Why Citigroup’s shift to wealth management is a risky bet

Since the company’s collapse during the 2008 recession, Citigroup’s stock has continuously struggled, with shares falling more than 30% over the past five years.

In response, Jane Fraser, the CEO of Citigroup, announced a bold shift in company strategy, and it has exited 14 consumer markets outside of the United States since April 2021.

“What’s been obvious to analysts for a long time is that Citi had become too unwieldy and too big to manage,” said Hugh Son, a banking reporter at CNBC. “Ultimately, a lot of the disparate parts overseas didn’t really have very many synergies between them.”

Citigroup instead announced its plans to divert resources and double down on wealth management. It’s a tactical move that several other major banks like Bank of America and Wells Fargo have adopted in recent years.

“It offers high returns and it creates growth opportunities in areas that are in the early stages of wealth generation like Asia and the Middle East,” according to Mike Mayo, a senior banking analyst at Wells Fargo Securities. “And it comes with less risk of big mishaps so the regulatory treatment is better.”

Despite the shift in strategy, though, Citigroup’s investment in wealth management hasn’t started to pay off. In 2022, the firm expected global wealth management to generate a compound annual revenue growth in the high single digits to low teens.

But, instead, Citigroup’s wealth management revenue fell 5% year over year in the second quarter of 2023.

“It waits to be seen whether Citigroup will be successful,” said Mayo. “I’m skeptical, for as much as I am more positive about Citi’s strategy when it comes to their global payments or banking or markets business. I think it’s to be determined how this wealth management strategy plays out.”

Citigroup declined to provide someone for CNBC to interview for this piece.

Watch the video above to see how Citigroup is planning its comeback.