Citi Q1 Earnings Conference Call: Full Transcript

Operator:

Hello and welcome to Citi's First Quarter 2016 Earnings Review with Chief Executive Officer, Mike Corbat and Chief Financial Officer, John Gerspach. Today's call will be hosted by Susan Kendall, Head of Citi Investor Relations.

We ask that you please hold all questions until the completion of the formal remarks at which time you will be given instructions for the question-and-answer session. Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ms.

Kendall, you may begin.

Susan Kendall: Head, Investor Relations:

Thank you, Brent. Good morning and thank you all for joining us. On our call today, our CEO, Mike Corbat, will speak first then John Gerspach, our CFO, will take you through the earnings presentation which is available for download on our website, citigroup.com. Afterwards, we'll be happy to take your questions.

Before we get started, I would like to remind you that today's presentation may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results in capital and other financial condition may differ materially from these statements due to a variety of factors including the precautionary statements referenced in our discussion today and those included in our SEC filings, including without limitation the Risk Factors section of our 2014 Form 10-K. With that said, let me turn it over to Mike.

Michael L. Corbat: Chief Executive Officer:

Thank you, Susan and good morning everyone. Earlier today we reported earnings of $3.5 billion for the first quarter of 2016 or $1.10 per share. These results reflected difficult macro-environment which was more challenging than we anticipated when we entered the year.

That said, we continue to make progress in key areas. We grew loans and deposits in our core businesses, utilized deferred tax assets, generated and returned capital to our shareholders, and reduced our expenses while absorbing a significant repositioning charge.

In our institutional businesses, market-sensitive products clearly suffered from weak investor sentiment during the quarter. This primarily impacted our trading and investment banking revenues. However, our accrual and transaction services businesses posted 7% year-on-year growth, consistent with recent quarters. These businesses are gaining market share and now contribute almost half of our institutional revenues. Investor sentiment has also impacted our consumer business, including wealth management and especially in Asia. And while U.S. branded cards showed stronger performance across key indicators, both top and bottom line results remained lower due to the investments we are making in that business.

Overall, credit trends remained very stable in our consumer portfolios as we continued to focus on our targeted segments. Our global consumer bank is now entirely focused on our priority markets of the U.S., Mexico and Asia, and we see real pass for growing our franchise. We have been optimizing our footprints in terms of countries and braches, to make sure we are allocating our resources to areas where they can generate the best returns. In the last three years, we have exited or in the process of exiting from 19 consumer markets and in February we announced we would sell our consumer businesses in Brazil, Argentina and Colombia and focus solely on our growing institutional business in South America. During the quarter we also reduced our branch footprint by 82, while increasing our average deposits in our nearly 2,700 branches globally.

We also took a repositioning charge in the quarter. Repositioning is part of our effort to make sure Citi's appropriately sized and structured for the current environment. We have identified opportunities for greater efficiencies in our regional models, including additional delayering and shifting staff to our service centers which now host more than half of our people. That will drive an additional reduction of headcount which was down 3% during the quarter to 225,000, almost 40,000 fewer than when I become CEO.

We are also drove another significant reduction of assets in Citi Holdings, which were down 10% from the end of last year and down 44% from one year ago. For the 7th quarter in a row, Holdings was profitable and while our work isn't done, with Holdings assets now accounting for just 4% of our balance sheet, we won't report Holdings results -- I am sorry, we won't report Holdings separately after this year. I think being able to do this is a testament to the excellent work of the Holdings team, which we expect to remain intact and continue to unwind the remaining assets.

The wind-down of Citi Holdings is a significant milestone for our institution and it has been a long time goal. We said we take Citi Holdings to a point where its assets weren't meaningful enough to merit separate reporting and that's what we are doing.

Another area we focused on is shrinking our deferred tax assets. In the first quarter, we utilized an additional $1.6 billion in DTAs, which contributed to a net increase of $6 billion in regulatory capital and our CET1 ratio increasing to 12.3%. We continued to return capital to our shareholders, repurchasing 31 million common shares during the quarter, bringing the net reduction of outstanding shares to just under $100 million over the last four quarters. Our tangible book value per share increased almost $2 to $62.58 in the quarter.

We continue to make progress in our efforts to be a safer and stronger institution and earlier this week we learned that neither the Fed nor the FTIC found any deficiencies in our 2015 resolution plan. And last week we submitted our capital plan to the Federal Reserve. We believe that the combination of an even stronger capital position and the improvements we have made in our capital planning process as well as in our risk management, compliance and control functions have allowed us to make a strong submission.

While 2016 didn't get off to the start we had hoped for, the environment stabilized in the second half of the quarter. Volatility decreased as some of the more pessimistic scenarios failed to materialize. However, the outlook is still right with risks from political elections to interest rates. I think as we've shown in this quarter, we can manage through challenging times. We think we have -- where we have too much capacity, we will reduce it while still serving our clients. We think certain sectors are showing signs of weakness, we will manage our exposures even more tightly.

John will now go through the presentation and then we'll be happy to take your questions. John?

John Gerspach: Chief Financial Officer:

Thank you, Mike and good morning everyone. Starting on slide 3, we highlight the impact of CVA/DVA on our prior period results. Beginning this quarter, we adopted FASB's new accounting standard on the reporting of DVA, or Debt Valuation Adjustments. Under the new rule, changes in DVA that relate to Citi's own credit spreads are no longer recognized in earnings, but instead are reflected in OCI.

So we no longer need to adjust our reported revenues and net income to exclude this item.
Going forward therefore, we will speak to reported results in our earnings presentation which should be largely comparable to the historical results excluding CVA/DVA.

On Slide 4, we show total Citigroup results. In the first quarter we earned $3.5 billion. Revenues of $17.6 billion declined 11% from last year, mostly driven by lower industry-wide activity in markets and investment banking, the continued wind-down of Citi Holdings and the impact of FX translation.

In constant dollars, revenues were down 9%, including a 6% decline in our core Citicorp businesses. Expenses decreased 3% year-over-year, driven by the wind-down of Citi Holdings, lower legal expenses and a benefit from FX translation, partially offset by higher repositioning costs and ongoing investments in the franchise. And net credit losses continued to improve, offset by a loan loss reserve build this quarter compared to a net release in the prior year.

In constant dollars, Citigroup end of period loans grew 1% year-over-year to $619 billion as 5% growth in Citicorp was partially offset by the continued wind down of Citi Holdings and deposits grew 5% to $935 billion.

On Slide 5, we show the split between Citicorp and Citi Holdings. Citicorp revenues of $16.1 billion were down 9% from last year on a reported basis. In constant dollars, as I mentioned, revenues were down 6% from last year, mostly driven by capital markets-related businesses, fixed income, equities, investment banking and Asia wealth management, as well as the impact of our continued investments in US branded cards. Citicorp expenses increased 2%, reflecting the higher repositioning charges and ongoing investments in our franchise, partially offset by efficiency savings and a benefit from FX translation.

And cost of credit grew 29% from the first quarter of last year, almost entirely driven by the energy sector. Otherwise, credit quality remained favorable. In ICG, we saw a very little net cost of credit outside of energy this quarter, and in consumer, our NCL and delinquency rates both continued to improve although we are not benefiting from reserve releases as we had in the prior year.

Citi Holdings contributed pretax earnings of $477 million this quarter, mostly driven by gains on asset sales. For the remainder of the year, we expect Citi Holdings to be closer to breakeven. We reduced Citi Holdings assets by $8 billion this quarter, ending the period with $73 billion of assets or just 4% of total Citigroup, with signed agreements in place to sell $10 billion of this remaining amount. And as Mike noted earlier, 2016 is the last year we will report Citi Holdings as a separate segment.

Turning now to each business, on slide 6 we show results for international consumer banking in constant dollars. In total, international consumer banking revenues declined 2% year-over-year. In Latin America consumer, which is now comprised solely of our Mexico franchise, revenues grew 2% as growth in retail banking continue to be partially offset by pressure in cards. We saw good momentum in retail banking drivers, including 11% growth in average deposits and 9% growth in average retail loans. However, card balances remained under pressure in Mexico, as continued growth and purchase sales was offset by higher payment rates, reflecting our focus on higher credit quality segments of the market.

Turning to Asia, consumer revenues declined 4% year-over-year, driven by weak investment sales revenues as well as continued but abating regulatory pressures in cards. Outside of wealth management, retail banking revenues continue to grow year-over-year and in cards, we believe we are through the most significant regulatory headwinds which I'll discuss more in a moment. In total, average international loans grew 1% from last year, card purchase sales grew 4% and average deposits grew 5%.

Operating expenses grew 4%, driven by higher repositioning charges and an increase in technology investments, primarily in Mexico while core expenses in Asia were roughly flat. And finally, total international consumer credit costs increased 7% from last year, reflecting the impact of reserve release in the prior period. Net credit losses declined and the NCL rate improved to 1.6%

On slide 7, we show Asia consumer in more detail. The first quarter is historically a strong period for wealth management in Asia, with higher transaction activity driving strong investment sales revenues. Given weak investor sentiment during the quarter, we didn't see the typical rebound in transaction activity and therefore our wealth management revenues declined significantly from last year. However, we have seen consistent net inflows in our assets under management as you can see on the slide with a declining year-over-year trend in AUMs driven by the impact of lower equity market values. Therefore we remain well positioned to serve these clients as market confidence improves in the future.

Turning to cards, card purchase sales has slowed in the current environment. But payment rates have stabilized and as a result our average card loans have continued to grow. As we begin to cycle past the most significant regulatory headwinds, this loan growth is starting to have a positive impact on revenues. So while card revenues still declined year-over-year, the trends continue to improve and we believe we are on a path to achieve revenue growth in cards by the second half of the year and credit trends remain favorable across the entire consumer business in Asia.

Slide 8 shows the results for North America consumer banking. Total revenues declined 4% year-over-year. Retail banking revenues of $1.3 billion were roughly flat, excluding a $110 million gain on the sale of our Texas branches last year as continued growth in loans and deposit spreads was offset by lower mortgage gain on sale revenues. In branded cards, revenue of $1.9 billion were down 6% from last year, driven by higher acquisition and rewards costs as we have continued to ramp up new account acquisitions in our core products.

I'll talk more about branded cards in a movement, but we continue to feel good about the investments we are making and in fact, we saw year-over-year growth in our average loan this quarter for the first time since 2008.

And turning to retail services, revenues of $1.7 billion increased 3% from last year, mostly reflecting gains on the sale of two small portfolios. Even including the impact of these assets sales, average loans were flat year-over-year and purchase sales increased 2%. Total expenses of $2.5 billion in North America increased 7%, driven by higher repositioning costs and marketing investments, partially offset by efficiency savings as we continue to capture scale benefits in cards and rationalize our branch footprint. As previously announced, we exited over 50 branches this quarter as we continue to concentrate on our key markets and adapt to a significant shift in customer behavior to digital channels.

And finally, credit costs in North America increased 17% from last year, driven by a reserve build of approximately $80 million this quarter in our commercial portfolio related to energy credits. Our energy exposure in the commercial business is significantly smaller than the corporate portfolio we report in the ICG. On a global basis, we have energy exposure of $2.1 billion in the commercial business with $1.4 billion funded, 90% of which is in North America. The credits are mostly in the E&P and services and drilling segments and are predominantly non-investment grade. We have no exposure in the commercial portfolio to junior or second lean positions and our funded reserve ratio is roughly 9%. We provide more details on this portfolio in the appendix to our earnings presentation.

On Slide 9, we show some key performance indicators for North America branded cards, including year-over-year growth in average active accounts, average cards loans, and purchase sales for our total portfolio. In the second half of last year, we began to ramp up new account acquisitions in our core products and these investments are beginning to have a significant impact. Growth in average active accounts and purchase sales began to accelerate late last year and these trends are now driving total loan growth as well even as our legacy portfolios continue to shrink. Card revenues were still down year-over-year this quarter, but we believe we can return to growth sometime in the latter part of 2016, not including the benefit of acquiring the Costco portfolio.

Slide 10 shows our global consumer credit trends in more detail. Credit remained broadly favorable again this quarter, with stable to improving NCL and delinquency rates in every region. So, as we look at our consumer franchise globally, there are a few themes to highlight on slide 11. First is the impact of the current environment on market-sensitive businesses including wealth management as well as mortgage, which together drove a year-over-year decline in revenues of nearly $150 million. Second is our continued investment in US cards, which is putting pressure on revenues today, but is also starting to drive a real underlying performance improvement. And third is the impact of regulatory changes in our business, particularly in Asia which we believe is a abating.

When you pull back these drivers, you can see we are achieving growth although muted driven by overall growth in personal loans, card volumes, and deposits and we've achieved this growth with a very little change in our core expenses. In fact, year-over-year the entire increase in our consumer operating expenses was driven by the combination of investments and higher repositioning costs.

As we move forward, we believe we are making the right investments to grow the higher return markets and products in our franchise, and that as these investments mature and we cycle past the remaining regulatory headwinds, we will be well positioned to drive higher returns to something in the range of 20% RoTCE in a more normal rate environment.

Turning now to the institutional clients group on slide 12, revenues of $8 billion in the first quarter declined 12% from last year, driven by market-sensitive businesses, fixed income, equities and investment banking. Total banking revenues of $4 billion, excluding the impact of loan hedges, declined 6%. Treasury and trade solutions revenues of $2 billion, grew 8% last year in constant dollars, driven by continued growth in transaction volumes with new and existing clients as well as improved deposit spreads.

Investment banking revenues of $875 million were down 27% from last year, driven by an industry-wide slowdown in activity levels as well as our strong performance in M&A the prior year. Private bank revenues of $746 million grew 5% year-over-year, driven by higher loan and deposit balances and corporate lending revenues of $455 million were down 4% on a reported basis. In constant dollars, lending revenues declined 2% from last year as higher volumes were more than offset by the impact from positive fair value marks in the prior period.

Total markets and security services revenues of $4.1 billion declined 15% from last year. Fixed income revenues of $3.1 billion were down 11% from last year. Rates and currencies grew 5% year-over-year with particular strength in March as market conditions improved versus the start of the year. However, this growth was more than offset by lower activity levels and a less favorable environment in both securitized products and commodities.

Equities revenues declined 19%, reflecting the impact of lower volumes in cash equities as well as weaker performance in derivatives. In security services, revenues grew 3%, reflecting a modest gain on the sale of our private equity fund services business, and other included a charge of approximately $180 million, reflecting the write down of virtually all of our investment in Venezuela and as a result of changes in the exchange rate.

Total operating expenses of $4.9 billion were up 5% year-over-year, driven by higher legal and repositioning costs. Core expenses were down 1% as higher regulatory and compliance costs and investments were more than offset by lower compensation expense and the impact of FX translation. On a trailing 12-month basis, excluding the impact of severance, our comp ratio remained at 27%.

Total credit costs of $390 million were down from the fourth quarter, but up significantly from last year. Nearly all of the ICG credit costs this quarter were related to energy. We built roughly $260 million of additional reserves and recognized losses of roughly $150 million in the energy sector. The reserve builds were concentrated in the E&P and services and drilling segments, driven by ratings migration due to sustained low oil prices as well as the impact of regulatory guidance.

At quarter-end, our total energy exposure in ICG was $57 billion, of which approximately $22 billion was funded. The funded reserve ratio was 4.2%, including a funded reserve ratio of over 10% on the non-investment grade portion. We have very little second lean exposure in the corporate portfolio with $85 million of total exposure and reserves against roughly a third of this amount. We provide more details on the corporate portfolio as well as the nature of our unfunded exposures in the appendix to our earnings presentation.

As we look at the potential for additional energy and non-energy provisions for the rest of 2016, if oil prices were in the range of around $30 per barrel, we now estimate our full year ICG cost of credit would be roughly $1.4 billion. This is higher than our previous estimate of roughly $1 billion, with about two-thirds of the increase related to the potential impact of regulatory guidance and the remainder reflecting our revised view on the portfolio. If you look across both the commercial and corporate portfolios, our total exposure to reserve based lending in North America is roughly $4 billion, of which $2 billion is funded and we have a 9% funded reserve ratio against these loans.

We estimate that our total RBL exposure could be reduced by roughly $500 million as a result of the upcoming spring re-determinations and year-to-date, we have seen no material drawdowns against these facilities.

Turning back to ICG, we saw a significant increase in corporate non-accrual loans this quarter, up by $730 million sequentially with roughly $500 million related to energy and $90 million related to metals and mining. Our total metals and mining exposure was $13 billion at the end of the first quarter, with roughly $5 billion funded and we did not incur any cost of credit on the portfolio in the first quarter. The increase in non-accrual loans in metals and mining as well as other sectors outside of energy did not result in a material cost of credit as we have significant collateral against many of the loans. Nearly two-thirds of both the total additions as well as the energy related additions to non-accrual loans this quarter remained performing.

On slide 13, we show the year-over-year EBT logs for ICG, highlighting several themes; first, despite the challenging market conditions this quarter, we continue to see growth in several of our accrual and transaction services businesses including treasury and trade solutions, private bank and security services. The market environment had the biggest impact on fixed income equities and investment banking which together were down 16% year-over-year. To offset these pressures, we continue to actively address our structure, reducing capacity in areas where revenues are likely to remain muted, while preserving our client facing capabilities and these actions drove much of the repositioning charge in ICG this quarter.

The remaining EBIT drivers were the write-down of our investment in Venezuela, mark to market losses on loan hedges driven by spread movements and of course the higher energy costs -- the higher credit costs in energy.

Turning to the next slide. As I noted, we saw continued growth this quarter in many of our ICG businesses. Together TTS, corporate lending, private bank, and security services account for nearly half of total ICG revenues and they grew 7% year-over-year this quarter in constant dollars. This growth trend has been consistent overtime as we have deepened our relationships with our target clients and gained market share, particularly in some peers that retrenched and reduced their global presence. Our strategy, focused on providing integrated solutions to a targeted set of clients on a global basis is clearly yielding positive results.

It does not mean that we'll be immune to revenue swings in more market-sensitive businesses like markets and investment banking, but our mix of traditional banking and transaction services does provide a stable growing base of revenues in more efficient higher return businesses.

Where we believe revenues are likely to remain muted, we are taking appropriate measures to optimize our capacity without diminishing our client capabilities and we are remaining disciplined on credit. So while we will not be immune to credit cycles, we strongly believe that our focus on larger multinational clients should result in better performance through the cycle. All of these reasons are why we are still confident that our ICG business is capable of producing a RoTCE in the range of 14% in a more normal environment.

Slide 15 shows the results for corporate other. Revenues increased year-over-year, mostly reflecting higher investment income and expenses were down, mainly reflecting lower legal and related costs.

On slide 16 we show Citigroup's net interest revenue and margin trends. The bars represent net interest revenue per day for each quarter in constant dollars, showing consistent growth year-over-year in Citicorp while Citi Holdings has continued to shrink. Our net interest margin was 292 basis points this quarter, flat to the fourth quarter as the sale of one NIM was fully offset by the impact of higher rates. Our NIM should be fairly stable at this level in the second quarter as we continue to offset the impact of the wind-down of Citi Holdings with improvements in the core franchise, and we expect the acquisition of the Costco portfolio to provide a benefit of about 3 basis points, resulting in a NIM of roughly 295 basis points in the second half of the year.

On Slide 17, we show our key regulatory capital metrics on a fully implemented basis. During the quarter, our CET1 capital ratio increased to 12.3% driven by net income, OCI movements and approximately $1.6 billion of DTA utilization, partially offset by $1.5 billion of common share buybacks and dividends. Our supplementary leverage improved to 7.4% and our tangible book value per share grew by 9% year-over-year to $62.58.

Before we turn it over to questions, I would like to make a few comments regarding our expectations for full year 2016. Clearly this year started with a more challenging environment than we had anticipated, resulting in lower revenues and a higher operating efficiency ratio than we have planned even before the pull forward of certain repositioning actions into the quarter.

While we expense saves resulting from these repositioning actions will help offsets some of this pressure, we still expect our full year operating efficiency ratio to be higher than we had anticipated, in the range of around 58%. This outlook assumes that equity and fixed income market revenues would be roughly flat sequentially in the second quarter and then exhibit a normal seasonal decline into the third and fourth quarters.

We believe investment banking revenues should recover from first quarter levels if the environment is favorable based on the significant backlog of deals we have pending with our clients and we should be able to continue growing the accrual and transaction services businesses year-over-year in ICG as I described earlier.

On the consumer side, we continue to believe we can achieve year-over-year revenue growth in our existing US branded cards and Asia cards businesses in the latter half of 2016 and of course we will benefit from the acquisition on the Costco portfolio in June.

Turning to Citicorp expenses, there are a few things to consider. First, we believe that regulatory and compliance costs have started to plateau and we expect the repositioning actions we took in the first quarter to payback with roughly $400 million of total savings during the remainder of the year. So even though we expect to incur significant additional expenses related to Costco in the second half, we believe our core operating expenses in Citicorp can remain roughly flat sequentially going into the second quarter and then decline somewhat thereafter. Repositioning costs should be significantly lower for the remainder of the year and in total, legal and repositioning costs should run in the range of about 225 basis points of Citicorp revenues this year, higher than our original estimate of 200 basis points, again due to low revenue assumptions.

While this quarter's results were disappointing, we believe we are taking the right actions to address our cost base, while at the same time continuing to invest in those areas where we have a competitive advantage and can achieve strong returns overtime. We continue to demonstrate strong capital generation this quarter and we remain highly focused on resource allocation across the franchise.

And with that Mike and I are happy to take any questions.

Question & Answer

Operator:

At this time, if you would like to ask a question you can do so by pressing star followed by the number one on your telephone keypad. Once again that is star one to ask a question over the phone. Your first question comes from the line of Jim Mitchell with Buckingham Research. Please go ahead.

Jim Mitchell: Buckingham Research:

Hey good morning.

John Gerspach: Chief Financial Officer:

Hi Jim.

Jim Mitchell: Buckingham Research:

Hi John. Question on energy. I appreciate the update but that's a $30 oil or it $40 now obviously that can move but do you think that if we stay above 40 that the pressure would be a little less, which the way you think but how do we frame I guess oil prices if they remain higher?

John Gerspach:

Yes I think a little bit of that is going to the determine based upon where its sentiment plays out. So clearly when we set out this guidance for year and what we are looking at is the expectation of let's say oil and a band of 30 to 35. If oil consistently stays above 40 and especially on a forward curve you see a continued price increases then yes the credit cost that I called it should be somewhat less.

Jim Mitchell: Buckingham Research:

Okay, that's not dramatically so.

John Gerspach:

They'll be somewhat less.

Jim Mitchell:

Great. Fair enough and just may be a follow up on the Costco acquisition, appreciate the color on expenses should we expect that overall with all the puts and takes to be I think you initially were hoping would be modestly accretive is that still the expectation.

John Gerspach:

Very modestly accretive. I mean that's a net income -- it's really going to be roughly flat Jim I mean that's I think the best way to think about it. Will it generate a -- to of net income -- but it's really the way to think about of this flat.

Jim Mitchell:

Okay. That's great. Thanks.

John Gerspach:

Okay.

Operator:

Your next question comes from the line of Glenn Schorr, with Evercore ISI. Please go ahead.

Glenn Schorr: Evercore ISI:

Hi, thanks a lot.

Michael L. Corbat:

Hey Glenn.

Glenn Schorr:

I just want to make sure I got all the moving parts I appreciate all the guidance. I think it's fair to assume we are not going model loan hedges to hit this quarter the write-down have been slow that happened this quarter. It sounds like with your new guidance energy reserving could stay about this level given your past comments to Jim's question. So the big delta is from here over the next couple of quarters would be if trading gets better and your comments about legal and repositioning being a lot lower.

They got all the big moving pieces right.

Michael L. Corbat:

Yes and also don't forget we do believe that in the second half of the year we are going to get year-over-year revenue growth coming out of U.S. Branded cards business as well as the Asia card business one as we see those investments begin to really kick in on the final piece of the puzzle we have gotten the account acquisition now we're seeing the --we're seeing more balance as build so that revenue growth and should be clearly visible in the later part of 2016 and in Asia again credit cards we believe that we are working all the way through the last of the regulatory pressure and therefore we should get growth out of that business. I think it is those things and then the continued growth of the accrual businesses and ICG and the big wild card is going to be what happens with market sentiment.

Glenn Schorr:

And then if we get drill down on the comments about markets obviously January and February had a lot thrown at it and us also the weakness. Your comments were flattish markets revenues in the second quarter I think a lot of us were thinking like it's not great but it's better than where we were in January and February. I am curious if there is more behind that conservatism besides just that we are not far out of woods just yet.

John Gerspach:

I would say that March was clearly better than January and February and April is kind of following along March's path. But I wouldn't call either March or early April robust. It's good, it's better than it was in January and February, but it's still not a robust market. So maybe on being of their conscious, but I'd rather be a little conscious in plan that way than tell that everything is bounding back and it's all going to be a great second quarter.

Glenn Schorr:

Fair enough. Last little one is the proxy came out and I was curious to see the elimination of the ROA target in the LTIP and go well in on total stockholder return. I think shareholders would like that piece, but I am curious on what brought the change.

Michael L. Corbat:

Glenn, it's Mike. When you-- your last comment of shareholders would like what?

Glenn Schorr:

The fact that a 100% of management's long-term incentive plan is now driven by total shareholder return. But I was curious on why the drop of the ROA component of it.

Michael L. Corbat:

As John referenced in his comments we're not walking away from targets in the disciplines in the firm haven't changed. So John led out path of getting to 57 for the remaining three quarters bringing us in somewhere around 58 and in a reasonable environment for the year firm ROA focused in all those but realistically we thought we would be transitioning here to much more of a return on equity set of targets John spoke about some of the targets that we will putting into the businesses and at the end of the day really what you are looking at is the pathway to how we can get our firm to getting to the returns that you want and expect and so maybe we were overly simplistic in the plan this year really just focusing on that. Again these plans are year to year will continue to take feedback and as that feedback is consistent out there we'll think of those things as we go into the future.

Glenn Schorr:

Okay. I appreciated that. Thanks.

Operator:

Your next question comes from the line of Brennan Hawken with UBS. Please go ahead.

Brennan Hawken: UBS:

Good morning. Thanks for taking the question. So just a quick one on the return on tangible outlook that you gave for both GCB and ICG. So that the 20% GCB I think you've indicated a normal rate environment.

Could you may be give us some color around what normally is John and then an ICG it was a bit more broad on normal. So if you could may be just help us understand what do you mean by normal and ICG too?

John Gerspach:

Well I've said that we think in terms what we would consider to be a normal environment. I'd say you start with certainly having a US GDP growth or something closer to 3% than the 2% that when you are looking that and in you are certainly that have a higher GDP growth than coming out of the emerging markets. You'd expect market sentiment a little less volatility, less fear driving improvements in markets as well as investment banking activity then one of that is clearly visible in the first quarter and I'd say a more conducing rate environment with a what you say its funds rate of about 200 basis points or so higher than where it is today. I think that will be a good start as far as trying to define I mean a more normal environment and I don't think that's beyond the road with possibility.

Brennan Hawken:

Okay, great thanks for helping us frame that and then next one not sure what you can say but you guys got a very very favorable living will outcome here this week and some investors pointed the fact that you have added a commitment to increasing capital returns in your deck upfront while certainly that's not the new goal for you thinking about CCAR right around the corner is there anything that you can add on those fronts and on the regulatory front and how those discussions are going?

Michael L. Corbat:

Well the result we got in terms of the resolution planning was one where the whole from came together that submit the plan and we were obviously very pleased with the outcome and in many ways it's the same way we refocused it from around our CCAR submissions it's what we've really try to build into the fabric of the place so our investments that we put forward we think on the qualitative side hopefully we'll show themselves and again in this kind of environment we have been producing lots of capital and we know we've got to be in the position for meaningful capital return and we want to be on that path. So you think the submission we putting on CCAR was a strong one and we'll see in June the results.

Brennan Hawken:

Great. Post two question limit, thanks for the color.

Michael L. Corbat:

Hey thanks .

Operator:

Your next question comes from the line of Mike Mayo with CLSA. Please go ahead.

Mike Mayo: CLS

Hi you highlighted your progress which is good reducing headcount franchise consumer markets holdings expenses and DTA's but ROE intangible ROE is still only 7%, now we did say that the results were disappointing and that you get better returned with a more normal environment but from my standpoint having cover the company for a long time the market is not buying it the stocks had 72% of tangible booked value looks like this year will be the 10th in a row with returns below the cost to capital and know it's a large US peers managed to have much higher returns. So the question is why not do more, so the tactical question which is I think it's an easy one, the efficiency ratio this quarter was 60% you're guiding this year for 58% that implies the next three quarter should be much better than 60% if you could just clarify why that's the case and the tougher one is the strategic question, can you accelerate restructuring more than what you've already done, you highlighted what you've done but with the stock at 72% tangible booked value you should be accelerating the silver wear and the dining rooms or the papers clips in the desks or the desks chairs or the whole desks to free up capital buyback stock here and the one area and particular I know we brought up before but why not sell better mix why not sell to Mexican bank, monetize that gain use the DTA's to avoid paying taxes, avoid integrating of project rainbow and use the proceeds to buy back stock.

What else can you do an and can you gives us a sense of additional urgency because with the 7% of ROE and 72% of tangible booked value the stock price it seems like you guys should be doing more?

John Gerspach:

Well, Brennan had two questions limit. Let's see, where to start, Mike, maybe I'll --

Michael L. Corbat:

You go and then I will jump in.

John Gerspach:

So let's talk about efficiency ratio. So the comments that we made on the 58% what we said is that you know the expectations would be that the repositioning actions that we took this quarter should began to drive down expenses in the second half and I think if you follow the revenue guidance that we gave Mike and the expense guidance that we gave that should get you to a point of about 57% efficiency ratio for the balance of the year. That has been our guidance for the full year tough to recover from the first quarter that we had and we felt that it was important to get the balance of the year, bank of the target that we had originally set and we think that again with the outlook that we've put forward by enlarge with there. So that's on the efficiency aspect of it.

As far as, how we improve the returns and everything one of the things that you need to focus on is the fact that we do have $29 billion of capital tangible common equity tide up in DTA. It's hard for us and that is impossible for us to get a return on that capital. What we do in the back of the deck is we do show you that adjusting for that DTA capital even our current business over the last four quarters in the environment that it whether you look at Citicorp or Citi Holdings were generating a 10% return on the capital excluding that capital tide up in DTA and that's not making an excuse its showing you where we have the issue. Which means that we're really focused on driving down the DTA utilizing the DTA which should add to the capital strength and which should then give us the ability overtime to return more capital to our shareholders.

So that is definitely consistent with what we've been talking amount. It is another element we continue to drive down Citi Holdings. We've driven it down towards now at the level that it is we've got still more assets to do that's capital tide up in Citi Holdings that is not really earning and adequate return we'll free that capital up, we will return that capital to the shareholders. So those were elements of the path forward and then final is as we put out we still believe that our consumer business is capable of generating a 20% ROTCE in a normal environment and the ICG of 14% and consumer we told you never focused we are focused on cards and wealth management.

We think that that's the right path forward, we think that's the right way to grow revenue, we think that there is a both good efficiency and a high return businesses, we've going to focus on moving more of our account acquisition into digital channels that will really benefit the efficiency ratio as well.

In the ICG we've got a nice based going and as accrual and transaction services business. 7% compound annual growth rate even in the so much challenging environment that we evolved in operating in the last two years. Investment banking we feel really good about that franchise it's a bad quarter. There wasn't much deal volume.

But we've got a very high backlog in investment banking and that's why we feel that there is revenues should improve in the balance of the year. When it comes to our fixed income franchise I don't think anybody can top our rates and currencies franchise.

Even in this environment recent currencies, revenues up 5% year-over-year and those are good performance businesses I think our rates business really outperform because basically foreign exchange was somewhat flat year-over-year or real out performance was in rate. So we have got a great franchise in rates and our customer recognized that. We've got some work to do as far as adjustment capacity and spread products we taking care of that and finally we are continuing to make investments in equities, the equities should help us overtime it did not help us in this quarter. But that's the path forward, Mike. We don't think it's time to start selling the furniture.

Michael L. Corbat:

I will just close it with the conversation on Mexico because you specifically mentioned Mexico, Mexico for us is an important franchise and as John talks about the pathway to a 20% returns in the consumer businesses Mexico plays an important role and we look at the business in every sense of the world it's creative to the company and to our shareholders. Second piece around as we look at the growth prospects for Mexico and where we think Mexico's economy is headed we like what we see and has plays an important role in the Mexican economy around that. Third and final piece is that we were to take some type of the action against that based on capital planning and submission processes you actually don't know how much of that capital would actually be liberated or entitled to go back to investors so it's a good businesses, it's a growing businesses we think it's a strategically important businesses and simply selling the furniture to liberate some capital here we don't think is the right long term or intermediate term decision.

Mike Mayo:

Alright. Thank you

Operator:

Your next question comes from line of Gerard Cassidy with RBC. Please go ahead. With RBC please go ahead.

Gerard Cassidy: RB

Thank you. Good morning gentlemen.

Michael L. Corbat:

Hey Gerard.

Gerard Cassidy:

Question you've touched on a couple of times to your backlog and investment banking can you give us little more color is it more North America or is these areas Asia and then second how you compared to the end of December has the backlog picked up from there or is about the same?

Michael L. Corbat:

Yes it's backlog is up we probably go one of our best backlogs we had in several years and we think in the market and just put to it in context, yesterday was April 14 and realistically that was the opening of the IPO market here in the US so as you can imagine a fair number of things to do and so when think about M&A when about think about the equity calendar if we can get some kind of reasonable environment I think you could see a lot of transactions coming through the pipe there. From my own prospective I think there is good balance around the globe US, Europe, Asia in terms of the backlog. So, again if we can get any kind of reasonable environment we think we're going to be quite active.

Gerard Cassidy:

Great and then in terms of what's going on in the UK with Britain picking up leading the EU can you guys for now if that happens what the risks could be to Citigroup?

Michael L. Corbat:

Yes we -- from a Citi perspective with more importantly from a Citi client perspective we think that the EU staying together as it is the best outcome but we leave that to the UK voters to decide from our own perspective is probably we operate in most of the 28 EU countries and so we have a lot of flexibility in terms of what we could do, we run a significant bank we have trading we've got people in a number of the countries so we would have options in terms of where we would choose to headquarter European trading business or where we would put but clearly around the UK we would still have significant resources there so we got contingency planning but we've got a lot of potential options if that's the path it goes down.

Gerard Cassidy:

Great, and then just one last question on credit I know you've given us good detail on energy. In the non-energy area there were some deterioration in credit granted it wasn't a significant in this energy. What type of industries was that deterioration in?

Michael L. Corbat:

I mentioned the fact that some of the nonaccrual loan adds we are in mills and mining and the rest of small bits in other industries no particular concentration and no particular that I am aware of. So can you just give a spread around.

Gerard Cassidy:

Okay, great and actually is continue in the you had nice improvement in charge-offs in the consumer outside of the United States. Do you expect that to continue especially in Asia and Latin America.

Michael L. Corbat:

No. We don't see getting any worse. As we look at the delinquency statistics and its running pretty well you had total -- rate outside the US of 1.6% that's probably close to 70 basis lower than the loss rate that we have in the US and that's all in including Mexico.

So I don't want to say is going to get much better I am not quite sure how much better we think get, but I don't see it getting worse.

Gerard Cassidy:

Great appreciating all the color. Thank you.

Operator:

Your next question comes from the line of Chris Kotowski with Oppenheimer. Please go ahead.

Chris Kotowski: Oppenheimer:

Looking at the global consumer bank, in the last couple of years you've given us guidance on positive operating leverage and maybe not on a quarterly basis, but on an annual basis we saw that you delivered that in both 2014 and '15 and this year I guess the first quarter doesn't look when you've got all these moving parts with cost go coming and other jurisdictions being shut down. Can you give us an idea what kind of underlying same stores sales, operating efficiency or leverage is there positive upper rating leverage or is just that the card business revenue give up start too much.

Michael L. Corbat:

It's going to be tough to overcome to this year especially with the large amount of repositioning that we've did in the first quarter. So I think it's going to be hard to generate that type of story for 2016, but we do think then that again the business that we are growing and the business that we are investing in and is one that is going to be came while of generating on a consistent basis positive operating leverage and higher return so that's we are trying to do, Chris and that kind of believe.

Chris Kotowski:

And then secondly kind of unrelated just if you can say and something like Venezuela where you I guess you -- investment there essentially down to zero. Is there still an operating business there with optionality in case the situation business and economic and political situation there ever turns around or is it just basically more or less shutdown?

John Gerspach:

We still have a good business serving our ICG clients and have particularly subsidiaries in that country. So there is a, if the country improves we should see a benefit coming out of that and you're quiet right with the 180 write down that we took our remaining investments in that country is $4 million so it looks like a -- some really good ROE it's when the business can come back.

Chris Kotowski:

Okay. Great. Thank you.

Operator:

Your next question comes from a line of Betsy Graseck with Morgan Stanley. Please go ahead.

Betsy Graseck: Morgan Stanley:

Hi. Good morning.

Michael L. Corbat:

Hi Betsy.

Betsy Graseck:

Couple of questions just one on the restructurings and the cost this quarter and then saving of the $500 million and is going to drive. So I just wanted to understand how much of the restructuring came in this quarter and then I hear you that you're going it will be coming through I just wanted to understand it's a $500 million coming entirely through by the end of this year?

Michael L. Corbat:

No we will get about 400 of that in the last three quarters of the year so that the repositioning that we took in the first quarter largely will repay itself in the 2016 results and that exactly what Mike wanted us to achieve so that's the way we would really looked at that.

Betsy Graseck:

Okay, and so than right we have a little bit of a benefits 2017 and then this quarter results reflected some of the benefit of the restructuring you took last year is that accurate?

Michael L. Corbat:

That is correct.

Betsy Graseck:

Alright okay and so with that restructuring do you feel that within maybe a better market not a normal market given how you define normal you think you had a good spot on the expense ratio that getting that 57% 56% as you can achieve in 2017?

Michael L. Corbat:

Yeah I don't want to get into setting 2017 targets because again I am still trying to figure what the market environment is going to be balance of this year but we do think that again everything that we're doing now is position to improve that operating efficiency and getting us close to that mid-50 that we're still targeting for Citicorp so

Betsy Graseck:

My basic question just given more stabilized revenue environment new structure you took this quarter you know feels like it's the last one you need to take of this magnitude is that reasonable or

Michael L. Corbat:

I think it's reasonable as long as market conditions stay where they are I mean as we have said if market conditions weekend then there may be other actions that we need to take we're not to the need to do things in order to improve returns we think that's the right way to run a business. So we've got a model in place we have set the businesses with their goals but if market conditions look as though those revenue environments are not going to come around then we'll need to take some additional actions hopefully as you said we are finished with large repositioning actions.

Betsy Graseck:

Alright. Okay and then just couple of if could you talk is one is on the card portfolio you highlighted the fact that you've got two positive growth in the card portfolio this quarter. Which is great and that in spite of the legacy card portfolio could you just remind us the size of the legacy card portfolio and over what kind of time frame you expect that's going to be rolling off?

Michael L. Corbat:

No, I don't want to split the portfolio like that. I will tell you that the core portfolio that again where we have been making the investments those obviously the performance that we are getting out of that portfolio is even better than what you see on slide 9 so the purchase sales growth in the core portfolio where we are making the investments the core products is 16%, the average open accounts is up 9% the average card loan is up I think it's 4%.

So, you can see that again that's having that is really driving the growth which is exactly what we would expect it to be and that's why we believe that by the second half of the year we are going to get the entire card portfolio to the point where we'll have year-over-year growth. But again we are not finished then because we would expect even more growth coming into the core portfolio in '17 and '18 and again that's before we even talk about adding in Costco. In Costco, first year we have Costco will not be contributing much just because of the way the accounting works but we think that's a really good business and looking forward to the contribution that will make in the second half '17 and to '18.

Betsy Graseck:

Okay and that's very helpful. Last question is just on the reserving that not reserving, but the outlook for what could the $1.4 billion if well -- to the 30 or cabby outs there and you mentioned that $400 million above what you had previously indicated two-thirds of which coming from regulatory guidance. Could you just give us a little bit of a color around what you think that regulatory guidance is, why it might different from what your view are you had the other one-third of provisions of your views versus two-thirds from them.

Michael L. Corbat:

Earlier this year the LCC in particular that came out for the industry with some guidance first verbally and then inviting are largely centered as to how you should be trading some of the reserve base lending that and we still have some questions about how we are interpreting that guidance we think that in that 1.4 that I put out we have taken the most conservative deal as to how to interpret that guidance. But again we are still waiting to make sure that we've directly we've interpreted that proper way.

Betsy Graseck:

Okay. Thanks a lot.

Operator:

Your next question comes from the line of Brian Kleinhanzl with KBW. Please go ahead.

Brian Kleinhanzl: KBW:

Hey thanks. I just had two quick questions one on transferring Citi Holdings back into Citicorp and now -- we can expect really no announcements for future sales of businesses and you kind of finally researched and stay we having with -- businesses.

Michael L. Corbat:

We still have the consumer businesses in Argentina, Brazil and Columbia that are in holdings. They may or not be sold this year if they are sold next year we'll probably tell you about it. So I don't think that you've heard the last of some of the business sales.

But again, holdings is just becoming it's just the normal way of doing business right now. Almost everybody has got something that they are selling where it's a portfolio or whatever.

Michael L. Corbat:

And what you talked about John as we finished the quarter at 73, we've got commitments already in place for 10 and so as John mentioned, Argentina, Brazil, Colombia, you've got an operating business to one main version Citi Finance Canada. But away from those, it is largely an asset portfolio and so you will be able to see assets in corp other move up or down and we can provide color or insight around those. But we'll going to keep the focus to get the transactions closed and out the door, but again, I just don't think it's all that meaningful to the finances of the company anymore.

Brian Kleinhanzl:

Right. But what I guess I am referring to is new announcements; from here on, now there shouldn't be new announcements about country exits in that?

Michael L. Corbat:

We will put out press releases as we signed and as we close the transaction.

John Gerspach:

I think what he's asking, Mike, is are we going to have any more sales, and that's going to be dependent upon how we continue to assess the environment. If the environment says that we need to scale back in some places, we will be active in response to that.

Brian Kleinhanzl:

Okay, great. And then there is one question Costco. I mean, is it getting close to the close now? Can you provide any update on portfolio size, anything besides the accretion numbers you just gave?

John Gerspach:

The portfolio will close on or about June 20th. It should be June 20th when the portfolio closes and everything moves over. As we get closer to that date, we may give you some more, but for now we are just focused on the June date.

Brian Kleinhanzl:

Okay. Thanks.

Operator:

Your next question comes from the line of Matt O'Connor with Deutsche Bank. Please go ahead.

Matt O'Connor: Deutsche Bank:

Hi. Just a follow up on the Costco deal about neutral earnings this year as we think next year and beyond obviously with some upside marketing investments system investments any thoughts how profitable could be longer term.

Michael L. Corbat:

We haven't commented on the profitability the individual portfolio and we'll get, we'll say and we have said that the return characteristics of that portfolio is perfectly into the cards business that we're trying to grow so I've said on a number of occasions that our US branded card business should be one that when we finished with the investments and adding in Costco and everything else we think that it's a business that should earn an ROA somewhere in the 225 to 235 range and Costco will be an important part of that that's to our US cards business is to have a balance portfolio balance between our core proprietary products as well as the card portfolios where we've got our partner cards. So we think that's the right way to grow that business and that's the way that we're moving forward and overall that business again 225 near about ROA in the future

Matt O'Connor:

Got it and then circled back on expenses, the improvement the efficiency ratio rest of the year and it sounds like it's mostly revenue dependent I guess the question is if revenues are weaker how quickly can you adjust to that environment I guess I am trying to get a sense of how variable is the cost structure we see much variable this but it's also just one quarter as you think over the next several quarters if revenue to comes in the lighter do you have a flexibility to bring those cost lower than flat

Michael L. Corbat:

What I actually trying to guide you to is the fact that we think the core expense will be actually coming down especially in the second part of the year. We don't anticipate having anywhere near a level of legal and repositioning charges that we had in the first quarter either. So we think that expense reductions and balance of the year is an important element of getting to that 57% efficiency ratio.

Matt O'Connor:

Okay, so I guess right, but if how much variable in this, I just come back to the variable in this question, I mean how much flexibility is there to further bring down and I guess as all surprise the first quarter begins the much variability in the expenses given how weak revenue was obviously you took the repositioning it's just one quarter but if the revenue is less than what you laid out today how much kind of real time flexibility is there to bring down cost?

Michael L. Corbat:

That's we'll address that as we see with the revenue I'm not going to give you figure that X percent of the expense base is variable because on a longer term basis everything is variable. On a shorter term basis it's not going to be as variable as you would like it to be.

Matt O'Connor:

Okay. Alright. Fair enough. Thank you.

Operator:

Your next question comes from the line of Erika Nigerian with Bank of America. Please go ahead.

Erika Najarian: Bank of America:

Yes hi, I am just one of the question for you Mike I appreciate the color that you gave during the prepared remarks on CCAR and just the follow up to that how -- are you confident enough or how confident are you in terms of checking of the regulators qualitative to do with in terms of moving closer to your peers over the next few years in terms of payout especially in light of the kind of regulatory capital growth that Citi has enjoyed over the past couple of years.?

Michael L. Corbat:

Yes, that's exactly Erica or what we are committed to we fully understand that capital generation and capital return is big part of the investments pieces and story and if you go back and look over the past couple of years capital generation hasn't been our issue I don't over the last three years we have generated over $50 billion of regulatory capital. In the last quarter we generated $6 billion of regulatory capital and so ours is the normalization around the process and the credibility to make sure that we can get that capital back to our investors and that's exactly what we are working at and that's why so much time energy has been putting on the qualitative side of things to be able to get that to that point as quickly as possible.

Erika Najarian:

Okay and just my follow up is John did I look at the headlines rate I am doing your call to media than the same group that was in charge of resolution finding is also in charges of CCAR.

Michael L. Corbat:

I am sorry, Erika.

Erika Najarian:

Sorry I saw headlines on Bloomberg when your how your -- media this morning that I think you said that you mentioned the same group that dose in charge of resolution planning as also in charge of CCAR.

John Gerspach:

You can't believe everything that you read online or in headlines. Well what I said was in my prepared remarks during the Q&A that I had with the media, but the question came up as far as resolution planning and I said look we put a lot of hard work into developing the resolution and that we really carefully incorporated all the feedback that we've received in late 2014 on the earlier submissions and we embedded resolution planning into our day-to-day management of Citi and I felt that very similar to what we've done CCAR. So rather than think of CCAR and resolution planning at separate initiatives performed by isolated teams of people. We consider both as integrated parts of our capital planning process and I said just as we have a continuous budgeting and forecasting process that is owned by our business managers well the business managers also are in the CCAR process and the resolution planning process so that's what I said.

Erika Najarian:

I see. Thanks for the clarifications John. Appreciate it.

John Gerspach:

Thant's okay, it's not that we've several have got a new management that's the wrong way to run CCAR and resolution. To have somebody separate I mean -- guides CCAR I guide resolution but it's a business managers that ultimately owned it.

Erika Najarian:

Got it. Thank you.

Operator:

Your next question comes from a line of Matt Burnell with Wells Fargo Securities. Please go ahead.

Matt Burnell: Wells Fargo Securities:

Good afternoon. Thanks for taking my question. John may be just one more quick one on energy. To -- your at least part of the way through the spring re- determination I am curious what you are expectations are in terms of the potential reduction in the borrowing basis across your borrowers when that process is complete?

John Gerspach:

Yes. We think that our reserve based lending exposure could be reduced a by $500 million that will be combined the ICG as well as the consumer book and it's probably 300, 200, 350, 150 the ICG being slightly bigger piece of that.

Matt Burnell:

Okay that seems a smaller percentage than what we've heard from the couple of other lenders. Just if I can follow up just on a separate topic, the 200 no I guess 225 basis points of revenue that you're suggesting we should think about in term of repositioning and legal cost how far does that guidance go out I mean it sounds like with legal now sort of ramping down certainly never going to go away but ramping down and the repositioning cost presumably are going down overtime should we think about that ratio in '17 and '18 and on out or you going to be continuing to reposition and invest in places like wealth management?

Michael L. Corbat:

Well I would say that again we do think that's 200 basis points and certainly 225 basis points is a very high charge on the revenues for legal and repositioning and it's relevant in the near term 2016 will assess 2017 when we get there but that would not be my view as to where we would expect legal and repositioning to be certainly beyond 2017 so we should be looking at something which is a lot smaller but I'll give you more guidance as we get closer to the end of 2016.

Matt Burnell:

Okay and then just finally for me maybe I think questions there was substantial jump in the other than temporary impairment losses from the income statement this quarter to $465 million is there anything you would like to call out there?

Michael L. Corbat:

Yes Venezuela is there the Venezuela charge of a of $180 million so that's big piece of that.

Matt Burnell:

Okay, thanks very much John.

Operator:

Your next question comes from line Steven Chubak with Nomura. Please go ahead.

Steven Chubak: Nomura:

Hi, I had a quick question on capital. John in the past I know you highlighted operational rate declines as a meaningful source of future capital release and at the same time you have also talked about CCAR as being your binding constraint on capital and it's something that a lot of clients have mentioned as well as the potential source of relief. And what I am wondering is because of the stress test exam only evaluates capital ratios under the standardized approach, which excludes op risk from the denominator, I am wondering whether that renders any potential benefit, tied to op risk move going forward. I just want to get a sense as to whether we should still be crediting that as a future source of relief given that it's not contemplated explicitly within the capital ratios within CCAR?

John Gerspach:

Actually Steven, I don't know whether I misspoke or you misheard, but it's probably my fault, but I don't think I certainly didn't intend to indicate that op risk would be a source of capital release. As a matter of fact if anything I think that the operational portion of the advanced approach RWA is very sticky right now. There just isn't a clear cut agreement either amongst us or even the regulatory bodies really as to how you reduce op risk. So that's one of reasons why when you give you the Holdings RWA in the past, this quarter for instance, the Holdings RWA is like $130 billion and of that $130 billion, $49 billion is op risk. At the same 49 billion that was there in the fourth quarter, the same $49 billion that was there in the third quarter. So we really we tend to think overall if we take look a look at the Ks and Qs I believe that our op risk RWA is like $325 billion and I consider that to be fairly sticky for now. I just don't have a good methodology in place to figure out how we drive that down. It's one of the very and it frustrates me, I think frustrates probably every CFO and Chief Risk Officer that you'll talk to at a major bank right now, but that's kind of where we are.

Steven Chubak:

Alright. Thank you for clarifying that John and its certainly frustrates investors and analyst as well. Just one question on the profitability targets. I know we spent quite bit time on it this morning, but thinking to challenging revenue environment we saw in 1Q the 100 basis point increasing the efficiency target and then the break even guidance for holdings for the remainder of the year.

Are you still committed to deliver on the 90 basis point ROA target that have led out and I think reaffirmed may be as little as just one month ago.

John Gerspach:

Yes. I would say that given all of that math the 90 basis points given where we ended up in the first quarter it's going to be tough for us to come in at 90 basis points.

Steven Chubak:

All right and just one more quick may be that question for me. I was wondering what the source of RWA growth was in the quarter I did see that the balance sheet grew as well again that if you could clarify that?

John Gerspach:

Yes. It's a little bit of the balance sheet growth and that is also being filled also by a foreign exchanged movements. We did don't forget these are one day as supposed to being averages and so if you actually take a look at what happened at the end of March compared to where we were at the absolute end of December. In certain currencies the dollar actually weaken particularly against the euro.

So that added $4 billion or $5 billion worth of RWA on to us. We had some modeled changes that was like another $8 billion to $9 billion we had I think $15 billion with adjust volume as the balance sheet grew and then there was a $5 billion increase in market risks which we're still looking at that that's why these things are estimated numbers at this point in time don't forget. When you walked down the RWA calculations as we filed queue in couple of weeks.

Steven Chubak:

Okay. Thanks, John for taking my questions.

John Gerspach:

Not a problem.

Operator:

Your next question comes from the line of Ken Usdin with Jefferies. Please go ahead.

Ken Usdin: Jefferies:

Thanks. Just a question on total cost of credit you talked a little earlier about losses, we talked a little bit about the energy outlook for the rest of the year. But John relative to kind of $2 billion on cost credit for the whole how should we just understand how that goes especially with not really knowing what Costco will add to that.

John Gerspach:

Anyone to that I gave you is ex-Costco and I didn't give you a view towards what consumer would be. But don't forget Costco overall I think I mentioned earlier you going to think in term of Costco, revenue expense cost of credit being basically break even for the balance of this year and that's gives me the facts that many accounting works you forced to loan loss reserves basically over the first year that you have portfolio. So I think about Costco as it will impact all the ratios, but from a net income point of view right now it's basically break even. So that's -- there the billion that I gave you as far as the forward look on ICG that was all in that was not just energy that's all an ICG.

Ken Usdin:

Okay. So that's all our including reserve bills that's all in and then do you think I guess the last piece just do you think you continue to have any releases underneath in card or is it more just how the loss is trajectories from here.

Michael L. Corbat:

As we continue to build the card portfolio we are likely to see small reserve increases that the volume driven as oppose to being driven by a weakening in credit performance so as you build portfolios you do have to put aside of reserve dollars but again we continue to believe that the credit performance and consumer whether it's on the U.S. international should continue to be very favorable.

Ken Usdin:

Okay understood. Thanks for the time.

Michael L. Corbat:

Thank you.

Operator:

Your next question comes from the line of Eric Wasserstrom with Guggenheim Securities. Please go ahead.

Michael L. Corbat:

Hi Eric.

Eric Wasserstrom: Guggenheim Securities:

Hi John. A question on the treasury and trade solutions outlook obviously one area that's been sort of week globally has been trade finance particularly trade finance related to various commodities which is a big portion of that the global total. So how do we think about that pressure relative to the pretty positive guidance and recent trend that you have indicated.

Michael L. Corbat:

All of the trade performance is in that number that you see reported whatever the slide number is 14 or 13 that is in the desks so that's pretty much how we're operating today one of things that we have done overtime is we've moved a lot more of our trade business even being less balance sheet intensive so it's we do a 100 percentage of our business now on originate to sell and what that's given us is the balance sheet and to expand in to the supplier finance aspects of trade that is got better spreads and it really deepens the relationship then that we have with our client customers so, we recognizing everything you said trade is not what I would call a tremendous growth business at this point in time. But it's got relationship qualities to it and it's really adding to the overall franchise in a very positive way.

Eric Wasserstrom:

Got it. So it sounds that if that the volume pressures have been offset by basically moving down the eco system in terms of client opportunities that more or less correct.?

Michael L. Corbat:

I don't say it's moving down the eco system I say that we're expanding the business that we can do with our target market clients by helping them in working capital management and what we've done is we've got a lot of the kind of sponsored business which is it's not it's get very low spreads. We will still originate those things but then we tend to syndicate and so the trade finance receivable. We will really want to do as we want to use trade as we doing almost every one of our product areas we want to use our trade capabilities to help our clients manage their business.

Eric Wasserstrom:

Got it. Great. Thanks very much for your clarity.

Michael L. Corbat:

Not a problem.

Operator:

Your next question comes from the line of Vivek Juneja with JP Morgan. Please go ahead.

Vivek Juneja: JP Morgan:

Hi, thanks. Couple of questions firstly John you'd given the guidance for the last quarter for lenders margin at 285 to 290 for the first time you can at a little bit of that but was really flat quarter you are still expecting to go to 285 to 290 for the first half and if so what would that drive that down.

John Gerspach:

Actually I don't maybe our guidance to as we think it's 299 kind of whole flatten the second quarter

Vivek Juneja:

Okay.

John Gerspach:

again as we continue to offset the impact of holding run-off by the better spreads on our loan but largely due to the interest rate lift that we got in coming out of December and by tail end of the year as we get the Costco business on our books that should be another grown to our and we're expecting some on the order 3 basis point improvement from Costco. So we should end the year to second half of the year with in the range of 295.

Vivek Juneja:

Okay, great. And Mike a question for you the equity you have trading well if you several times over the last couple of years what are your plans to fix that?

Mike Corbat:

So as you look at this quarter. This quarter wasn't a quarter where a revenue performance was a result of trading issues. This was really from our perspective and I think you saw across the industry certainly for us. The client volume, client flow challenges and John and I talked historically about the run rate we would like to see the business out and the opportunity and again going back there is no reason why as a firm we should be in the 8-9 area.

We should be in the 5 6 area and we think there is an incremental couple of $100 million a quarter overtime that we can add which just some reasonable investments and the investments come in a couple ways it comes in terms of people and it comes in terms of balance sheet given where our capital ratios are, given where our leverage ratios are prime finances as an example we think we have got opportunities to go in and take share and that's a natural trend to execute on.

Vivek Juneja:

Okay. The only thing I say is the pears who reported so far your equity driving revenue were weakened or.

John Gerspach:

Yes. They were.

Vivek Juneja:

Okay. Thanks.

Operator:

Thank you. We have no further questions in the queue at this time.

Susan Kendall:

Great. Thank you everyone. If you have any follow up questions please you will free to reach out to Investor Relations and thanks for your time this morning.

Operator:

Thank you. This concludes today's conference call. You may now disconnect.