Citi emphasizes regulatory fixes as it lays out growth targets

By Tatiana Bautzer and Arasu Kannagi Basil

(Reuters) -Citigroup is stepping up efforts to fix regulatory problems as it seeks to boost future profits, the bank's top executives told investors on Tuesday.

The lender has faced regulatory challenges tied to its so-called living will, which details how it would be unwound in the event of bankruptcy. It is also addressing regulatory punishments handed down by regulators in 2020.

Citi is automating processes and improving data reporting to meet regulators' orders, executives said, as they presented a road map for growth.

"We recognize there are places where progress has been too slow," CEO Jane Fraser said. "So we have intensified our efforts in areas such as regulatory processes and the related data remediation."

She cited progress in strengthening risk and controls by automating processes. For example, the time it takes to book or amend a loan in North America has been reduced by half, Fraser said.

"We're going to spend whatever it takes to address the consent orders and modernize the firm, as this is an incredibly important body of work and critical to our long-term success," Chief Financial Officer Mark Mason said.

The board of the Federal Deposit Insurance Corp, a top banking regulator, plans to vote on Thursday to downgrade its rating on Citi's data-management systems to a "deficiency" from a "shortcoming," Reuters reported on Monday.

Fraser and other leaders also highlighted their strategy at Citi's first investor day for its services division held at the bank's New York headquarters.

The unit houses Citi's treasury and trade solutions business, which processes $5 trillion of payments a day for multinational corporations across 180 countries.

The bank's stock rose 1% on Tuesday afternoon. Investors have rewarded Fraser's sweeping turnaround efforts with an 18% boost to its stock this year. That is broadly in line with large rivals such as Bank of America and JPMorgan Chase, but outpaced a 6% gain for the broader KBW index of bank shares.

Citi's net interest income, or the difference between what it earns on loans and pays out on deposits, is expected to be "modestly down" in the second quarter versus a year earlier, Mason said, excluding its markets unit.

Investment banking fees are expected to jump 50% on improving activity across equity and debt capital markets, as well as mergers and acquisitions, he added.

Citi still faces challenges, including problems with banking regulators and an unsettled workforce after thousands of layoffs.

Services is Citigroup's most profitable division and had return on tangible equity of 20.1% last year. The unit is central to Fraser's turnaround strategy.

Shahmir Khaliq, who leads services, said the division often serves as a gateway for global clients to the bank's other businesses, such as investment or commercial banking.

Services is also adapting to evolving economic expectations, Khaliq said.

Interest rates are expected to soften and affect revenue growth, he said, but Citi's diversified global business substantially reduces its exposure to U.S. dollar rates.

The unit also houses securities services, which provides custody services across more than 100 markets.

The business will grow by expanding dealings with asset managers and institutional investors on exchange-traded funds and foreign exchange, said Okan Pekin, who runs securities services.

(Reporting by Tatiana Bautzer in New York, Arasu Kannagi Basil and Niket Nishant in Bengaluru; Editing by Lananh Nguyen, Sriraj Kalluvila, Krishna Chandra Eluri, Rod Nickel and Leslie Adler)