Citigroups CEO, Jane Fraser, recently addressed shareholders at the bank’s annual meeting, revealing a cautious outlook on U.S. consumer spending and emphasizing the need for ongoing bank overhaul. The CEO’s insights into consumer behavior, credit risks, and internal restructuring offer a glimpse into the challenges facing one of the largest U.S. financial institutions.

Changing Consumer Behavior

According to Fraser, U.S. consumers are becoming more cautious with their spending habits, opting for smaller purchases and demonstrating a more discerning approach to their financial decisions. While the overall health and resilience of consumers remain intact, the increasing caution is driven by economic uncertainties and a trend of higher delinquency rates in loan categories such as credit cards and car loans.

“Consumers remain healthy and resilient,” Fraser noted, “but we are seeing them more cautious in the U.S. and more discerning in their spending patterns.” The CEO also pointed out that affluent customers are responsible for almost all spending growth, while lower-income consumers with lower credit scores are spending less.

Credit Risks and Delinquencies

One of the key concerns for Citigroup is the rise in delinquency rates among lower-income borrowers. Fraser mentioned that while 85% of Citi’s credit card clients are prime borrowers with high credit scores, the bank is keeping a close watch on delinquencies among low-income households, as well as monitoring debt levels and unemployment trends in the coming months.

Borrowers’ delinquency rates have increased above pre-pandemic levels across all loan categories, except for mortgages. This trend has prompted banks to become more cautious about issuing credit cards and car loans, reflecting the growing financial strain on lower-income consumers.

Bank Overhaul and Executive Compensation

Despite the challenges, Citigroup has been undergoing a significant transformation under Fraser’s leadership. She has streamlined the bank’s structure, sold overseas retail businesses, and reduced headcount by 7,000 employees. These changes have improved the bank’s return on equity and driven a more than 20% boost in its share price this year, outperforming competitors like JPMorgan Chase and Bank of America.

At the virtual annual meeting, shareholders approved all of Citigroup’s management proposals, including executive compensation. However, Chairman John Dugan had to defend the board’s decision to award Fraser a 6% pay bump to $26 million for 2023. In response to shareholder concerns about Fraser’s pay rise amid employee layoffs, Dugan cited her transformation efforts and the bank’s increased return on equity, emphasizing that most of her compensation is equity-based and tied to performance.

Challenges and Employee Morale

While Citigroup’s restructuring has delivered some positive results, Fraser acknowledged the challenges posed by the reorganization and layoffs. When asked about employee morale, she stated, “We will be a smaller firm and we will need fewer people in roles, and we are going to manage through attrition and support our colleagues as they go through a change.”

Fraser’s efforts to streamline Citi’s structure aim to make it an easier place to work and improve morale by focusing on supporting clients. However, the CEO faces major hurdles, including regulatory problems, lackluster earnings, and an unsettled workforce.

Additional Insights and Sustainability Efforts

During the meeting, Fraser explained Citigroup’s reasons for exiting the business of financing U.S. municipalities, citing the economics of the business and the bank’s commitment to increasing shareholder returns. She reassured shareholders that the bank would continue funding infrastructure projects and remain the largest lender for affordable housing.

Fraser also addressed questions about diversity initiatives and climate lending, highlighting Citigroups CEO commitment to reaching $1 trillion in sustainable finance. The company screens clients for environmental risks and believes that sustainable principles are beneficial for business.

Despite these efforts, investors rejected all shareholder proposals, including those related to diversity in hiring and additional environmental screening of the bank’s activities.

Conclusion

Citigroups CEO, Jane Fraser, has been instrumental in reshaping the bank’s structure and navigating the challenges of a changing financial landscape. With U.S. consumers becoming more cautious and credit risks on the rise, Citigroup faces a complex environment that requires careful management and strategic decision-making. Fraser’s emphasis on bank overhaul, cost-cutting, and a focus on supporting clients will play a crucial role in Citigroups CEO success in the coming years.