Citigroup Inc (C) September 14, 2026 Conference Transcript

For our last presentation today, very pleased to have Citigroup. As a reminder, on the table to my left in the back are our posters and marketing decks that we've been advertising all week, so feel free to grab hard copies on your way out. Wrapping up today's session, very pleased to have Citigroup from the company, Gonzalo Lucchetti, Chief Financial Officer for the past six months or so. Prior to that, he was Head of U.S. Personal Banking. Welcome.

Thank you for having me. Thank you, Jason.

Maybe the best place to start is kind of big picture. We'll start on the corporate side of the house, but we've seen a constructive backdrop of corporate activity for much of the year. Just maybe update us in terms of what you're currently hearing in terms of client sentiment and the like.

Yeah. Thanks. So we continue to see strong financing activity. capital markets are broadly open across both equities and bonds there's a bit of a bifurcation with certain industries like technology ai of course shipping also on the back of some of the supply shortages and energy where you're seeing a fair bit of capital intensive needs and projects that are coming up versus some other pockets like auto or consumer where you see margin pressure Of course, we're watching out for geopolitics and what role that can play, or AI as well. But it's also true, and we have to accept that the global economy and the U.S. economy, they both have navigated quite well so far in terms of adapting to some of the market dislocations to date.

I guess maybe on the consumer side of the house, how would you kind of gauge the health of the U.S. consumer at this point, and just what kind of activity levels are you seeing from that perspective?

Yes. Put simply, resilience. Consumers continue to spend. Consumers continue to pay their bills on time. That's the simplest version. So if I talk about spend for a second, we are seeing around 6 percent year-on-year spend momentum. That's more or less in sync with what we saw in prior quarters. I'm excluding from here the impact of our American Airlines Barclays portfolio purchase. And you're seeing in that spend good trends, not only obviously picked up from the oil inflation pickup and gas prices, but even you look at travel, you look at discretionary, it's relatively broad-based. And so we continue to see that constructively. The second piece on credit is stable. The delinquencies, losses, lean indicators, they're down year and year. So that continues to be stable. Obviously, as a reminder, 85% plus of our portfolio is prime and above, right? So you'll decide how representative we are of the overall economy, given our target market. But overall, we're seeing good stability in terms of credit, good performance in terms of the spend. Of course, we're watching out for the relationship between inflation and wages and whether there's any, you know, gaps there when you sub-clusterize it. We're looking for rates. We're looking out for the labor market, which appears to be in equilibrium so far.

I want to dive into some of the bigger drivers of the company. But before we do that, maybe we could just talk in terms of, you know, what you're seeing kind of quarter to date in terms of investment banking fees, markets activity, just anything else you want to call out as we kind of come towards the end of the third quarter.

Yeah, so maybe before I go into each of those couple of components, maybe let me paint the broader picture for a second. I think I'm very pleased with how our strategy is working in terms of the execution, discipline, and the results that we're seeing. And when I put together the performance year to date, which has been pretty strong in the first couple of quarters, as well as the good momentum that we're seeing in the quarter now, Now, I'm confident that we're likely going to end up for the full year on a little bit better than the top end of our range for our return. So we had talked about how our guidance for the year was 10% to 11% of ROTC. And at this point, I think it's likely that we're going to be a bit above our 11%, so the top end of that range. Now, when I look at markets and banking, both of them, very strong performance year to date. We continue to see good momentum overall. So starting with markets, I think consensus has it broadly right. We're seeing mid-single digits year-on-year growth for our markets business, continued good momentum in equities. You know, that's one of the key areas we have been investing in. And so we're seeing good progress in prime. We're seeing also in derivatives, you know, good momentum there. And then on FICC, our spread business with financing and securitization, which we focus on a lot because it drives, you know, the stable sources of revenues. doing very well in the same way that we're seeing good progress and momentum in our leading effects and currency franchise as well. So both of those things contributing to that kind of mid-single digits picture for markets. And then for investment banking, we expect to see in the quarter performance around low single digits revenue growth year-on-year with a bit of upside depending on the last few deals, you know, between now and the end of the quarter. True for both markets and banking. September is a key month, given how seasonally distributed usually this quarter is, right, with the holiday season in July and August. So these few weeks are very meaningful, but overall, that low single digits with some upside is probably what we're looking at. ECM continues to be strong. Up low single digits? Up low single digits. Thank you for clarifying the sign. In math, it's very important to know which sign you're pointing towards.

ECM, you were saying?

Yeah, ECM continues to be quite strong, the level of activity there. DCM is healthy, but it's more moderated versus what we saw in the first half. M&A continues to be active, led primarily by the big corporates there, of course, and with the sponsors a bit more muted. That's kind of what we're seeing there.

That's good. Let's unpack some of that. You know, think back to Investor Day. You talked about $5 billion of business investments that you plan to make. During second quarter earnings call in July, you talked about you wanting to pull forward some of those investments given this constructive backdrop we just talked about. Can we just give kind of more detail in terms of where those opportunities for investment are? And just, you know, are there other further efficiencies we can see? And then, you know, in the context of the guidance, just, you know, are you still attracted over that efficiency ratio around 60 percent?

Yeah, thank you. So maybe a couple of thoughts. The first one is, to be very clear, we haven't moved an inch on any of our financial commitments during Investor Day, whether it's returns near term or medium term, or as you just mentioned, the level of investment that we intend to support the businesses with, which is the $5 billion over three years in incremental investments. That hasn't changed. It also hasn't changed the fact that we're going to self-fund those investments from structural efficiencies coupled with some of the temporary transformation costs coming down as well as some of the stranded costs from our dispositions coming down as well. So maybe going back to our second quarter remarks, I think what we were looking for is if we saw continued good momentum for the rest of the year, we wanted to take advantage of the option to pull forward some of those investments still within that same box of the $5 billion over three years with the objective of getting to our return objectives with certainty and faster, hopefully, over time. And that's exactly what we're going to do. So now that we are in the quarter, now that we're seeing really good momentum in the business, we're looking into accelerating about $500 million for the rest of the year, a combination of severance, and some of it weighted towards severance, and also some other investments to support our franchises, for example, marketing in our credit card acquisitions or marketing dollars for our wealth and retail franchise and the like. So that's what we're looking at. And then back to your question around operating efficiency, as a reminder, what we're trying to achieve this year and our regional guidance, which is around 60%, is basically to have a three-peat, right? For three years in a row, if we achieve it this year, it will be, you know, in each year, we're improving by about 300 basis points of operating efficiency or a bit more. So this year, 300 basis points would be the improvement. At this point, including this pull forward, we're expecting to be a bit better than the 60%. So that's what we're looking at for the full year.

Got it. Maybe go to NII X markets. You know, there you got it to 5% to 6% growth for the full year versus last year. Just maybe help us think about the pokes and takes of that growth, particularly around your expectations for loan and deposit growth, given the strong performance, you know, in the first half of the year. And maybe also discuss just the impact of rates with the Fed potentially hiking. Wednesday and obviously, I think, rates around the world, you know, having an upward bias?

Yes. No, very good question. I think a couple of thoughts there. Let me start maybe at the top with what's the main driver for us? The main driver for us for that NIIX market's growth, which was about 6% in the second quarter, is primarily client-driven volumes. So we really need to have our strategy working in order for us to deliver what we said we're going to do. And that's coming on the back of our commercial intensity and also some of the investments from the past starting to pay off. So we're confident in what we're seeing there. Maybe to piece out and to parse it out a little bit in terms of that volume, second quarter, as an example, we delivered 12% growth in deposits, 6% growth in loans, X markets. All of these is X markets. So that was in the second quarter. That 12% in deposits was a combination of 19% in services and about 4% in our wealth business. Now, we have talked about in the past, especially at Investor Day, we said that that 19% will likely normalize over time, right? That is not something that is long-term sustainable. But still, we feel very good about the momentum that we're seeing in our services business, and we're very focused on driving operating deposits in that franchise and focused on the quality. and then if I look at the loan side about 6% that's a result of about 10% loan growth in services and 5% loan growth in each of cards and wealth and banking, they were all around that kind of 5% range when I look at the client momentum that we're seeing across each of those four businesses very pleased with what we're seeing and we have a good level of confidence just to not, even if the primary driver is volume, let me not be mute about pricing and spreads And what we're seeing there generally is, first, we've been very disciplined on our pricing strategy, and the betas continue to behave in the level that we're expecting them to. We have been very thoughtful about quality, too, and that's on both sides of the balance sheet. So if you think about deposits, and especially the biggest engine this year has been services, but this is true also in our wealth business, a lot of discipline on the quality and making sure that we're attracting operating deposits and we're not chasing volume that is low value. The same is true on the asset side. When we are issuing loans and when we deploy the balance sheet, we want to make sure that it's recognizing the full breadth of the relationship and that we have a good degree of serving. So that quality, that discipline to us is what anchors a lot of what we're seeing in terms of the momentum. So when you bring it all together, that picture of volume, the momentum that we're seeing with clients, and also assuming that we continue to be very disciplined on pricing management and mix management, what we're expecting now is to be able to be within the 5% to 6%. we're probably expecting to be on the top end of that range or a bit better than the 6%. That's what we're looking at now for the full year.

Maybe continuing down the income statement, you know, fee income, X markets. You talked about growth. Just maybe a little bit more granular, just walk us through, you know, the drivers you see across the businesses for the year.

So NIRX markets or fee income, key focus for us, key part of our strategy, and I'm pleased to see it working. So the second quarter, we had about 18% year-on-year growth. A lot of it was supported with a great performance in investment banking on the back of a constructive wallet, as well as the investments that we've been making in talent with this and the team driving that. So we're pleased to see that momentum. I just spoke a minute ago about what we're seeing for the third quarter in terms of that positive low single digits trajectory with probably a bit of upside depending on what happens between now and September 30th. And then when you look at the rest of the other businesses, you look at services, that was up 16% year on year. Look at the drivers there, assets under custody administration was up 22%. Now, yes, there's a portion of beta there, but there's a lot of alpha. Because when I look at that business, I'm seeing a lot of good client momentum, both in deepening relationships as well as gaining new mandates at a faster clip than we were a year ago. Also, cross-border volumes up 13%. So I think some of the investments we've been making in the platform and also how Shamir and the team are driving that dialogue with clients, to me, is playing through and has sustainability. Another piece of it is also wealth. Now, wealth in the second quarter was 4% year on year. Now, we had some gains on sale a year ago from some strategic decisions. So if you actually look at the biggest driver under the four, there was a 20% improvement in investment revenue fees. And that is really driven by the focus that Andy and the team have very sharply on net new investment assets. So growing that is really what underpins the momentum in the business there. That grew about 9% organically. Our target is to be in the high single digits, so we're well on track in terms of that performance and what we're seeing there, and we think the team is very focused on that. And the last piece is Cards. Cards NIR, we said in the second quarter that it will be consistently around the similar range for the third and the fourth quarter because a lot of the investments that we're making in cards are contract revenue as well as the relationship with the partners. Some of the profit shares fall through that as well. So as you're seeing us grow, you see some of that coming through in NIR.

All right, maybe we could double click into some of those areas. Maybe we'll just start with where you kind of finished on card. Maybe just talk about where you're investing, what opportunities you're seeing. I know you announced a small acquisition of CARD with a K earlier in the quarter, just how that fits into the strategy, and I guess while we're on the subject of U.S. CARD, just maybe talk about M&A more broadly, I have to ask.

Because we haven't been clear enough, I think, there.

Got to ask.

No, so let me start with our CARD franchise. The first thing I would say maybe to baseline is our target that we provide at Investor Day for returns for our card business is low 20% for ROTC as a through-the-cycle return photograph. And when you look at the second quarter, we were at 22%, and we expect to be broadly in line. So it's good that the business is already operating at where we want it to be. And when you look at our strategy in particular, we're very focused on driving growth in general-purpose cards versus private label cards. And the reason for that is their customers are taking us there. That's the preference that the customers show us with their wallet every day. That's also what you see if you look at our business mix from the end of last year to the middle of this year. We already shifted from 82% to 84% the mix in favor of general purpose cards, and you're seeing that grow faster. Now, the strategy of leaning into that, I see in my evaluation, that's working. Again, let me take to the side so that I don't take credit for the inorganic part of taking the portfolio of American Airlines. You know, from Barclays. But if you take those numbers to the side and you look at the three typical engines for the cars franchise, where, you know, our customers spending with you, a customer giving you their new card, and our customers borrowing from you, those three engines are growing at about 8%, 11%, and 4% respectively the last quarter. So we're seeing good momentum. So the investments that we have been making in the business and we'll continue to make, as we talked about on Investor Day, that have to do with digital marketing, with, you know, account acquisitions, expanding the partnership with American Airlines, driving our proprietary portfolio with product innovation, customer loyalty capabilities, our cost portfolio. All of those are, you know, are playing through. Even the card acquisition with a K, that's related to, you know, personalizing rewards and offers so that we can apply that into our proprietary portfolio as well as into our co-branded card. So we think that as a key ingredient of driving our commerce ecosystem and the loyalty from clients into the cards. Now, to your question on the broader M&A, I think we've been super clear that we're sharply focused on execution and very focused on the organic opportunities that we have in front of us. So don't expect anything transformative. From time to time, you may see some of these small acquisitions that are add-ons in order to round up our offer and value proposition and capabilities, but nothing transformative, I think. Jane has been super clear.

Thank you. On services, we've seen pretty strong performance in the year. You talked about doubled your growth. Maybe just talk about some of the drivers there and just your expectations for growth going forward.

Yes, no, very pleased. I think Shamir and the team are doing a terrific job. I'm quoting the second quarter because it's the most recent, right? But the business for several quarters, not just in the second quarter, they have been performing very well. Now, NII up 18%, NIR up 16% for the quarter. And I attach that to two or three key drivers. The first one is that this is our mode. We have a global network. It's the rails of most of the global corporates around the world. We're highly embedded, and that's a critical capability that gives us the ability to drive these results. The second piece is the commercial intensity, how focused Shamir and the team are on gaining new business and the mandates that we're winning. The win rate is up more than 30% year on year. We're seeing market share gains. So that commercial customer intensity is really key. And the third piece is investing in that first mode and making sure that we're not asleep in terms of, you know, ensuring that we put the right investments behind it. So when you look at our technology platform, we invest about $2 billion every year in our platform. And just to make it more tangible, let me give you a couple of examples. And these investments, by the way, they run in parallel between investing in our core to protect our mode and our position and at the same time offensively innovate, right, in terms of new capabilities so that when customers or the market is ready, we're the first protocol. call. So in terms of core capabilities, as an example, we continue to invest in 24-7 US dollar clearing. We just announced in the last couple of weeks Custody Plus, which is a capability to move a lot of the asset manager Custody capabilities from the batch processing into near or real time for events and other pieces across 62 markets. Nobody has that across that many markets. So So these are a couple of examples of investments. Also deploying AI for CityDirect Assist so that we can be more responsive to customers on a faster clip. So all of these are things that continue to propel and augment the core. And then in addition, you've probably seen us, I think this year we've made a number of announcements and investments on our digital assets capabilities, whether it's CityToken Services, which is now in five countries and a couple of currencies, and we're seeing good volume pickups year on year. We announced a little bit earlier capabilities for private companies to drive digital depository receipts. We just tested as a pilot the first U.S. bank that did a transaction with OCBC and Abu Dhabi Bank for the Swift blockchain ledger. So you're seeing us really lean into digital assets too so that when the markets and when the customers are ready also we're there to support them. So far, obviously, we're investing a lot in the core as well at the same time. Those things really anchor is the customer intensity, the investment we're making in the platform in order to make sure that there's perpetuity to our mode.

Before you talked about the wealth business, and we've seen significant progress, returns now over 14% in the second quarter. Maybe just talk to some of the drivers of continued revenue growth and improved performance.

Yes, maybe to recap for everyone's benefit, our near-term target of returns, the ROTC for our wealth franchise, is 15% to 20%. And it's one of our business where we know we need to show that return improvement. So Andy and the team are very focused on that. Just to play back kind of the sequential journey for everyone, if you look at the returns in this business a year ago in 2025, 7.6% ROTC against that goal of 15% to 20%. The first quarter, 10.8%. The second quarter, 14.4%. So you're seeing sequentially that we're making that progress. And that's on the back of seeing double-digit revenue growth, We check a good degree of consistency through several quarters. And at the same time, a lot of expense rigor that Andy and their team are bringing. Second quarter is a good example. That 14.4 return came on the back of 13% revenue growth coupled with a 3% expense growth. So the more quarters that we can string together, the much easier you can see the path to getting within the 15 to 20 real soon. Now, maybe to speak for a second about that revenue growth. And that really is anchored on two primary vectors that Andy is focused on. The first one I mentioned a little bit earlier, which is really driving the net new investment asset momentum. That's growing at about 9 percent. The client investment assets, which are kind of the denominator, those are growing at 14 percent. So we're seeing a lot of focus from Andy very much weekly. And that's what anchors the NIR growth. And then on the deposit side, maintaining the discipline, number one, in offensively trying to, you know, grow volumes in deposits, which we're seeing about 4%. But also, and very importantly, managing the mix and managing the pricing and doing that with a lot of discipline. And that's why you're seeing a lot of the uptick in the NII that we saw in the wealth business over the last few quarters.

And maybe turning, you know, to markets, that's been another area you talked about investing, particularly on the equity side. Maybe just talk about where you're investing and just the progress you've seen.

Yes, obviously, in a constructive market, we're seeing very good performance. But just to go back to what we talked about at Investor Day, two big vectors of anchor our strategy in our markets business. The first one is around, number one, maintaining our leadership position in FICC and at the same time, scaling equities. And that's what we spoke about at Invest today, and Andy was very clear on how we are really investing on that business for growth because we're starting a little bit later. And so making sure that we're driving that scale in the business, that's why we're pleased with the momentum that we're seeing so far in the year and into the quarter as well. The second big vector of our strategy is continuing to leverage the diversification benefit that we get from the franchise that we have. And you actually saw proof of that in Q1 and in Q2, right, where you had strong equity performance, good spread performance in the second quarter especially, not as great performance in rates in the first and second quarter, and still we were able to produce record performance in the business and record momentum. So it's good to see how that diversification allows us to not necessarily have to have every single engine performing at full speed in order to drive good performance. So that's the second vector. And as part of that, we're also very focused on driving stable sources of revenues more and more as time goes by. So in the equity space, it's prime. In the spread space, what we're seeing with financing and what we're driving with financing and securitization. And the same thing in our leading FX and currency franchise as it relates to the corporate flow. So as you see, those three engines come together. You're seeing more and more annuity-like behavior in some of our revenue profile.

Helpful. And then maybe, you know, shifting gears to capital. You know, we're going to buy back more stock this year than last year. Can we talk to kind of your framework for capital deployment, just expectations for share buyback go forward?

Yes, our capital framework, just to, you know, play back for a minute, is priority number one, obviously continuing to be the source of resilience that we have been for our clients and for the system over the last several years in terms of any disruption and dislocation that you can think of. That's our number one priority. And once you get past that, it's for us finding the constant balance between ensuring that we're supporting our clients and our business with accretive return opportunities and at the same time returning capital to shareholders. And hopefully, if you look closely at our first and second quarter, you can see us managing that balance where we were able to support record performance in markets, in banking, in services, by deploying balance sheet for our customers in those two quarters. And at the same time, we bought back about $10.3 billion across both quarters of our stock. So hopefully you're seeing us manage that principle in real life. As it relates to the buybacks, we're pleased that we announced our $30 billion new program at Investor Day a couple of months ago. And also pleased that we closed the prior program of about $20 billion. So that is good. To your point, we are expecting this year in 2026 to be ahead of what we did last year, which was about $13 billion for all of last year. And maybe the last piece I'll mention is, as it relates to our C-D1 ratio, we broadly have been operating within the range of our targets, so we don't expect to make very sharp movements over the next couple of quarters. We expect to be more or less around where we are. Thank you.

I guess on the capital front, just maybe give us a brief update on where you are with the Banamex and just remind us of the expected timing and impacts and how to just think about that.

Yeah, so Banamex, I'm glad with the speed of execution that the team has shown us. Just to recap for everyone, we have just in the last few weeks, we closed the last 1.4% of the second tranche of the sell-down that we had spoken about externally. That puts us today as owners of about 51% of Banamex, and so 49% we've already dispositioned. We've said before that for the remainder of this year, we're not going to have any more transactions because we want to make sure that we give our partner investors enough time to continue to drive value creation. When I look at the second quarter, Banamex results, and I strip out the FX impact, the revenues have been growing 19%. So really good growth in revenues, really good momentum in deposits and loans. And so we think that time is worthy for us. We have also said that we expect early next year to trigger the deconsolidation. That is when we own a bit less than 50%. So that should happen early next year. And then depending on market conditions and timing and value, we will look for an IPO as the following step. Now to recap for a second, upon the deconsolidation, and I know we've spoken about this before and we'll provide more updates and details during earnings. when that happens we expect to see a currency translation adjustment flow through the P&L as a loss of about $9 billion and as we've also said before that shouldn't have an impact neither on regulatory capital nor on TCE on a cumulative basis given how things flow so we're ahead of our schedule we're making sure that we have discipline in terms of value creation and value capture and we feel good about what's going to happen early next year Maybe talk a little bit about your AI strategy

and where you expect to see benefits going forward.

Yes, so of course, with such a disruptive technology, I think you would expect us, and we are, very disciplined, very intentional, very strategic, and also very prudent. So those four things are key. But let me spend a second on the four pillars of our AI strategy. The first is going after client growth, and revenue growth and really driving that. The second piece is operating efficiency and being able to harp on some of those structural efficiencies that I was talking about that will help us fund those investments through automation and AI. That's the second pillar. The third pillar is defensive capabilities. So when you think of cyber, when you think of fraud, you know, threat vectors, when you think of risk management, being highly proactive there. It's, you know, very clearly a very sharp focus that we have on that. And the fourth piece is our workforce, making sure that we help our teams navigate the upgrade of knowledge that needs to happen and how do they leverage the tools so that we can get both the benefit bottom up of everybody's innovation coming to the fore. And at the same time, we're able to capture the value from some of the top down capabilities that we're driving from the top of the house, right, with full funding at full speed and through the model. So when I step back across each of those four pillars, we're starting to see really good benefits play through. So, for example, on the client front, some of the client experience progress that we're seeing, whether it's in our cards, our wealth and retail capabilities, or our services franchise with CityDirect Assist, where we're cutting down response times by more than 20%. So we're seeing upside in terms of the client experience. And at the same time, you're seeing upsides in terms of controls and in terms of efficiency. So you get a little bit of a triple win, right, in some of these early innings for many of the benefits. So that's the focus for us. The top-down focus married with the bottom-up innovation that we want to unleash as well.

And maybe give us an update on where you are with kind of the transformation program at this point.

So right now we are at Citi's target state as it relates to our risk, our compliance, and our control programs. And as we've said recently as well, we have a bit more work to do on our data program, especially as it relates to regulatory reporting. So that's the focus. Now, of course, the consent order and the timing of that being lifted, that's completely at the discretion of our regulators and their review protocols as well. But then the other thing that I usually talk about for clarity is as we complete those programs, we take out the temporary costs. So, you know, just to recap for everyone, we talked last year about how our transformation costs in totality were about $3.3 billion. Now, about half of those are temporary in nature. The other half are more structural. For the temporary ones, those are the ones that as we complete programs, we don't wait right until the very end. As we reach program completion, we start taking those costas. So you don't expect really any cliff effect, right, of those expenses coming off because we have already started to do it along the way as we've completed some of our programs in risk, in compliance, in controls, and so on. Now, the other half of them, the structural ones, they become part of our functional fabric. And as we go forward pursuing automation, AI initiatives across the whole set of those costs, those are going to be obviously looked after as well.

Got it. You know, you mentioned earlier that you're going to be above the 10% to 11% ROTC target for this year. On the July call, you're very reluctant to make that statement. I guess twofold. What makes you more comfortable today with that, despite the pull forward of investments? And then given the fact that you pull forward those investments, how does that impact the return trajectory going forward?

So, well, thank you for the question. And yes, the short answer is a couple of months have gone by, and now we can see the third quarter momentum, which is always what we said, by the way. We are doing exactly what we said we were going to do. We wanted to see what the next six months look like and have a bit more proximity to that and keep that option to do some of the pull forward. So obviously now that we're sitting here and we have seen really good momentum in the third quarter, we want to exercise that option. Now maybe to step back on the returns picture, We talked about the 10 to 11 for this year and where we expect to land, which is a bit north of the 11. When we look at the near term targets for us, it's 11 to 13. Near term for us is 27 and 28. Reminder, in 28, we expect to be on the top half of that range of 11 to 13. And thereafter, in the medium term, the 14 to 15 percent is our range. Now, when you look at the drivers that will enable that journey from where we are to where we want to go, So three things are, you know, the key drivers there. The first one is client-driven momentum, right? And that is us enabling, deploying the $5 billion of incremental investments in order to continue the momentum that I was just talking about, going business by business, and make that stick and make that sustainable. So that's kind of the primary one of the three. The second vector is not dropping the focus on structural efficiencies. efficiencies. And so we, for us and for me, financial discipline is super important. And so we spoke about at Investory how those investments on the first pillar are going to be surfunded via the second pillar. And that comes from three sources. The first one is that half of the transformation cost that I spoke about a minute ago. So those coming down. The second one is stranded costs. Stranded costs a year ago were $1.3 billion. If you look at our last quarter, Those were about $200 million a quarter, so you can already see them in real life coming down. The third one are structural efficiencies that we expect to get from automation, digitization, and AI across our functional expenses and our operating expenses. Now, because that sounds generic enough, I want to give you the comfort that our execution discipline is very sharp on this third pillar as well. This is something that a couple of our executive team leaders, our COO, Anand, and Tim Ryan, our head of technology, they meet every single week. And we look at each one of the 100-plus processes that we're mapping end-to-end. So these are processes that have been prioritized. They've been funded on their technology. So it's not just some PowerPoint thing that we're aspiring to. It really is something that we have rigor behind in terms of execution so that we can be very clear about that ability to self-fund the investments. And the third piece is capital optimization. as i think most of you know we have a portion of disallowed dta which at the end of last year was about 13.9 this is an area that i've been very clear is an area that we need to show you that we can make the progress the first bite of that should come this year so that we don't have you waiting for very long and that's about 800 million dollars of burning down of disallowed dta we are on track for that a lot of that comes primarily from being able to drive u.s profitability so So it's a little bit of a positive double whammy of our strategy working. As we become more profitable, as we drive more returns across the whole company, a good portion of that happens in the U.S. as well, and you get the additional benefit of not only the bare returns, but in addition, the fact that you're burning down DTA. So we expect to make good progress in the near term, and that is the third leg that will anchor our progress towards that sequential improvement.

I think it's important maybe to confirm this, right, the 14 to 15 percent you talked about, that's on the current capital regime. As we think out to the potential new capital regime, it's potentially on a lower CT1.

Yes, thank you for that clarification. Exactly right. So as we laid out the targets for the near term and the medium term, both the 11-13 and the 14 to 15 thereafter, they're both based on current capital rules as they are. I have mentioned in the past externally as well that obviously we're expecting what the new rules will finally look like, but our expectation with the ones that have been published so far is a moderate tailwind in terms of the RWAs and the GSIB and then we expect also hopefully some benefit from the SCB piece as well, where we have been showing progress but a lot of that progress has been on the back of our strategy working and we continue to expect to see that. We've been able to reduce our SEB for the last three years in a row. This current year, even though it doesn't count, we also see another 30 basis points improvement. But that, to me, is a good signal for me of whether our strategy is working, because we're becoming more resilient, given the fact that we're opening the aperture on our earnings power.

And I guess as we come to a close here, just maybe what are the key points you would like investors to take away from the session today?

And what do you think is still underappreciated that city well the first mission one mission one for us is driving sustainable consistent return improvement on a long-term basis we are not after shortcuts jane and i have been very clear we're not after being a one-hit wonder we really want that sustainability that comes from doing things right and thinking of the long term when you when you look at the performance that we're having and the momentum that we have with our clients. We're very clear-eyed about where we are. We know we made progress. We know we have good momentum. And we're not satisfied. We're not done. There's no celebrations at 388 Greenwich because we know we have more work to do. And we know we have this potential to unlock and really close the gap to peers in terms of return. So what I think you can all expect from us is you can expect us to be very prudent as it relates to risk capital liquidity management, and at the same time, you can expect us to have a lot of execution urgency and execution discipline so that we can hold ourselves accountable to do exactly what we said we're going to do. Thank you.

Great. On that note, please join me in thanking Gonzalo for his time today. Thank you.