Q4 2025 Earnings Call Contradictions: Shifting Guidance on Transformation Expenses, Efficiency Ratios, and Capital Allocation

Date of Call: Jan 14, 2026

Financials Results

• Revenue: $86.6B adjusted, up 7% YOY (excluding Russia divestiture impacts)
• EPS: $1.81 adjusted EPS (excluding Russia notable item)

Guidance:

• NII ex Markets expected to be up between 5% and 6% in 2026, driven by volume growth and mix.
• Target efficiency ratio around 60% for the full year 2026.
• Continued fee momentum across businesses expected to drive growth in NIR ex Markets.
• Card NCLs expected to remain within 2025 ranges.
• Markets revenues expected to be relatively flat year-over-year.
• Share buybacks to continue against the $20 billion buyback program.

Business Commentary:

Revenue Growth and Operating Leverage:

• Citi reported an adjusted revenue growth of 7% for the full year 2025, marking the strongest growth in over a decade. Each of the five businesses achieved record revenues.
• This growth was driven by investments in the franchise, leading to solid top-line growth and positive operating leverage.

Transformation and Efficiency Improvements:

• Over 80% of Citi's transformation programs are at or near the target state, leading to significant improvements in operational capabilities and cost efficiency.
• The removal of the OCC's Article 17 of the consent order in December 2025 and the integration of AI tools and automation contributed to these improvements.

Wealth Management Performance:

• Wealth management delivered a 14% revenue growth with an RoTCE of over 12% for 2025.
• This performance was driven by strategic investments in talent, product innovation, and partnerships, such as the collaboration with BlackRock, enhancing the open architecture platform.

Markets Division Momentum:

• Markets revenues saw an 11% increase for the full year 2025, with particular strength in fixed income and equities.
• Growth was attributed to high-return, low RWA activities, such as spread products and prime services, along with strategic investments in product capabilities.

Capital Utilization and Return:

• Citi ended 2025 with a CET1 ratio of 13.2%, allowing for a total capital return of over $17.5 billion, the highest since the pandemic.
• The strong capital position enabled continued share repurchases and dividends, supporting shareholder returns while maintaining flexibility for future investments.

Sentiment Analysis:

Overall Tone: Positive

• CEO described the quarter as 'another strong quarter to close out what was a very good year of progress.' She noted 'visible momentum across the firm' and stated 'we are now decidedly on the front foot.' CFO expressed confidence in the 5% to 6% NII ex Markets growth and noted 'all of these businesses are humming.'

Q&A:

• Question from Glenn Schorr (Evercore ISI): Concerns about Markets revenues being flattish despite growth in assets like PB balances and loans, and the RoTCE at 6%.
  Response: Management attributed the flat revenue to tough year-over-year comparisons from a strong 2025 Q4, but noted strong full-year revenue growth. Higher RoTCE is due to optimized balance sheet deployment in high-return areas like spread products and prime services, and lower allocated capital.

• Question from Glenn Schorr (Evercore ISI): Clarification on the change in efficiency ratio target from below 60% to around 60%.
  Response: CFO explained that the move allows flexibility to invest in the franchise beyond 2026 to support long-term growth and close the gap with peers, while still aiming for positive operating leverage and the 10% to 11% return target.

• Question from Michael Mayo (Wells Fargo): Elaboration on the over 80% of transformation progress being at/near target state, and what remains.
  Response: CEO stated that the work relates to safety and soundness areas like compliance, risk, controls, and data. The OCC's removal of a consent order amendment is a positive sign. Remaining work involves validation by internal audit and regulators, which is expected to create capacity for higher returns.

• Question from Ebrahim Poonawala (BofA Securities): Inquiry about the gap between Citi and best-in-class peers in investment banking and capital markets, and the plan to close it.
  Response: CEO asserted that Citi is investing in all businesses to be a top player, with progress in Services, Markets, Banking, Wealth, and Cards. The focus is on long-term investment to improve competitive position and returns.

• Question from Ebrahim Poonawala (BofA Securities): Request for details on fee revenue growth and Markets NII outlook.
  Response: CFO expects continued fee growth from banking wallet expansion, wealth investment revenues, and services momentum. Markets revenues are expected to be relatively flat, but NII ex Markets is forecast at 5% to 6% driven by loan and deposit volume growth.

• Question from Betsy Graseck (Morgan Stanley): Question on the better-than-expected NII outlook increase from 5.5% to 5%-6% and actions to reduce asset sensitivity.
  Response: CFO attributed the better outlook to strong 2025 loan and deposit growth momentum, particularly in cards and wealth, and the reinvestment of maturing securities at higher yields. Actions to reduce asset sensitivity involved dynamic portfolio management, primarily in non-U.S. dollar assets.

• Question from James Mitchell (Seaport Research Partners): Inquiry about capital return pace and deposit growth sustainability.
  Response: CFO stated the target is a 100 bps management buffer (around 12.6% CET1), with more buybacks expected in 2026. Deposit growth is driven by client relationships, multinational expansion, and targeting the commercial middle market, seen as sustainable.

• Question from L. Erika Penala (UBS): Question on the credit card rate cap proposal and its potential impact.
  Response: CEO opposed a rate cap, arguing it would severely restrict credit access and consumer spending, disproportionately affecting lower-income consumers. Citi provides lower-cost card options and prefers collaborative solutions to expand affordable credit.

• Question from L. Erika Penala (UBS): Follow-up on expense savings from lifting the consent order and Markets NII placeholder.
  Response: CEO clarified that expense reductions occur as individual bodies of work are completed, not all at once. CFO reiterated that Markets revenues are expected flat, with NII likely up due to higher-return financing activities.

• Question from John McDonald (Truist Securities): Summary of efficiency journey and expense flexibility.
  Response: CFO confirmed there is expense flexibility to hit the 60% efficiency ratio target in 2026 and that it is a waypoint, not the destination. Long-term efficiency will be discussed at Investor Day, balancing investment needs with return goals.

• Question from John McDonald (Truist Securities): Follow-up on card NCL range and delinquency trends.
  Response: CFO noted no unexpected trends in delinquencies and that the range provides cover for potential macro uncertainties, but current portfolio performance is in line with expectations.

• Question from Kenneth Usdin (Bernstein Autonomous): Inquiry about Services deposit growth and macroeconomic factors.
  Response: CFO expects mid-single-digit total deposit growth for the firm in 2026, with continued strength in Services, driven by client relationships and pricing strategies, despite lower rates.

• Question from Gerard Cassidy (RBC Capital Markets): Update on Mexico IPO and regulatory approvals.
  Response: CEO stated the sale of a 25% stake to an anchor investor was accelerated and well-received. The next steps involve selling smaller stakes, with IPO timing and structure dependent on market conditions to maximize shareholder value.

• Question from Gerard Cassidy (RBC Capital Markets): Question on weakness in cash equities within Markets.
  Response: CFO attributed the weakness to a tough comparison against a very strong Q4 2025, which included significant alpha trades.

• Question from Saul Martinez (HSBC): Inquiry about Wealth business progress and future EBIT margin goals.
  Response: CEO highlighted strong Wealth performance with revenue up 14% and RoTCE over 12%. Strategy focuses on being the lead investment adviser, attracting talent, and partnerships. The medium-term EBIT margin target is 20%, with a longer-term goal of 25%-30%.

• Question from Christopher McGratty (Keefe, Bruyette, & Woods): Question on the balance between profitability level and timing in communicating new targets.
  Response: CFO and CEO both indicated that both factors are important—aiming for returns well above cost of equity and having a sense of urgency—but did not commit to specific forward-looking targets, deferring details to Investor Day.

Contradiction Point 1

Transformation Expense Outlook

Future expense trajectory for transformation programs is presented differently, impacting financial forecasting and strategic clarity.

What remains of the transformation progress, and how much relates to safety and soundness? - Michael Mayo (Wells Fargo Securities, LLC)

2025Q4: The transformation focused on compliance, risk, controls, and data... Remaining work involves completing these areas, validating with internal audit, and awaiting regulatory approval. - Jane Fraser(CEO)

Will the ~$3.5 billion transformation investment become a regular BAU expense or remain a one-time initiative? - John McDonald (Truist Securities, Inc.)

2025Q3: Transformation expense will come down in 2026 due to progress in programs. - Mark Mason(CFO) & Jane Fraser(CEO)

Contradiction Point 2

Efficiency Ratio Target Flexibility

The target for operational efficiency is described with different levels of specificity, affecting performance metrics and investor expectations.

Has the efficiency ratio target changed from below 60% to around 60% on Slide 20, and if so, why? - Glenn Schorr (Evercore ISI Institutional Equities)

2025Q4: The shift from 'below 60%' to 'around 60%' provides flexibility. - Mark Mason(CFO)

Can expenses decline in 2026 despite strong revenue growth, and will the efficiency ratio be below 60% by year-end? - John McDonald (Truist Securities, Inc.)

2025Q3: An efficiency ratio below 60% is targeted for 2026. - Mark Mason(CFO)

Contradiction Point 3

Capital Allocation & Buyback Confidence

Guidance on capital return confidence shifts from firm performance-driven to includes regulatory flexibility, altering the perceived drivers of financial strategy.

Given CET1 is 160 bps above the minimum, are you still targeting a ~100 bps buffer? What is the expected pace of buybacks over the next few quarters? - James Mitchell (Seaport Research Partners)

2025Q4: The target buffer is 100 bps... The firm plans to continue buybacks in 2026... No specific quarterly buyback guidance was provided. - Mark Mason(CFO)

Is the $4B guidance Citi-specific or due to regulatory clarity? - Christopher McGratty (Keefe, Bruyette, & Woods, Inc.)

2025Q2: The confidence is primarily driven by the firm's strong performance and earnings momentum. The regulatory direction... provides flexibility, not the primary driver. - Mark Mason(CFO)

Contradiction Point 4

Expense Targets & Flexibility

Stance on expense target achievability shifts from absolute certainty to acknowledging need for flexibility, changing the strategic approach to cost management.

Is the 60% efficiency ratio an interim target, and can you adjust expenses to achieve it? - John McDonald (Truist Securities, Inc.)

2025Q4: Yes, there is expense flexibility to hit the 60% target for 2026. The focus is on delivering 10-11% RoTCE. - Mark Mason(CFO)

Is the sub-$52.6B 2026 expense target still valid? - John Eamon McDonald (Truist Securities)

2025Q2: The $52.6 billion expense target for 2026 remains. The focus is on supporting revenue momentum... The company will not compromise growth investments. - Mark Mason(CFO)

Contradiction Point 5

Transformation Program Spend & Benefits Timing

Outlook for transformation cost trajectory and associated expense savings shifts from clear near-term decline to indefinite, project-based releases, affecting financial planning.

Will expense savings from the completed consent order work be gradual or a lump sum for reinvestment? - L. Erika Penala (UBS Investment Bank)

2025Q4: Expense reductions will occur as specific bodies of work are completed, not all at once. - Jane Fraser(CEO)

When the OCC consent order is lifted, what expenses related to transformation costs will be freed up? - Erika Najarian (UBS)

2025Q2: Spending on transformation is expected to trend down in 2026 and beyond as programs are completed and validated. - Mark Mason(CFO)