Citigroup seeks faster end to U.S. consent orders as growth plans stay constrained

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Citigroup seeks consent order resolution

Highlights

Citigroup aims to submit audit paperwork to the Fed and OCC by year-end or Q1 to expedite removal of costly consent orders constraining growth.
Citi spent $3.3 billion on transformation work in 2023, with analysts and investors closely watching for consent order resolution that could free resources and increase stock appeal.
Despite emphasizing organic growth, Citi's wealth management and retail expansion remains limited by regulatory scrutiny until core risk and control deficiencies are fully addressed and consent orders lifted.

Regulatory push and audit timeline

As reported by Reuters, Citigroup is aiming to move swiftly through the final stages of its remediation work with the Federal Reserve and the Office of the Comptroller of the Currency, according to two people familiar with the matter. As recently as the summer, the bank was targeting submission of paperwork to regulators before the end of the year, or in the first quarter, one of the people said.

The bank is preparing a comprehensive audit package for regulators in an effort to avoid approval delays, the person said. It then plans to wind down part of its remediation structure, the two sources said, a step that would put Citi on a path toward having the consent orders lifted.

Those orders require the bank to fix weaknesses in risk management, data governance and related controls. Chief Executive Jane Fraser has said Citi is about 90% complete on the work required under the orders, although the bank has not acknowledged an official timeline for their removal.

One person familiar with the matter said Citi is under pressure to complete the process as soon as possible, but encountered a brief audit-related delay over the summer. That delay involved an internal review of data tracing work, specifically the ability to track the origin of aggregated accounts, and the person said rigorous internal audits are critical to streamlining the regulatory review process.

Citi said it would not comment on any motivation for exiting the consent orders quickly and added that such a decision rests with regulators. A Citi spokesman said the bank's operating model is fundamentally different from when its transformation began and that it remains focused on making risk and control changes sustainable.

Growth constraints and investor implications

Regulatory remediation has remained a costly distraction for the third-largest U.S. bank, while competitors benefit from lighter-touch banking policies, analysts say. Filings show Citi spent $3.3 billion on transformation work last year, and the bank is set to report earnings on Tuesday.

Analysts and investors are focused on the timing of any exit from the consent orders because it could free resources and broaden investor interest in the stock. Wells Fargo analyst Mike Mayo said such an outcome would validate Citi's restructuring process, while Bank of America analyst Ebrahim Poonawala said the bank's wealth business still has significant room for improvement despite its strategic importance.

People familiar with the matter said Citi's wealth management and retail businesses could benefit from greater scale, potentially through additional branches or an acquisition of a wealth manager. While expansion is not formally barred under the consent orders, such moves face closer regulatory scrutiny, increasing the bank's incentive to satisfy outstanding demands quickly.

Tim Long, a former deputy comptroller at the OCC, said it is difficult for a bank to focus on meaningful growth before fixing core problems. He added that it makes sense for Citi to try to finalize the orders under the current administration and avoid the risk of regulatory changes and a different supervisory approach.

Still, Citi has publicly emphasized organic growth. After market speculation earlier this year about a possible deal was poorly received, Fraser told investors on an earnings call that the bank is interested only in organic growth.

Citi's remediation effort traces back to the mistaken $900 million transfer to Revlon creditors, which led the Fed and OCC in 2020 to order fixes to longstanding control and data issues. The bank was fined $400 million at the time, and four years later the OCC fined it again over delays in addressing data problems and required a new remediation plan. Any lifting of the consent orders still requires sign-off from both the Fed and the OCC.

S&P Global Ratings’ RXG bank rating methodology, which we previously covered, outlines a way to assess a bank’s standalone creditworthiness without assuming extraordinary implicit government support. The framework is positioned as part of the broader shift under Basel III, giving investors and other market participants another lens for judging bank strength as regulatory standards and supervisory expectations evolve.

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