Citi's regulatory nightmare still haunts CEO Jane Fraser

• Sen. Elizabeth Warren called for growth restrictions on Citi due to long-standing data issues.
• Citi CEO Jane Fraser denied the prospect of an asset cap after being pressed by two analysts.
• CFO Mark Mason said Citi is reevaluating its budget and strategy to fix regulatory problems quicker.

Citi topped Wall Street expectations this quarter, but CEO Jane Fraser was dogged by questions regarding the bank's regulatory fate. In early October, Sen. Elizabeth Warren urged the Office of the Comptroller of the Currency to place growth restrictions on Citi, arguing the bank had become "too big to manage."

Fraser was asked three times for reassurances that Citi did not and would not have an asset cap before answering the question.

"Let me be crystal clear," Fraser said after JPMorgan analyst Vivek Juneja raised the issue. "We do not have an asset cap and there are no additional measures other than what was announced in July in place and not expecting any."

Sen. Warren's rebuke came three months after the OCC and the Federal Reserve fined Citi $135.6 million combined for failing to make enough progress on data management problems that Citi had pledged to fix in 2020. This delay is despite Citi spending $7.4 billion from 2021 through 2023 on a "Transformation" initiative to overhaul the bank's technology and regain compliance. This year's budget exceeds $3 billion.

The Transformation is overseen by COO Anand Selva. Fraser touted a few of the Transformation's accomplishments, such as retiring more than 450 applications this year and getting the Federal Reserve to lift a 2013 order over anti-money laundering compliance problems.

Wells Fargo analyst Mike Mayo — who first asked about the asset cap — later pressed Fraser on why Transformation was behind, asking whether it was due to a lack of resources or a strategic issue. She said that the bank was fined due to shortcomings in data management, but had made progress in many other areas.

"We moved swiftly to address it," she said of the data issues. "And overall, I'm pleased with our progress."

Chief Financial Officer Mark Mason told Mayo that the bank was reevaluating its approach as required by the OCC. In July, the agency ordered Citi to provide a resource-review plan each quarter to ensure the bank is providing enough resources for the effort.

As to Mayo's question of whether the problem was budgetary or strategic, Mason said, "In many instances, it will be a little of both."

"Part of our process is in fact that — taking a regular review of what is on track, what is in the way of our milestones and deliverables, where we see things that are being delayed or going red, what is the underlying root cause or why," he added. "Is it a resource issue where we need to put more dollars in people or technology to it? Is it a process issue where we need to reconsider our approach?"

Mason said Citi has modified how data issues are resolved, "ensuring that there's engagement" from all the units involved. While the Transformation has 13,000 dedicated employees, the work required by regulators is often conducted by employees who sit in other business lines.

Citi has also made leadership changes to speed up the data effort in September, tapping Tim Ryan, the new tech head, to lead it alongside Selva.