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The one big bank that had a challenging week
Investors cheered earnings from many of the biggest banks this past week, with one notable exception: Citigroup.
The stock of the nation’s third-largest lender fell 5% on the day of its third quarter earnings announcement despite beating expectations and showing revenue growth across all five of its divisions.
Through Thursday’s close it was up just 0.8% for the week, while other big-bank rivals from Bank of America (BAC) to Morgan Stanley (MS) churned considerably higher on renewed optimism about the industry.
A big reason for Citigroup’s challenging week was the confusion that took hold during an exchange CEO Jane Fraser had with analysts on Citigroup’s earnings call Tuesday.
It happened when Fraser did not immediately refute a question from analyst Mike Mayo about whether regulators had placed a new asset-cap restraint on Citigroup. After the bank’s stock fell, she later returned to the subject and tried to end the speculation about any new regulatory handcuffs.
“Let me be crystal clear: We do not have an asset cap, and there are no additional measures,” Fraser said. “And not expecting any,” she added.
The exchange was a reminder of the pitfalls facing Citigroup as it tries to convince investors that it has its compliance problems under control and that regulatory scrutiny won’t interfere with a multiyear transformation of the company that began last year under Fraser.
The questions from analysts about the possibility of new constraints were spurred in part by a letter that Sen. Elizabeth Warren (D-Mass) sent earlier this month to the Office of the Comptroller of the Currency.
The senator urged the bank regulator to impose new growth restrictions on Citigroup and consider forcing a breakup if it doesn’t adequately reform its long-troubled risk management and internal controls systems.
“It may be time to break up Citi,” she said in the letter.
The idea of growth restrictions is a reference to a so-called asset cap that sets a ceiling on how big a bank can get until it satisfies regulators that any outstanding concerns have been resolved.
Such a growth restriction was imposed on the US retail operations of Canadian bank Toronto Dominion (TD) last week after it pleaded guilty to violating anti-money-laundering regulations.
Wells Fargo (WFC) has also been operating under an asset cap since 2018. It was imposed after a federal investigation uncovered millions of bank and credit card accounts that were opened for customers without their knowledge to meet sales goals.
‘Will there be headwinds? Yes.’
Citigroup is certainly no stranger to challenges with regulators, even recently.
In July, its overseers hit the bank with $136 million in fines for failing to make sufficient progress on consent orders imposed by the Federal Reserve and the OCC in 2020. Earlier in the summer, regulators also found weaknesses in Citigroup’s “living will.”
There have been signs of some progress on old problems too. Earlier this month, the Fed said it had ended a decade-old enforcement action it filed against Citigroup in 2013 relating to anti-money-laundering policies.
What Mayo wanted to know on the Tuesday conference call with bank management was whether Citigroup can bring down its expenses while investing in regulatory, compliance, and data initiatives the bank needs to escape the 2020 consent orders — and whether it has or is facing the “asset cap.”
CFO Mark Mason tackled the questions first. He pointed out that the bank has said it plans to cut its expenses from $53.8 billion to a range of $51 to $53 billion in 2026. That cost reduction is predicated on Citigroup being able to unwind certain international business units in addition to reducing its headcount.
“Will there be headwinds? Yes,” said Mason, referencing the bank’s multiyear transformation effort. “We’re also investing in risk and controls and regulatory spend to support improving our operations,” he added.
Fraser discussed how Citigroup was “focused on simplifying our operational model, modernizing our infrastructure, risk, and controls, and all of that reduces risk as we go” but didn’t directly address the asset cap.
Mayo followed up by asking if Citigroup’s regulatory issues were a client or internal problem and asked more about a possible asset cap.
“We are working closely with our regulators. We incorporate their feedback, as well as our own lessons learned if we fall behind in an element of the consent orders,” said Fraser. “So I feel very comfortable.”
It wasn’t until Fraser was asked a third time about an asset cap 30 minutes after the initial question that she shut down the speculation.
“There was a bit of a pause and then some apparent confusion among investors before management was able to clarify unequivocally that there is no asset cap and that there are no additional restrictions beyond what has already been disclosed,” Piper Sandler analyst Scott Siefers said a note.
Siefers didn’t change his $73 price target for Citigroup next year.
‘Buy!’
Citigroup’s third quarter results did beat expectations and its Wall Street unit did well as dealmaking optimism surged. But the bank’s profits and net interest income both fell from a year earlier.
Some investors may still be worried about a critical measure of Citigroup’s transformation plan under Fraser: a profitability metric known as ROTCE (return on tangible common equity).
For its third quarter Citigroup posted a 7% ROTCE, down from 7.2% last quarter and far from the 11% to 12% it has vowed to reach in 2026.
“Slogging along at a ~7% ROTCE, there’s no question that Citi is a laggard and thus a suitable punching bag for shorts,” said a note from Oppenheimer, which lowered its price target by $1 to $91.
“That said, we think that Fraser and Mason have gotten expectations to where they can confidently beat them.”
Other analysts also offered some optimism.
“Despite the increased regulatory overhang on the stock in recent months, we note the progress that management continues to make in order to boost franchise profitability,” Bank of America analyst Ebrahim Poonawala said in a Wednesday research note, pointing to Citi’s improving wealth unit.
Even Mayo, who was the first to ask this week about an asset cap, had some nice things to say afterward.
“Management’s comments should put this issue to rest barring some unforeseen event,” he said in a Tuesday research note following the call.
Wells Fargo analysts currently expect Citigroup to achieve a 10% ROTCE target in 2026, and Mayo said he still thinks Citigroup can get there.
“Buy! Especially If You Left Before the End of the 3Q24 Call!!” he wrote.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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The habits of millionaires are a topic of interest when it comes to financial advice. After all, unless they received a large chunk of money as an inheritance or gift, most millionaires had to be smart with their money to get where they are.
Learning how millionaires accumulate wealth — and where they keep it — can provide valuable insights for anyone focused on growing their money. One common question is whether or not millionaires keep money in checking accounts.
Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC’s , that portion was about 24% in 2023. While this doesn’t necessarily mean a quarter of a millionaire’s wealth is sitting in a checking account, it does indicate the importance of maintaining liquid assets. And a checking account can be a helpful tool for doing so — whether or not you’re a millionaire.
Anyone, regardless of net worth, can find value in a checking account. Checking accounts allow unlimited deposits and withdrawals, check writing, bill pay, and other features to help you manage your money day-to-day.
While millionaires may keep large portions of their wealth in other deposit accounts and investments, some may use a checking account to manage daily spending. Millionaires also recognize the importance of having liquid assets, like funds in checking and savings accounts. Accessible cash lets you cover unexpected expenses without needing to sell off investments, borrow money, or pay a penalty for tapping your retirement savings early.
The amount of money a millionaire keeps in their checking account is highly personal and depends on preference. However, because checking accounts rarely earn competitive — if any — interest, some millionaires intentionally limit their checking account balance. Some may choose to keep the bare minimum, such as a couple of months’ worth of essential expenses, in their checking accounts, keeping the rest of their wealth in more lucrative assets.
Regardless of preference, it would be surprising for a millionaire to keep more than $250,000 in a single checking account. That’s because the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per institution, per account holder.
While millionaires may use checking accounts for day-to-day financial transactions, they may also use some of the following accounts in addition to, or in place of, a checking account:
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Savings accounts: Like checking accounts, savings accounts provide a high degree of liquidity, allowing you to access your money as needed for regular or unexpected expenses. High-yield savings accounts, in particular, give millionaires an extra bang for their buck. Some of the best accounts currently offer rates upwards of 4% versus the national average savings account rate of 0.46%.
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Cash management accounts: Cash management accounts (CMAs) pay competitive interest rates while maintaining more accessibility than a savings account. Some CMAs come with a debit card and ATM access, and many provide extended FDIC coverage limits by “sweeping” additional deposits into partner banks. CMAs are available at brokerages, not banks, facilitating easy transfers between investment and cash accounts.
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Money market accounts: Similar to CMAs, money market accounts combine features of checking and savings accounts, often paying competitive interest rates and providing check writing and ATM access. Banks and credit unions offer these accounts, which are federally insured. Minimum opening deposit and minimum balance requirements are often higher than those for standard savings accounts.
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Retirement and tax-advantaged accounts: Millionaires understand the importance of investing for their later years, and retirement accounts such as 401(k)s and IRAs allow them to do so in a tax-advantaged way. Some retirement accounts, like 401(k)s, are offered by certain employers. Others, such as traditional and Roth IRAs, are available to anyone.
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Brokerage accounts: The IRS limits contributions to tax-advantaged accounts, and millionaires typically invest beyond these limits. They do so with taxable brokerage accounts, which can hold investments such as stocks, bonds, and mutual funds without contribution limits.
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Other investments, like real estate, commodities, and art: Some millionaires may decide to diversify their portfolio with other investment types. These could include real estate investments, such as investment properties or real estate investment trusts (REITs); commodities, such as metals or energy products; art; and more.
The amount of money millionaires keep in their checking accounts depends on personal preference. While some millionaires may keep six figures in their checking account to maintain a comfortable cash cushion, others may choose to keep the bare minimum in checking. You wouldn’t expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren’t typically insured.
There’s no single bank that’s a favorite among millionaires; it’s another matter of preference. However, millionaires are likely to bank with institutions that offer private banking to those who meet specific financial requirements. Private banking may include wealth planning services, waived fees, dedicated bankers, and additional perks. J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.
Billionaires may have checking accounts, but they likely use accounts that cater to ultra-high-net-worth individuals. These accounts may come with perks such as a dedicated banker, waived fees, and competitive interest rates. Alternatively, billionaires may opt for a cash management account with higher FDIC insurance coverage limits and checking account features.
No rule says you can’t have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere. One alternative is a cash management account, which acts like a checking account but generally earns higher interest. Plus, many cash management accounts insure more than the standard $250,000 by sweeping funds into multiple partner banks.
Lumen Technologies, Inc. (NYSE:LUMN) shares are trading higher on Monday after the company announced it is partnering with Meta Platforms, Inc. (NASDAQ:META) to significantly increase Meta’s network capacity and help drive its AI ambitions.
Lumen’s partnership offers Meta enhanced flexibility with secure, on-demand bandwidth, supporting its complex computing requirements and enabling it to serve billions daily.
Ashley Haynes-Gaspar, Lumen’s EVP and chief revenue officer, said, “We’ve transformed our company to meet this demand. As Meta’s customers use more AI services across its platforms, we’re helping provide Meta with a seamless, effortless, and flexible network that will meet its growing needs.”
Lumen Technologies said its Private Connectivity Fabric enables long-term network capacity for Meta’s AI.
Alex-Handrah Aimé, director of Meta’s Network Investments stated, “Our AI tools are performing increasingly more complex tasks including enabling conversations in a variety of languages and translating text to images in real time, while helping people interact with the world around them in new, immersive ways.”
Lumen will report third quarter 2024 results on November 5, 2024.
Investors can gain exposure to the stock via Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) and First Trust Cloud Computing ETF (NASDAQ:SKYY).
Price Action: LUMN shares are up 9.50% at $7.38 at the last check Monday.
Image via Shutterstock
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This article Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions originally appeared on Benzinga.com
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