10 to watch in 2019

Citigroup CEO Michael Corbat did all the right things, so to speak, in 2018: He shuffled management, set bullish financial targets, announced plans for a digital bank and played nice when the company decided to name an outsider the chairman — all things that are supposed to make restless investors (and Citi has long had its share) happy about the megabank’s direction.

Yet those moves set up at least two major questions to be answered in 2019: Will Corbat and his team be able to deliver, and how well will he get along with the new Chairman (and former Comptroller of the Currency) John Dugan?

Its fourth-quarter results are not due out until Jan. 14, but Citi — the onetime poster child of the financial crisis — seemed to be having had a good year through Sept. 30. Third-quarter profit rose nearly 12% on tax savings, loan growth, cost control and momentum in its credit card operations despite investment banking challenges.

It’s a pivotal moment for the cards operations. With commercial loan growth still in a funk, banks will need to lean heavier on consumer banking. Citi spent years reeling in credit card customers with promotional rates as low as 0%, and many of those rates have expired or were poised to. The key is whether Citi can use rewards and other sweeteners to keep many of those customers, who will be paying higher rates, from transferring balances to other financial providers.

Corbat’s year in part will be judged by the performance of his rejiggered management team. He named a new chief financial officer, Mark Mason, among other changes in consumer and investment banking.

Expectations are high. In September, soon-to-be-retiring Chief Financial Officer John Gerspach predicted that return on tangible common equity will reach at least 13.5% by 2020, up from a previous estimate of 11%. Annual efficiency savings will be about $2.8 billion, compared with the previous forecast of about $2.5 billion, Gerspach said. However, he warned in December that markets volatility could curtail short-term improvements in those metrics.

Yet the most interesting touchstone at Citi in 2019 will be the working relationship between Corbat and Dugan. In the spring, it looked like Corbat might add the chairman title, based on comments by outgoing chairman Michael O’Neill, but the board decided in November to split the jobs as corporate governance advocates normally advise.

Corbat appeared to harbor no resentment, issuing a statement that said Citi “shareholders have been well served by having an independent chairman."

Still, the pressure will be on the ex-regulator Dugan to avoid the compliance problems and abuses that have caused Citi to stumble in the past, and activist investors will undoubtedly urge him to push Corbat hard for greater returns and performance improvements. How the two men balance ambitious goals and prudent oversight could set the course for Citi for years.

This past year was another tumultuous one for Wells Fargo and its CEO, Tim Sloan.

Early in the year, the bank was slapped with an enforcement order from the Federal Reserve that prohibits it from increasing its assets above $1.95 trillion until it proves that it has a handle on the problems that have led to so many negative headlines — from the phony-accounts fiasco to abuses in auto and mortgage lending — over the last two-plus years.

In April, it was fined $1 billion by federal regulators for charging excessive fees on mortgage modifications and forcing car buyers to buy insurance they didn’t need.

And in December, the bank agreed to fork over $575 million to 50 states and the District of Columbia that will then use the funds to repay borrowers who had been harmed.

In a news release, Sloan said that the latest settlement, announced three days after Christmas, “underscores our serious commitment to making things right in regard to past issues as we work to build a better bank.”

What he didn’t say was whether it resolves the bulk of Wells’ seemingly endless regulatory woes, or if 2019 will bring more of the same.

At various times during 2018, the bank was reportedly under investigation for alleged infractions related to wealth management, commercial lending, foreign exchange trading and the selling of add-on products, and company officials have declined to provide updates on those probes. The bank’s shares lost nearly 25% of their value last year as revenue stagnated.

This steady drumbeat of bad news has raised questions about Sloan’s job security.

While board chair Elizabeth “Betsy” Duke has said that Sloan’s job is safe — “I think he’s the right CEO for Wells Fargo,” she said at the company’s annual meeting in April — the New York Post reported in September that Wells’ board early last year approached Gary Cohn, President Trump’s former top economic adviser, about replacing Sloan as CEO.

Wells refuted the report, and Cohn said at the time that he was not in negotiations with Wells. Tellingly, though, he never denied that a meeting took place.

Where this all leaves Sloan is anyone’s guess. In separate articles published in early January, editorial writers at the Pittsburgh Post-Gazette and the Charlotte Observer took Sloan to task for failing to fix the bank’s cultural problems and suggested that it may be time for the board to find a new leader.

Still, if the worst of Wells’ regulatory problems are in the past, and the bank’s financial performance rebounds, then chances are good that Sloan will survive. If not, his days could very well be numbered.

Here’s one way to think about Scott Powell’s role at the U.S. division of Banco Santander, the Spanish banking giant: Running an embattled auto lender is only half of his job.

Powell has the rare distinction of holding two CEO titles: CEO of Santander Consumer USA Holdings, the company’s Dallas-based subprime auto lender, as well as of its Boston-based parent company, which operates a $75 billion-asset bank with branches across the Northeast.

Since Powell took on the dual roles last year, his work at the Santander Consumer has been a major focus, as he sought to bring stability to a company that in recent years has been beset by accounting problems, executive departures and credit worries.

Perhaps the biggest question Powell faces is whether Santander Consumer survives as a stand-alone company if it loses its partnership with Fiat Chrysler.

The future of the partnership — in which Santander Consumer operates as a preferred lender for Chrysler dealers — was called into question in June, when Fiat Chrysler announced that it was planning to establish its own captive finance unit.

Analysts say the loss of the Chrysler Capital arrangement — a 10-year deal signed in 2013 — would be a huge blow for Santander Consumer. Roughly a third of the company’s loan book is made up of loans made through Chrysler dealers.

It could also pave the way for the full acquisition of the auto lender by its parent company. As of Sept. 30, Santander Holdings USA held a 68.3% stake.

Powell has other problems to attend to as well. Among them: the U.S. parent company is still working through regulatory order from the Federal Reserve, which calls for stronger oversight of Santander Consumer.

The thing to watch for will be how well Powell steers Santander Holdings through its remaining challenges — and if he can avoid new problems.