government shutdown.
FRASER: Yes. Now for Citi, that has less direct impact for us, but we are – it’s much more important what happens to our clients. And unfortunately, we’ve been here before. We have our playbooks ready to help support all of those who work in government and the real people that this can have an impact for. So we hope this does not last long because as we’ve seen in the past, this starts to hurt people who really matter in the country if this lasts a number of days and goes into weeks.
EISEN: Nobody wants that.
FRASER: We hope we can get over that quickly.
EISEN: Jane, thank you very much for taking the time this morning. Jane Fraser, CEO of Citigroup, great to hear from her on the bank and the overall environment.
