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Citigroup's next CEO has Herculean task: turning the bank around for real

[September 11, 2020] By Imani Moise and Svea Herbst-Bayliss

NEW YORK (Reuters) - When Jane Fraser takes the helm of Citigroup Inc <C.N> in February, she will have some big tasks ahead of her.

Citigroup, the third-largest U.S. lender, has struggled for years to convince Wall Street that management's vision of a global bank with a hodgepodge of profitable, if unrelated, businesses will work.

Profit targets set years ago by CEO Mike Corbat proved hard to reach even after revisions and major cost cuts. And although Citigroup is a much different bank than the one that required a $45 billion bailout to survive the 2007-2009 financial crisis, it still carries a stigma from failures that led it there.

Citigroup's legal battles with hedge funds after mistakenly sending them $900 million of its own funds suggests that it has ongoing technology issues, analysts, investors and insiders said. Those problems have been a sticking point with regulators, which have pushed Citi to fix them in order to pass annual stress tests.

Although Fraser's promotion was celebrated on Thursday as a sign that women can get ahead on Wall Street, analysts and investors said the halo will last only as long as she can deliver results.

"The job of this woman is to get new business, solve the problem with the government on the technology - and get new business," said Dick Bove, a longtime bank analyst with Odeon Capital Group. "That's her job, and I think if anybody can do it, she can."

Bove and others put Fraser's challenges into three buckets: growing revenue, addressing costly operational issues and truly repairing Citi's brand, which has been tarnished for over a decade.

Fraser, 53, has a reputation as a "fix-it" executive, and many expressed faith in her abilities.

A former Goldman Sachs investment banker and McKinsey consultant, Fraser cleaned up Citigroup's toxic mortgage book after the financial crisis, then its Latin America business after scandals erupted in Mexico, and has been leading its global consumer bank - which Citi is trying to grow - since October.

Although Fraser had been seen as a front-runner to succeed Corbat for awhile, many analysts found the change to be abrupt. Most expected a longer-term transition that might take a year or two, with some questioning why Citigroup made the announcement on a seemingly random Thursday in September.

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Citigroup Latin America CEO Jane Fraser addresses a Brazil-U.S. Business Council forum to discuss relations and future cooperation in Washington, U.S. March 18, 2019. REUTERS/Erin Scott/File Photo

Some investors had hoped Citigroup would appoint an outsider with a fresh perspective as its next CEO, KBW analyst Brian Kleinhanzl said in a note predicting an underwhelming share reaction to the news.

Citigroup shares fell 0.9% on Thursday, compared with a 1.8% decline in the S&P 500 index.

The 43% total return shareholders have gotten since the beginning of Corbat's tenure in 2012 through Wednesday's close pales in comparison to the 137% return for JPMorgan Chase & Co <JPM.N> shares and 169% for Bank of America Corp <BAC.N> shares during the same time frame, according to Refinitiv data.

Out of the top six U.S. Wall Street banks, Citigroup's total return is higher only than that of Wells Fargo & Co <WFC.N>, which has been plagued by various scandals since 2016.

A Citigroup executive who spoke to Reuters said staffers were happy with Fraser's appointment. The person, who was not authorized to speak to the press, said she is seen as someone who understands Citigroup's key businesses and can repair ties with investors and the government.

The person noted Fraser's success with regulators who scrutinized Citigroup's woes in Mexico, which ranged from bad underwriting in mortgages to oil loans that were later found to be fraudulent.

One major investor said Fraser may be the CEO who can turn Citigroup around. The person described her as someone who has shown she can cut costs and invest in businesses appropriately, and comes across as truly caring about Citigroup's welfare. But it will not be a cakewalk for Fraser to get the bank to perform in line with peers again.

"She will start in 'prove-it' mode," the person said, "and there is a lot to prove."

(Reporting by Imani Moise in New York and Svea Herbst-Bayliss in Boston; Additional reporting by Greg Roumeliotis and Jessica DiNapoli in New York; Writing by Lauren Tara LaCapra; Editing by Leslie Adler)

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