After the company's collapse during the 2008 recession, Citi stock has continuously struggled.

Shares of the company saw more than a 30% drop over the last five years.

The firm has faced many ups and downs over the course of my career here, and it's clear we have challenges that we need to urgently address right now.

Citigroup has had worst in class efficiency, returns and stock market valuation, and that's led to underperformance over almost any timeframe.

They haven't been profitable enough.

It's a chronic laggard in profitability.

It's not that it's teetering on the edge.

Once the largest bank in America, Citigroup is now the third biggest in the U.S., with over $1.7 trillion in consolidated assets.

Globally, it is the 11th largest, with just over $2.4 trillion in total assets.

Citigroup, I believe, is finally turning a page.

The first step to improve is to recognize that you have a problem in the first place.

We know there is a clear cut case for change at Citi.

I hope you've seen we're acting on it, positioning our firm's long term future and tackling the issues that have held us back head on.

The challenge now will be executing and changing that culture to what she wants to be more real time and more aware and more intense and more about winning.

So what kind of changes is Citi making, and can it return to its former glory?

In April 2021, Jane Fraser, the CEO of Citigroup, announced a bold shift in the company's strategy, exiting 13 retail markets outside of the United States.

Asia and the EMEA region accounted for more than a third of Citi's net revenue in the year prior.

This global vision that Citi retail banking was an aspirational bank, that it was kind of like the Nike swoosh or the Mercedes star, that it was a branded global good.

And every CEO had that vision.

And maybe in the '60s it was true.

Under Jane Fraser, Citi is finally unwinding the failed 50-year experiment of serving consumers all around the world.

The old banking adage has played out.

Wholesale banking is global, retail banking is local.

In 2022 alone, Citigroup completed sales of its business in five countries and added Mexico to the list of countries it's departing.

What's been obvious to analysts for a long time is that Citi had become too unwieldy, too big to manage, and that ultimately a lot of the disparate parts overseas.

They didn't really have very many synergies between them.

Four executives I spoke to actually referred to these businesses as melting ice cubes.

In other words, that over time with disinvestment, with perhaps not the greatest management focus from HQ,

that ultimately their value was decreasing versus some of the sharper, more motivated, locally owned competitors in many of these overseas markets.

Citi instead announced its plans to divert its resources and focus to double down on wealth management.

It's a tactical move that several other major banks have adopted in recent years.

I always like to say banking is all about money. And guess who's got money?

Rich people got money.

Everybody wants to bank affluent people.

You have a financial adviser usually getting paid on an annual basis of 1% to 2% of the assets under management.

And to that very basic model, you could add fees for margin loans or jumbo mortgages and things like that.

But the reason why Wall Street and investors tend to love this business is that it gives off an annuity-like stream of earnings, no matter what's going on in the merger markets, what's going on in trading.

It offers high returns.

It creates growth opportunities in areas that are in the early stages of wealth generation like Asia and the Middle East, and it comes with less risk of big mishaps.

So the regulatory treatment is better.

But at its core, Citi's new strategy is all about simplifying down their business.

Part of the idea is that if you shrink down the footprint, and you're not doing so many things in so many different jurisdictions,

that not only will you have better critical mass in the markets that you do choose to serve, you'll also get less capital requirements because you're less complex.

You're simpler.

When Citi's finally done in creating a more simpler firm, interestingly, they're going to look more like Citigroup before the merger from 25 years ago.

Citigroup's history begins in 1812 with the creation of the first National City Bank.

The bank grew rapidly after a series of mergers and acquisitions until it was renamed Citibank in 1976.

The next 10 or 15 years, it becomes the biggest credit card issuer in the country.

They expand to 90 different markets around the world and, all along, innovating.

They were the first checking account.

They were the first bank to offer compound interest on savings.

But it was the merger between Citicorp, the holding company for Citibank, and a financial services company, Travelers Group, that created the Citigroup we know today.

Their idea was to take the biggest bank in the United States and the biggest insurance company and wealth management force in the United States, and to merge them into a financial supermarket.

So all of your financial needs under one roof.

Citibank was once the biggest bank domestically with assets worth over $2.1 trillion in 2007.

By comparison, J.P. Morgan had assets worth over $1.5 trillion, and Bank of America's was just over $1.7 trillion.

But the company's dominance came to a devastating end in 2008.

Shares of the company collapsed from the height of over $500 in 2006 to at one point just under a dollar in 2009.

Citigroup was the poster child for what could go wrong in a financial crisis.

Leading up to the financial crisis, Citigroup was fairly aggressive in loading up on subprime mortgages and other risky assets that soon became toxic.

Citi eventually joined the list of institutions deemed too big to fail, receiving $476.2 billion in bailout from the federal government.

But despite surviving the 2008 financial crisis, Citi hasn't been able to make a full recovery in the market.

Citi declined to put forward someone for an interview for this video.

If you look at a chart of the Citigroup stock, it's basically gone nowhere for the last ten years.

They have bounced back in the sense that their credit quality has been stable; they've been consistently profitable.

Their problem has been that they haven't been profitable enough.

Really, one of the key metrics in banking is its price to tangible book value, price to TBV.

And in that category, it's really far below all of its peers.

It trades at approximately 0.5 times book value, which is below 1, and 1 is really considered the point where below one you're really kind of destroying value for shareholders.

If you look at J.P. Morgan, it's at close to 2 at 1.8. Morgan Stanley even better at 2.

And so, the old saying among bank analysts is that you're supposed to buy banks when they're about 1 or below and sell them at they're about 2.

Well, Citi has been below 1 for the past decade and really the entirety of the post-financial crisis period.

Today, Citigroup mainly makes its revenue from two sources.

The first is Institutional Clients Group, which accounted for 54.7% of total revenue in 2022.

Contains their Wall Street businesses, their trading, their merger advisory business, and also something called Treasury Services that investors actually really love.

It's essentially a bank to global corporations, and they're one of the biggest Treasury services providers in the world, second only to J.P. Morgan.

Their second biggest division, personal banking and wealth management, accounts for 32.1% of total revenue.

Despite their shift in strategy, Citi's investment in wealth management hasn't paid off yet.

In 2022, Citi expected their global wealth management to generate a compound annual revenue growth, in the high single digits to low teens.

But Citi's wealth management revenue fell 5% year over year in the second quarter of 2023.

The absolute revenues are hard to look at in isolation right now for a couple of reasons.

One is investment banking just fell off a cliff and everybody is experiencing weakness there.

And then secondly, you had this steady drumbeat of divestitures.

Citi's wealth division oversaw $746 billion globally in client assets during 2022.

In comparison, Bank of America's Merrill Lynch had an asset size totaling $2.8 trillion in the same year.

The unfortunate thing for Citi is that they had a very good wealth management business in the form of Smith Barney,

but during the financial crisis, they had to sell that off and they sold it off to Morgan Stanley, which is now one of the premier wealth management franchises.

So they need to kind of reestablish and rebuild that.

So if you look at the history of Citigroup, they're trying to get back into something that they have essentially ceded to their competitors,

giving their competitors the juice and the ability to really make way in this business model that is highly favored right now by analysts.

It just wastes to be seen whether Citi will be successful.

I'm skeptical for as much more positive about Citi 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.

Citi might be on the right path for success, but the key will lie in whether the company will be able to show sustainable growth.

The first step to improve is to recognize that there's a problem in the first place.

And so Citi has been divesting about a dozen of their consumer operations outside of the United States.

They're investing in their winners, just investing in their losers. They're transforming.

My view is always that it's not necessarily a high return on equity that makes a stock price go. It's a rising return on equity.

And Citi certainly has the potential for that, even though it's taken way, way longer than one could have reasonably expected.