Citigroup (C) Presents at Goldman Sachs Conference

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John Gerspach – Chief Financial Officer

Few answers on what the Trump administration will do

“I have very few answers… Almost none”

 

Which is why the plan is to assume a similar environment to 2016 and be poised to react to changes

“we can’t build a plan on hope. So, our base plan going into next year is really looking very similar to an environment that looks like ‘16. We don’t know what the new administration is going to do. I think during the campaign trail, both candidates said a lot of things. And now exactly what gets rolled into policy and new laws and what gets repealed, we don’t know. We don’t know the timeframe in which they are going to handle things. We don’t know the priority in which they are going to handle things. So for us, it’s you build the plan based upon what you see and then you make sure that you are poised to take advantage of the opportunities…”

 

The reason behind interest rate increases is important  

“100% certain, 95% certain that we are going to get a rate increase next week. Fine, we had already assumed that. The key then becomes what happens after that and I think, even more importantly, why. If you are just getting rate increases for the sake of getting rate increases, that’s kind of nice. If those rate increases are because the economy really is growing at a faster rate, you do get stimulus as far as whether it’s tax reform or its infrastructure spending that would all be a big positive for us.”

 

No particular emerging market is an area of special concern

“we are no longer overly concerned about what’s going on with Brazil and Russia. When I look at the world, there really isn’t a spot in the emerging markets that really stands out as something that says, well, watch here. You watch everything, but there is no special area of concern right now.”

 

Europe deserves extra attention though

“I was going to say the one area that we actually are spending more time looking at right now is Europe… we are just not sure as to how that Brexit is going to be negotiated. So a lot of that is going to be determined over the course of the next several months and perhaps even years and therefore, it’s a little uncertain as to what the impact will be on the UK and uncertain as to what the impact is going to be on the remaining countries in the EU.”

 

1 million new accounts in the Costco portfolio

“Little bit of a rough patch in the beginning, but the Costco portfolio is performing extraordinarily well. Just this past weekend, we got to our 1 millionth new account since we have taken on the portfolio. So, we have added 1 million accounts in less than 6 months. Don’t take that as a run-rate, but it’s a great way to start. That’s pretty good. You take a look at how we are growing revolving balances with Costco. All of that is good. We have secured extensions on most of our key co-brand partnerships now.”

 

Yet, reserve build required for Costco rewards and rebates was high

“When you bring on a portfolio like that, it’s going to take you a good year before it really becomes accretive and there is probably 6 months after that before it normalizes… We had $150 million reserve build on Costco in the third quarter. That should be the highest reserve build that we ever have on Costco, so it should decline from here, but it’s still going to take until the second half of ‘17 before it’s really accretive to earnings.”

 

70% of Costco card spending is outside of Costco

“On the reward component for Costco is baked in there. There is nothing – there is no front end on that. So everything with the Costco portfolio as far as that value proposition that we put out in partnership with Costco is operating at or better than what we expected. We mentioned in the third quarter earnings that 70% of the spend on the Costco card is occurring outside of the Costco stores and that’s better than what we had planned.”

 

Compliance with the Volcker rule and regulations in general requires 29,000 workers

“When you take a look at our entire workforce of 220,000 people and you think about 29,000 people being involved in risk, compliance, audit, yes.”