Citigroup Optimistic About Completing Consent Orders This Year

Citigroup's Compliance Progress

By Tatiana Bautzer and Lananh Nguyen

NEW YORK, Feb 6 (Reuters) - Citigroup executives are becoming more optimistic that they will be able to finish compliance work on major regulatory punishments, known as consent orders, later this year, according to two sources familiar with the situation who declined to be identified discussing confidential supervisory information.

The lifting of the consent orders would be a monumental shift and enable Citigroup to sharpen its focus on profit growth after six years of intensive compliance work involving thousands of employees. If the bank is let out of the regulatory penalty box, executives may also look for acquisitions barred under the consent orders, which are rooted in a botched $900 million transfer to Revlon creditors.

Current Status of Consent Orders

While Citi's CEO Jane Fraser has been optimistic about the bank's progress in complying with consent orders, telling analysts last month that the work is 80% done, the bank has refrained from giving a definitive timeline, saying this is up to regulators. Chief Financial Officer Mark Mason told investors in January the bank would likely spend less money on compliance work this year versus 2025.

Regulatory Expectations

Some Citi executives have started to communicate with clients that they expect the consent order work to be completed this year, one of the sources said. The second source said that the bank is also preparing for fewer regulatory restrictions this year that could help it return to business as usual and focus on growth, with less attention focused on its so-called transformation work related to the consent orders. Communication of such a timeline has not previously been reported. 

Impact on Financial Growth

The bank's completed fixes would still require signoff from regulators at the U.S. Federal Reserve and Office of the Comptroller of the Currency. Once that remediation work is done and the bank's internal auditors agree that it has met requirements, regulators would start their review. Officials may take longer to formally lift the orders because they will follow a process to evaluate and test whether Citi has completed the extensive changes required, the source added.

"Our transformation is Citi’s number one priority, and we continue to work closely with our regulators, who ultimately determine when to lift our consent orders," a Citi spokeswoman said. The Fed declined to comment. The OCC said in a statement that it "does not comment on specific banks nor on enforcement actions beyond what is posted on its website." 

Consent orders are onerous for banks. At Wells Fargo, CEO Charlie Scharf focused on the regulatory woes from the bank's fake accounts scandal since taking the helm in 2019. While several of its major punishments have been lifted in recent years, it still has a handful of outstanding orders. The lifting of consent orders requires a vote of the board of governors, which includes appointees from both political parties.

REGULATORY RELIEF EXPECTED UNDER TRUMP 

For Citi, analysts also see this year as a realistic timeline.

"CEO Jane Fraser said the bank has finished the work on controls, after revamping risk management," said Wells Fargo's bank analyst Mike Mayo, after issuing a report in January saying he expected the consent orders to be lifted this year. The bank is the analyst's top pick in the industry.

"The data remediation work that is left seems to be more of a box-ticking exercise for the regulators. The bank has nothing pending related to safety and soundness, I don't see why they would not lift the consent orders," Mayo said, noting that his assessment was based on compliance processes, rather than guidance from executives.

The sign-off is also expected to be aided by bank-friendly regulators. "Everything they're talking about their progress sounds very positive," said Richard Ramsden, Goldman Sachs' analyst. He said that regulators under U.S. President Donald Trump would be more likely to endorse Citi's regulatory fixes, but a timeframe for lifting the orders would be hard to estimate.

"The Trump administration is pro-business and pro-growth, but no one should be expecting undue handouts or carveouts at the expense of the American people," White House spokesman Kush Desai said in a statement.

LONGSTANDING PROBLEMS

Citi's problems stretch back to 2020 when it was told to remediate longstanding risk management and data governance problems identified by the Fed and OCC. It was fined $400 million and agreed to a long list of longstanding issues it needed to fix, then fined another $136 million in 2024 for the delay in fixing its data management problems. 

Citi initially struggled to show progress. Its orders are very detailed, requiring it to repair data management, controls, governance and compliance.

Since 2024, regulators have acknowledged some progress. In December, the OCC removed a 2024 data amendment to a 2020 order and the Fed also terminated notices demanding increased risk controls. The full 2020 consent orders by the Fed and the OCC remain in effect.

Investors have cheered Fraser's efforts to streamline management, cut jobs and sell businesses, boosting the stock 63% last year. Still, Citi's returns continue to lag behind rivals and are far short of the 11% to 12% return on equity target expected for this year.  

(Reporting by Tatiana Bautzer and Lananh Nguyen; editing by Megan Davies and Anna Driver)