Despite topping Wall Street's expectations, Citi CEO Jane Fraser kicked off Friday's quarterly earnings call by addressing the bank's failing attempts to fix regulatory issues. Two days prior, the bank was fined $135.6 million for not fixing its data quality management quickly enough. She acknowledged the fines were "disappointing" to shareholders and employees and that the bank had fallen behind on its data efforts.
The rebuke marred an otherwise strong quarter with $20.14 billion in revenue, up 4% year over year, and $1.52 earnings per share. Since Citi was fined $400 million in 2020 for its poor risk controls and data management, it has spent at least $7.4 billion on a firm-wide initiative to overhaul its technology. This "Transformation" program has more than 12,000 employees.
When asked why Citi has fallen short with regulators despite this expense, Fraser said fixing Citi's outdated, fragmented technology required remedying decades of underinvestment.
"We've had a siloed organization that's prevented scale, a culture where a lot of groups were allowed to solve problems, the same problem in different ways. Fragmented tech platforms, manual processes and controls, and a weak first line of defense, too few subject matter experts," she said to analysts. "This is a massive body of work that goes well beyond the consent order, and this is not old Citi putting on Band-Aids. This is Citi tackling the root issues head-on."
She touted a few fixes by the Transformation team, such as automating controls for about 80% of trading volume to reduce the risk of manual error.
The Federal Reserve Board and the Office of the Comptroller of the Currency acknowledged that the bank has made some progress in satisfying their orders but pinpointed deficiencies with data management. To address this, Citi plans to increase its annual spend on Transformation by about $250 million to $3.15 billion, according to chief financial officer Mark Mason. The bank must also provide quarterly resource review plans to the OCC to ensure it is allocating enough resources to the effort.
"We will spend whatever is necessary," he said.
The challenge requires unifying Citi's scattered data sources and automating more processes to handle massive swathes of data. One regulatory report can require 750,000 lines of data, according to Mason.
"If you think about Citi, we've got 11,000 global total reg reports, so we've got to make sure that the data that's going into those reports is the quality of the data that we want it to be," he said, "but more importantly that we're doing it efficiently that it doesn't take thousands of people to reconcile that information."
Citi is prioritizing data fixes that relate to 15 to 30 reports required by US regulators, he added.
Fraser said Citi has already begun investing more resources into data efforts. Plans include hiring more experts and using AI to identify data anomalies quickly.
"I always said that a transformation of this magnitude over multiple years would not be linear," she said. "We have many steps forward. We have setbacks. We adjust, we learn from them, we move forward, and we get back on track."
