Citi CEO seen asking for more patience as targets still elusive

Thu Aug 18, 2016 2:56pm EDT
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By David Henry

NEW YORK (Reuters) - Earlier this year, an analyst asked Citigroup Inc Chief Executive Michael Corbat what he would do if activist investors tried to shake things up after what seems like eons of underperformance.

Corbat's response? He would take the new shareholders down to the U.S. Federal Reserve so they could see the limitations he faces.

"He was confident that they would not have any success with getting the regulators to look kindly on their plans," said Charles Peabody of Portales Partners, recounting his March meeting with Corbat.

The Fed's tight control over capital distributions, business plans and interest rates is a challenge for all big U.S. banks today. But Citigroup may be the best example of how the Fed's efforts to make the banking system safer are tying management's hands and frustrating shareholders.

Corbat is planning to set out new targets later this year, and people close to him say he knows the pressure is on. Yet he has little choice but to ask for more patience, analysts say. Corbat and his management team have been meeting with analysts and investors for months, explaining Citi's situation.

Citigroup needed more than $45 billion in bailouts during the 2007-2009 financial crisis – more than any other bank - and regulators have kept it on a tight leash. That left it lagging its peers in terms of capital returned to shareholders and its share performance. (Graphic: the 56-year-old former bond trader approaches his fourth anniversary as CEO, the bank is slipping further away from financial targets he set out in March 2013 and analysts' profit forecasts suggest the goals will remain elusive.

"It is an adjustment that is taking longer than would have been expected," said Macrae Sykes, an analyst at money manager Gabelli & Co, which owns Citigroup shares.

Returns on capital "have been underwhelming the last couple of years," he added. "It just continues to be a challenging environment."   Continued...

Michael L. Corbat, president of the Citigroup, arrives at the Planalto Palace before a meeting with Brazil's President Dilma Rousseff in Brasilia April 9, 2013. REUTERS/Ueslei Marcelino