Results-driven Fraser just the ticket for fixing Citi, associates say
Missed financial targets. Mounting investor frustration. A mistaken $900 million payment that could lead to federal enforcement action. And a festering pandemic that continues to not only upend lives of employees and customers, but also lay bare deep racial and economic inequities.
The list of challenges Jane Fraser will face when she steps into the CEO job at Citigroup in February is daunting. But some of those who know the Scottish-born banker, whose promotion will make her the first woman to lead a major U.S. bank, say she is ideally suited for the task of mending fences with regulators and investors and moving the company forward.
“She is a person who, when it comes to managing under difficult circumstances, has a history of doing that,” said David Bailin, chief investment officer at Citi Private Bank, whom Fraser hired away from Bank of America in 2009. “What will define her time in office will be both specificity and transparency. … Her voice will be, ‘What do we need to do?’ … and ‘Here’s where we’re at and where we need to go.’ ”
Whatever plan she puts in place needs to happen quickly, according to Brian Kleinhanzl, an analyst at Keefe, Bruyette & Woods who covers the $2.2 trillion-asset company. That’s because investors are growing weary of compliance issues and waiting for higher returns from an organization whose stock price trades below tangible book value. At 0.56, its price-to-tangible-book ratio is well below that of many of its peers; JPMorgan Chase’s ratio is 1.41, according to data tracked by Reuters.
“I think one of the things [Fraser] has to be aware of is that there is general frustration about how these issues have lingered for a long period of time,” Kleinhanzl said. “So she may not have a long time to get settled before she has to come up with a plan. She’s going to have to hit the ground running.”
Fixing trouble spots is something of a specialty for Fraser, a former partner at the consulting firm McKinsey & Co. who joined Citi’s corporate and investment banking division in 2004. Over the past 16 years, she oversaw the massive restructuring of Citi’s global mergers-and-acquisition business during the financial crisis, which involved the sale of about $1 trillion of assets; helped reconfigure the private bank after the sale of Smith Barney in 2012; and moved from London to St. Louis to lead the company’s mortgage business following intense government scrutiny of its foreclosure, robo-signing and other practices.
For four years, Fraser was in charge of Citi Latin America, overhauling business structures, controls and ethics across 23 countries including Mexico. She downsized retail banking and credit card businesses in markets such as Brazil and Argentina and led a $1 billion investment in Citi’s Mexican subsidiary, Banamex. In October 2019, she was named president of Citi and CEO of the U.S. global consumer banking, where she is in charge of consumer businesses in 19 countries, leading retail banking and wealth management, credit cards, mortgages and operations and technology for those units.
Since March, she has been in charge of Citi’s North American response to the COVID-19 pandemic. At one point, about 90% of the company’s workforce was working remotely, and most employees are still based at home.
When she succeeds Michael Corbat as CEO, Fraser will have to put her fixer-upper skills to work across the entire corporation. According to colleagues and industry watchers, at the top of the to-do list will be an overhaul of Citi’s internal risk management practices and controls, which are back in the spotlight following the revelation last month that Citigroup accidently paid $900 million to creditors of the cosmetics company Revlon.
A recent Wall Street Journal story said the federal regulators plan to hit Citi with a consent order that would require it to improve its risk management technology and procedures to be more adept at catching problematic transactions, risky trades and other threats. It is unknown if there will be a fine.
CitiMortgage General Counsel Victoria Kiehl said Fraser is “big on compliance and risk.” The two met in 2013 when Fraser took the mortgage job and transferred to St. Louis. Her impact was immediate—just a day or two after the company announced her promotion, Fraser was on the ground in her new city, going door to door to meet her new colleagues and making an effort to understand the ins and outs of the business.
“I had created a book of legal issues, and in 2013 we had a lot,” Kiehl said. “The book was probably three inches thick. Jane read the whole thing and asked all kinds of questions about it. From the get-go, she just wanted to know everything.”
Fraser has not done any media interviews since the CEO transition was announced Sept. 10. In a memo to colleagues that day, she said the company needs to “invest in and enhance [its] infrastructure for a fully digital world; we need to move from remediating to fundamentally transforming our risk and control environment; and we need to ensure that we have a culture which demands excellence in these areas because it will ultimately make us more competitive and improve our ability to serve our customers and clients. I am excited for the bank we are building.”
The details of how Citi will achieve those standards are sure to be closely watched by investors. In January, the company revised its return-on-tangible-equity targets for 2020. Instead of 13%, it lowered its expectations to 12% to 13% for the year. Then, like so many other banking companies, it abandoned those targets as the pandemic rolled across the country.
Last week, its shares fell nearly 13%. The decline followed the CEO transition announcement and news of the looming enforcement action.
Citigroup has been taking heat from a major investor, the activist hedge fund ValueAct, CNBC reported. ValueAct was discouraged by the company’s financial performance under Corbat, especially with the missed or changed targets, CNBC said, citing sources with knowledge of the matter.
ValueAct did not respond to a request for comment. A Citi spokeswoman said that “[Citi has] had a constructive relationship with ValueAct over the past several years” and continues “to be an important partner” with Citi today.
Part of the company’s efforts to reward shareholders were set back by the pandemic, the spokeswoman said. In 2017, Citi set a goal of returning $60 billion in capital over three stress-test cycles. It was set to exceed that goal, but halted share buybacks in March alongside other big banks as the health crisis unfolded, she said. It returned $58.4 billion between the third quarter of 2017 and the second quarter of 2020, she said.
Kleinhanzl, who has not met Fraser, said he is aware of her track record within the organization and that it is well suited to dealing with the challenge she faces.
“The areas that she’s gone into are typically areas that need to be turned around, and she’s made some hard choices and invested in areas that were opportunities for high returns,” he said. “Now [investors] expect her to take that strategy and apply it to the whole of Citi. Maybe it’s shrinking the bank or defining the businesses they don’t need to be in. … I think management has to define what it wants Citi to be.”
Natasha Lamb, managing partner of the activist investment firm Arjuna Capital, said appointing Fraser CEO may help Citi address some of its challenges because she will bring a different perspective as a woman. Under pressure from Arjuna, which owns shares of Citi stock, it became the first Wall Street bank to disclose gender and racial pay gaps first on an adjusted basis, then on an unadjusted basis.
Lamb, who also has not met Fraser, praised the company’s choice while acknowledging there is a lot of work to do, especially in risk controls.
“This is not some great solve that’s going to solve all of Citi’s problems, but I do think it is a necessary step and the right step forward for the bank to address these challenges,” Lamb said.
Fraser’s blend of experiences should serve her well atop a company that today operates in more than 90 countries. Clifford Rossi, who met Fraser when he was chief risk officer for Citi’s consumer lending group, said she “has a strategic vision, she knows the business very well and she’s able to execute.”
That knack for strategic thinking will be particularly important for Citi’s CEO in the current economic environment, since low interest rates are crimping bank’s profit margins, Rossi said.
Citigroup reported a decidedly profitable second quarter, with revenues of $19.8 billion, up 5% on fixed income and markets and investment banking. Meanwhile, operating expenses of $10.4 billion fell 1%.
Bailin said Fraser will be very specific about laying out financial targets and meeting the metrics. He pointed to her experience overhauling the Latin America business and leading Citi through the pandemic as key examples of “very big challenges with great complexity” that she has tackled in her career.
“She has hands-on experience dealing with the most difficult things we’ve had to deal with,” he said.
Cecilia “Cece” Stewart, a former Citi executive who worked with Fraser in the early 2010s, called her a great leader who works hard and is also exceptionally smart.
“I always felt like she just gave 100% every day,” Stewart said. “She sets high standards. But she doesn’t just articulate high standards. She has to figure out how it happens.”
Stewart said Fraser also has the people skills needed for the CEO role.
“You knew Jane was going to do big things, great things,” she said.
Fraser’s personality is a big factor in her success, both Bailin and Kiehl said. Last December, she unexpectedly popped into a surprise office birthday party for Bailin and immediately “the room lit up,” Bailin said.
“If you walk around the St. Louis office, to this day the amount of pictures with Jane that people have hung up, you see that all over the place,” Kiehl said. “She just creates followership, which is electrifying.”
Kevin Wack contributed to this article.