Susan Kendall - Head, Citi Investor Relations Michael Corbat - CEO & Director John Gerspach - CFO

John McDonald - Sanford C. Bernstein & Co. Glenn Schorr - Evercore ISI Matthew O'Connor - Deutsche Bank AG James Mitchell - Buckingham Research Michael Mayo - Wells Fargo Securities Saul Martinez - UBS Investment Bank Steven Chubak - Nomura Securities Co. Betsy Graseck - Morgan Stanley Kenneth Usdin - Jefferies Erika Najarian - Bank of America Merrill Lynch Gerard Cassidy - RBC Capital Markets Alevizos Alevizakos - HSBC Brian Kleinhanzl - KBW

Hello, and welcome to Citi's First Quarter 2018 Earnings Review with the 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. [Operator Instructions]. 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.

Thank you, Natalia. 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 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 2017 Form 10-K. With that said, let me turn it over to Mike.

Thank you, Susan, and good morning, everyone. Earlier today, we reported earnings of $4.6 billion for the first quarter of 2018 or $1.68 per share. Our quarter showed strong and balanced performance as we continued to capture client-led growth, and we remain on track to deliver on the targets we announced at Investor Day. Our earnings per share were 24% higher than 1 year ago as a result of strong business performance, a lower tax rate and a continued reduction in shares outstanding as we execute our capital return plans. Relative to a year ago, we grew revenues by 3%, improved our efficiency ratio to just under 58%, increased our return on assets to 98 basis points and improved our return on tangible common equity to 11.4%. We grew loans in our core businesses by 7% or $44 billion from last year, and we ended the quarter with over $1 trillion in deposits. Global Consumer Banking had a good all-around quarter with 6% revenue growth and positive operating leverage in every region. In the U.S., we continued to make progress with our Citigold Wealth Management offering and also had growth in retail services. In branded cards, we saw the underlying revenue growth that we projected, driven by an increase in interest-earning balances and strong client engagement. And in Mexico and Asia, we saw momentum in both retail banking and cards. Our Institutional Clients Group had another solid quarter. While Fixed Income revenues were lower than a year ago, driven by less investor activity, our Equities business saw its best quarter in many years, giving us confidence that our investments are delivering results. We also saw ongoing momentum in TTS, our Private Bank, Corporate Lending and Securities Services as we continued to grow these stable accrual-type businesses. While Investment Banking revenue was down, we held on to the wallet share gains we've made in recent years, and client engagement remained strong. In addition to improving our return on capital, we continued to make progress in improving the return of capital for our shareholders. During the quarter, we returned over $3 billion in capital to our shareholders, helping to reduce our common shares outstanding by over 200 million shares from 1 year ago or 7%. We will complete our current $19 billion capital return plan in the second quarter, and we recently submitted our plan for the 2018 CCAR cycle. We believe we remain on track to meet the commitment we outlined at Investor Day of returning at least $60 billion over the 2017, '18 and '19 cycles, subject, of course, to regulatory approval. The environment remains unique, to say the least. We have synchronized global growth in a macroeconomic environment which is as positive as we've seen since before the financial crisis. U.S. corporations are starting to see the benefits of tax reform. The labor market is tight, and wage growth continues to improve. At the same time, though, there are concurrently escalating and deescalating tensions depending on the day and geography. And while our markets business may appreciate the volatility, we'd be better served by steady and predictable growth and having our fundamentally robust economy do its thing. With that, John will go through our presentation, and then we'd be happy to take your questions. John?

Thanks, Mike, and good morning, everyone. Starting on Slide 3. Net income of $4.6 billion in the first quarter grew 13% from last year as growth in operating margin was partially offset by higher credit costs and we benefited from a significantly lower tax rate. EPS grew 24%, including the impact of a 7% reduction in average diluted shares outstanding. Revenues of $18.9 billion grew 3% from the prior year, reflecting 7% aggregate growth in our consumer and institutional businesses, offset by lower revenues in Corp/Other as we continued to wind down legacy assets. Expenses increased 2% year-over-year as higher volume-related expenses and investments were partially offset by efficiency savings and the wind-down of legacy assets. Our efficiency ratio was 57.9% for the quarter, roughly 50 basis points better than last year, representing the sixth consecutive quarter of year-over-year efficiency improvement. And cost of credit increased, mostly driven by the institutional business as well as volume growth and seasoning in consumer. Our return on assets was 98 basis points for the quarter, and RoTCE improved to 11.4%. In constant dollars, Citigroup end-of-period loans grew 6% year-over-year to $673 billion as 7% growth in our core businesses was partially offset by the continued wind-down of legacy assets in Corp/Other. GCB and ICG loans grew by $44 billion in total with contribution from every region in consumer as well as TTS to Private Bank and traditional Corporate Lending. Turning now to each business. Slide 4 shows the results for Global Consumer Banking in constant dollars. Net income grew 37% in the first quarter, driven by operating margin and EBIT growth in each region as well as a lower tax rate. Total revenues of $8.4 billion grew 6% year-over-year and were up 4%, excluding the impact of the Hilton portfolio sale, which resulted in a gain this quarter, partially offset by the loss of operating revenues for a net benefit of about $120 million in our U.S.-branded cards business. From a product perspective, global retail banking revenues grew 6% in the first quarter, reflecting growth in loans and AUMs even as we continued to shrink our physical branch footprint. And global cards delivered 3% revenue growth, excluding Hilton, driven by continued growth in loans and purchase sales in every region. Slide 5 shows the results from North America Consumer in more detail. First quarter revenues of $5.2 billion were up 4% from last year. Retail banking revenues of $1.3 billion grew 4% year-over-year. Mortgage revenues continued to decline, mostly reflecting lower origination activity and higher funding costs. However, we more than offset this pressure with growth in the rest of our franchise. Excluding mortgage, retail banking revenues grew 8%, driven by continued growth in deposit margins, growth in investments and loans and increased commercial banking activity. Average deposits declined 2% year-over-year, including the impact of lower mortgage escrow deposits. We generated 2% growth in checking deposits this quarter, driven largely by our Citigold segment. However, this was more than offset by a reduction in money market balances as clients put more money to work in investments. And in keeping with this focus on Wealth Management, assets under management were up 10% year-over-year to $61 billion. We continue to see positive momentum in Citigold with continued growth in both households and balances with improving penetration of investment products, and we're continuing to drive our digital transformation as well. As part of our mobile-first strategy, we've been developing capabilities to enhance the experience of our clients. And we're now at a point where we can leverage these digital capabilities to acquire and service a broader range of retail banking customers. Our recently announced launch of national digital banking is key to this next step in our transformation, designed to meet all the clients' needs through mobile banking, including the ability to seamlessly open a new Citibank retail account within the mobile app. We believe these capabilities will allow us to expand beyond our core markets and build a national presence, but we recognize that this build-out will take time. New features will begin to roll out towards the end of the second quarter, followed by a promotional campaign beginning in the third quarter. Turning to branded cards. Revenues were roughly flat from last year, excluding the previously mentioned impact of the sale of the Hilton portfolio. Client engagement remained strong with average loans growing by 5% and purchase sales up 8% year-over-year. We continued to generate growth in total interest-earning balances this quarter, up about 6% year-over-year, excluding Hilton, as recent vintages continued to mature, as expected, partially offset by the runoff of non-core balances. Excluding the impact of additional partnership terms that went into effect in January, we delivered roughly 2% underlying revenue growth in our U.S.-branded cards business this quarter, consistent with our full year 2018 outlook. Finally, retail services revenues of $1.6 billion grew 2%, driven by higher average loans. Total expenses for North America Consumer were up 2% as higher volume-related expenses and investments were partially offset by efficiency savings. We continue to drive transaction volumes through lower-cost channels, and digital engagement remained strong with a 13% increase in total active digital users, including 25% growth among mobile users versus last year. Turning to credit. Net credit losses grew by 9% year-over-year, and we billed roughly $119 million of loan loss reserve this quarter, each driven by volume growth and normal seasoning. Our NCL rate in U.S.-branded cards was 304 basis points, in line with an NCL rate in the range of 3% for 2018. And in retail services, our NCL rate was 518 basis points, which is also consistent with our outlook for an NCL rate in the range of 5% for 2018. On Slide 6, we show results for International Consumer Banking in constant dollars. First quarter revenues of $3.3 billion grew 8% with contribution from every business and region. In Latin America, total consumer revenues grew 8%. Retail banking revenues grew 7% in the first quarter, driven by growth in loans and deposits as well as improved deposit spreads. And card revenues grew 13% on continued growth in purchase sales and full-rate revolving loans as well as a favorable prior period comparison. Turning to Asia. Consumer revenues grew 7% year-over-year in the first quarter and were up 6%, excluding the benefit of a modest onetime gain. Excluding the gain, retail banking grew 6%, driven by our Wealth Management business, reflecting favorable market conditions. And card revenues grew 5% on continued growth in loans and purchase sales. In total, operating expenses grew 5% in the first quarter as investment spending and volume-driven growth were partially offset by efficiency savings, and cost of credit was essentially flat. Slide 7 shows our global consumer credit trends in more detail by region. Credit continued to be broadly favorable again this quarter. In North America, the NCL rate increased sequentially, reflecting seasonality in cards, while delinquencies remained stable. And trends remained stable to improving in Mexico and Asia as well. Turning now to the Institutional Clients Group on Slide 8. Revenues of $9.8 billion increased 6% from last year, driven by continued momentum in our accrual businesses [indiscernible] a very strong performance in Equities this quarter. Total banking revenues of $4.8 billion grew 6%. Treasury and Trade Solutions revenues of $2.3 billion were up 8%, reflecting higher volumes and improved deposit spreads with solid growth across both net interest and fee income. Investment Banking revenues of $1.1 billion were down 10% from last year, generally in line with the overall market and reflecting the timing of episodic deal activity. Private Bank revenues of $904 million grew 21% year-over-year, driven by growth in clients, loans, investments and deposits as well as improved deposit spreads. And Corporate Lending revenues of $521 million were up 19%, reflecting loan growth as well as lower hedging costs. Total Markets & Securities Services revenues of $5 billion grew 3% from last year. Fixed Income revenues of $3.4 billion declined 7% year-over-year. Corporate client activity remained strong, driving growth in G10 FX and local markets rates and currencies. However, this was more than offset by lower investor client activity and a less favorable environment in G10 Rates and spread products, in particular in March. Equities revenues were up 38% with growth across all products as volatility trended higher and we saw continued momentum with investor clients, in line with our investment strategy. And finally, in Securities Services, revenues were up 16%, driven by growth in client volumes and higher interest revenue. Total operating expenses of $5.5 billion increased 7% year-over-year, reflecting the impact of FX translation as well as a higher level of investment spending. And finally, cost of credit was a benefit this quarter, driven by net ratings upgrades and continued stability in commodity prices. Slide 9 shows the results for Corporate/Other. Revenues of $591 million declined 51% from last year, driven by the wind-down of legacy assets. Expenses were down 35%, also reflecting the wind-down. And the pretax loss in Corp/Other was $143 million this quarter, slightly better than our outlook, mostly due to a greater benefit from legacy asset sales. Looking ahead, we believe an outlook for pretax losses in the range of around $200 million to $250 million per quarter in Corp/Other is a fair run rate for the remainder of 2018. This is an improvement from our prior outlook of quarterly losses in the range of $250 million to $300 million based on somewhat higher treasury revenues, given the higher rate environment as well as the lower expenses. Slide 10 shows our net interest revenue and margin trends, split by core accrual revenue, trading-related revenue and a contribution from our legacy assets in Corp/Other. As you can see, total net interest revenue of $11.2 billion this quarter grew slightly from last year. Core accrual net interest revenues grew by $750 million, but this was largely offset by lower trading-related net interest revenue as well as the anticipated wind-down of legacy assets. On a sequential basis, core accrual revenues grew slightly, reflecting the December rate hike as well as loan growth, partially offset by the impact of lower day count. And our core accrual net interest margin improved by 8 basis points to 354 basis points, driven by the rate increase, loan growth and lower average cash balances as we use liquidity to fund higher-yielding assets. On a full year basis, we now expect core accrual net interest revenue to grow by over $2.7 billion in 2018 as we've added the impact of the recent March rate hike to our original outlook, which had called for $2.5 billion of growth, assuming only one fed rate increase in June. Legacy asset-related net interest revenues should continue to decline by about $500 million this year as we wind down that portfolio. And trading-related net interest revenue will likely continue to face headwinds in a rising rate environment as we saw in the first quarter. On Slide 11, we show our key capital metrics. Our CET1 capital ratio declined sequentially to 12.1% this quarter due to an increase in RWA, driven by loan growth and client activity as well as $3 billion of common share buybacks and dividends, partially offset by net income. And our tangible book value per share increased to $61. In summary, we made good progress towards our longer-term goals this quarter with solid revenue growth, positive operating leverage and a significant improvement in net income and returns. Looking to the second quarter for total Citigroup, we expect top line growth to continue broadly in line with the pace we set this quarter at around 3%, plus or minus, with stronger growth in our operating businesses being offset by the continued wind-down of legacy assets. Operating efficiency should again show progress against the prior year period with more significant improvement to come in the second half of the year. Cost of credit should increase quarter-over-quarter, assuming that credit normalizes in ICG. And the tax rate should be closer to 25%. Turning to the businesses in more detail. In consumer, we expect continued revenue growth in U.S. retail banking, retail services, Mexico and Asia. In U.S.-branded cards, as described earlier, excluding Hilton, we expect continued underlying revenue growth as loan balances are maturing as expected. However, this should continue to be largely offset by the impact of additional partnership terms that went into effect in January. And of course, we will also see a year-over-year impact from the sale of the Hilton portfolio. On the institutional side, markets revenues should reflect the overall operating environment. However, we would typically expect a seasonal decline in trading revenues from the first quarter. Investment Banking revenues should improve quarter-over-quarter, assuming favorable market conditions. And we expect continued revenue growth in our accrual businesses, TTS, Corporate Lending, Private Bank and Securities Services as we continue to serve our target clients across our global network. In addition, we're looking forward to receiving our CCAR results late in the second quarter. At Investor Day last year, we stated our goal of returning at least $20 billion of capital to shareholders as part of the 2018 CCAR process. And subject to regulatory approval, we believe we remain on track to do so. With that, Mike and I are happy to take any questions.

[Operator Instructions]. Your first question is from the line of John McDonald with Bernstein.

John, I wanted to ask about the longer-term efficiency target. You're still targeting the low 50s on the efficiency ratio. Did the accounting changes change that goal? And could you remind us what the time line for getting to that efficiency goal is over the next few years?

Yes. Sure, John. Yes, the accounting changes impacted our overall efficiency by 50, 60 basis points, so I don't think that, that really changes our target of getting into the low 50s at all. And again, our target there is to get into those low 50s by 2020. So that's still our target, and we still figure that we're on progress to do that.

Okay. From the outside, it looks like you're really going to need an acceleration in 2019 and 2020. The current pace seems like 100 basis points of improvement a year. And if you're kind of at 57%, 58%, what would drive that acceleration in '19, '20? Could you talk a little bit about maybe the spending arcs that you're doing on investing and maybe the savings that you expect? Are those going to ramp up and drive it? Or is it all revenue assumptions that drive this improvement in the out-years?

No, no, no. Fair question, John, fair question. But we targeted this year for another 100 basis point improvement as compared to the prior year. Now I'll give you the fact that when you take a look at the first quarter efficiency ratio of 57.9%, it certainly is above the 57% target that we got in place for the full year, but it's not inconsistent with our plan for the rest of the year. And so when you look at the rest of the year, I think you have to expect continued top line momentum. We talked about, more or less, 3% sustained revenue growth, but there's also several drivers in play as it relate to the expense base. First, as we mentioned in some of the commentary, expenses related to legacy assets should continue to decline as we complete the existing TSAs and continue to wind down the assets themselves. Second, incentive-related comp tends to be a little bit more heavily weighted to the front half of the year, and that's consistent with historic revenue trends in markets. And finally, as I noted, I believe when I spoke at the RBC conference, we're taking the opportunity today to invest in the franchise to both to continue top line momentum as well as to capture significant efficiency savings that we've outlined for you at Investor Day. Now we're seeing much of the year-over-year impact of growth in these investments in the first half of 2018. So think in terms of investment spending being a bit more front-end loaded in 2018 and the resulting efficiency benefits then begin to ramp up in the second half of the year. And so when you get growth in the core businesses, we will certainly have some volume-related expenses growing. But altogether, the second half expense profile should set us up well for achieving larger improvements in our efficiency ratio, both in the second half of this year and then into 2019 and into 2020.

Okay. So you do -- right, you are saying that to get to that math to work, you do have to have more than 100 basis points improvement in '19 to get to 2020 low 50s

Yes. That fact has been noticed by me.

Okay, okay. And is there also -- just one more on this. Do you have some kind of uptake in mobile adoption and maybe planned shrinkage of call centers or data centers related to this that will pick up in later years? Is that part of the plan as well?

That's exactly part of the plan, John. That's all in, again, some of the investments that we continue to make in digital and mobile. At Investor Day, we talked about achieving $1.5 billion of annual efficiency savings in consumer. And I think we've made significant progress in some of the investments, and we are certainly on track to achieve those savings. But again, you haven't seen the bulk of those savings yet. Those are savings that we expect to come on in the second half of this year and then even more so in '19 and '20. As you know, key to achieving these savings is the drive towards creating self-service, digital and mobile capabilities. And those capabilities, we think, are designed both to enhance the client experience but also, at the same time, driving operational efficiencies through reducing customer calls and paper statements.

Okay. That's helpful, John. And the second thing for me is just on the new proposals, the SCB proposal that we saw come out this week. Is that in line what you're thinking of the 11.5% CET1 ratio target? I know you kind of incorporated SCB into that, but could that evolve over time in terms of how much management buffer you're putting on your regulatory minimums and your thoughts on that?

Yes, John. At Investor Day, when we laid out the 11.5% for you last year as being our target, we discussed various components embedded in that target. And one of those components included a stressed capital buffer, which we estimated at 3%. And the details of the NPR that got released earlier this week, as far as we can see, they're broadly consistent with what we expected in terms of the structure of the new framework and certainly the expected impact on the minimum capital requirements. So to have a direct answer to your question, if I had, had the documents that got released earlier this week, last July, we wouldn't have changed either the 3% estimate of an SCB or the target CET1 of 11.5%. And as we discussed then, one of the things that we recognized is that the proposed rule is going to create a certain amount of variability in a firm's requirements. We put in 100 basis point management buffer that I think we described at that point in time as being in place to actually address the variability or the volatility associated with the SCB as well as OCI movements. So as we get further into the discussion about the SCB, I do think that it's going to cause managements to need to address how they're using management buffers.

Your next question is from the line of Glenn Schorr with Evercore ISI.

John, follow-up to your comments when we talked about NII and the trading-related NII and ICT having headwinds in a rising rate environment. I just want to make sure, is that just natural funding costs of more wholesale-funded business? Can you hedge or reverse that if you felt like it and had a view on rates? Can you pass it through to customers that are using your balance sheet? Just curious to get your thoughts on that.

Well, the answer to all of those questions is, well, first, yes. It is just natural within that business. I think maybe on the last earnings call, I mentioned the fact that if you actually look at the trading-related assets and liabilities that are in the average balance sheet that we give you in the supplement, you'll see that the trading-related liabilities cover, more or less, 50% of the trading-related assets. And so the balance is subject -- is funded through wholesale means. Can we do hedging on it? I guess you could. But don't forget, when you get into the trading businesses, a lot of what drives NII also is how different trades are structured. So there's a structural element of the balance sheet, but I don't think that we want to get into putting on -- having an interest rate view of businesses that are trading interest rates.

Okay. I got it. I appreciate that. And one more follow-up. Prior to the recent fed letters, there's a fed letter last month, and one of the things that it did was more aggressively stress card losses in the test, which I thought were already really aggressively stressed, but whatever. Curious if you have a view on how much worse that is, why they did that now. And does it have any impact on how you actually manage the business in real life? Are there particular types of business that get treated worse that you have to think about how you price?

No. I'm trying to choose my words very carefully here, Glenn. But one of the issues, obviously, that I think there's been a lot of discussion about has been the lack of transparency in some of the fed models that drive CCAR, lack of transparency into how scenarios are developed. And so we don't have a great deal of understanding in how the fed comes up with some of their views, and so it's rather difficult then to say, "Okay. I understand they have a particular view on a particular exposure. We need to rethink the entire business model around something," because those views from the fed change as well, so long answer. But the short answer is no, we're not going to change the way that we look at our cards book.

Your next question is from the line of Matt O'Connor with Deutsche Bank. Matthew O'Connor: I thought it was a very clean and straightforward quarter so appreciate that and appreciate the quick opening comments on such a busy day. If we look within ICG, the trends in Asia were quite strong, both in revenue and net income. And just wondered if you could elaborate on the revenue strength there in terms of some of the products and what drove that.

No. As you note, Matt, we saw a lot of good activity coming out of Asia in this quarter. It's actually a build-on of things that we saw building from the second half of last year, and I think it speaks to a lot of the growing economies in Asia, a little bit more positive outlook. And fortunately, given the breadth of our franchise, we're in position to capture a lot of that. But it's fairly broad-based. It's in -- it's actually the Fixed Income business in Asia actually performed very well this quarter. Equities performed well this quarter. Investment Banking was down a little bit in Asia but a lot less than it was anywhere else, so just a lot of good overall volumes coming out of Asia. Matthew O'Connor: And then just conceptually, I mean, how much of the franchise, when we look at these Asian revenues, are kind of global corporates doing business versus maybe a notch below like more local companies?

Well, most of our book is focused on serving the needs of the large multinationals. So that's one of the reasons why if you look at overall in the ICG, in our corporate lending book and the corporate exposures that we've given you, roughly 80% of that book is investment grade, and that's because it really is concentrated in those large multinationals because we service their subs in Asia and everything else. Now there's a growing cost rate of large local corporates that are also multinational. But still, our overall business is dominated by the large multinationals and their subs that are based in the U.S. and in Europe.

Your next question is from the line of Jim Mitchell with Buckingham Research.

One of the biggest questions I get on you guys surrounds the card -- U.S. card business and how to think about or size the TCA rate impact and how it can maybe rebound eventually in terms of conversion rates and with the size of the portfolio. I mean, we can maybe take an educated guess, but if there's any kind of help you can give us in trying to think through what -- how the portfolio is sized today and how much you think you'll end up with in terms of paying balances next year and beyond.

Yes. And we've never talked specifics about the exact dollar amount on promotional balances that we've built up, and so I'm not going to go into that level of detail. But we have told you that it is -- it built up significantly last year, and our expectation is that it was going to stabilize at the beginning of this year and it has. And now it should continue then to reduce throughout the balance of 2018 and then into 2019. So we're never going to drive it to 0 because it certainly is an important piece of the growth strategy for the business, but it will get a little -- we acknowledge that it was a little outsized last year because we pulled back from trying to grow in the rewards product area and focused instead on the promo balances in value and whatnot. But we're already seeing the balances stabilize, and I think they're down slightly from the end of December to the end of March. But the thesis and our plan is to drive that even lower during the course of this year.

And what's the sort of expected or what should have been your experience with sort of balances that convert to interest bearing, the rough kind of percentage? How should we think about that?

Again, we've never disclosed an actual percentage, but I think if you think in terms of something a little less than half, you'd be in a good range.

Okay. That's helpful. All right. And maybe just a question on equities trading. You obviously have very significant growth year-over-year. It seems mostly in the market-making components. I assume that's derivative. How much of that is just outside volatility this quarter? Or do you really think there's some sustainability in that growth?

Well, I actually think it's a combination of both. The overall market conditions for Equities was very strong in the first quarter, and so we certainly benefited from that. But at the same time, we've been making the investments that we've been talking about, the investments, sustained investments in our platform, the talent, expanded capabilities in order to serve the needs of our clients and putting more balance sheet to work to deepen those relationships. And so I think our performance this quarter is a combination of both favorable market and the foundation that we built through all of that investment. So we feel really good about our performance. We think that it continues the trend of our ability to capture market share in this area. Whether you're dealing with unfavorable market conditions or favorable market conditions, we still feel like we're on that march up towards the #5 position in equity markets, which is something that we targeted getting to several years ago.

And what was nice about it is the breadth in terms of the combination of cash derivative, Delta One, Prime Finance all showing nice, sequential and year-over-year gain. So in there, I don't think we can or would annualize that number. We'd love to, but I don't think we're there yet. But I think we feel good about the progress and some of the stickiness that comes with that.

Yes. Very good.

Your next question is from the line of Mike Mayo with Wells Fargo Securities.

If you could just give more information on the credit cards and the promotional balances, I guess I'll try again. You said a little less than half is what -- if you could just clarify what that referred to. And I thought the new data point, you said there's 6% growth in interest-earning balances, and I think that would compare to 4% growth in the fourth quarter. So you're seeing an acceleration in the growth of interest-earning credit card balances. Is that correct? And if so, is that because the promotions are sticking once they reprice from 0% to 14% to 24%? Or is that due to other reasons?

Okay, Mike. If I miss one of the questions, please remind me what it was. But you're absolutely correct. 6% growth in the interest-earning balances this quarter compared to 4% last quarter, so that is an acceleration. And that's what we've been talking about, the fact that we did expect that growth rate to accelerate, and it has. And the acceleration of that growth rate is a combination, both of overall growth in the existing interest rate balances as well as the added growth coming from vintages of the promotional vintages now maturing and then a good portion of those promotional balances sticking with us as interest-earning balances. The reference prior to the 50% -- it's something in the range of a little less than 50% was an answer to -- I think it was Jim's question. As far as -- if you get promotional balances, how much of that do you think sticks with you? And we've never given an actual percentage, but I said, "If you think of something a little less than 50%, you'd be in the right ballpark." How did I do?

No. I think that's helpful. I mean, I'm still -- look, I'm all on your website now, and I see I can basically get free money for 21 months by transferring a balance and then purchases up to 12 months. It sounds like a great deal for consumers. It's just hard for us in the outside to know how the deal is for you guys. And I guess one last follow-up then. So you're not giving us the total balance of the promotional balances on -- I'll take it if you could give it to us. But what else can you have us look to, to be reassured that this strategy is going to pay off for shareholders?

Well, I think that, again, you're going to see, once we get past '18, we talked about some of the revenue impacts in '18 holding the overall business revenues flat. You should start to see growth in '19. More specifically, when you take a look at -- if you go into the supplement and you look at the net interest revenue percentage, ex Hilton, you can see how that has been steadily declining. And that obviously impacts a combination of the drag on promotional balances, along with the rise in interest rates, to fund that portfolio. Our expectation is that you got 1 more quarter of that to go down, and it's largely due to seasonality. The second quarter is usually a slight reduction there. But then you should start to see, beginning in the third quarter, that percentage increase. And that should give you a fairly good view as to what the future profitability of the business is. If you look at that now, basically I think if you look year-over-year, even with that percentage declining, we're still getting growth in net interest revenue in U.S.-branded cards, ex Hilton, something north of 2%, 2.4%, 2.3%. And that, again, that's in line with what we talked about as far as being the underlying growth of that portfolio for this year being 2%.

Your next question is from the line of Saul Martinez with UBS.

So you increased your expectation for core accrual NII to 2.7% from 2.5%, and I guess you're incorporating an additional rate hike. But can you just remind us if we do see 3% or 4% hikes, how much that -- how much you benefit from each incremental rate hike on a quarterly basis? Can you just remind us what the sensitivity is there?

Yes. And it's very simple to do, Saul, because what we did was the March rate hike actually happened. We did not have that in our previous outlook, and we talk about that. And so our guidance had been that for each quarter, we get an additional 25 basis point rate hike, it should add about $80 million worth of net interest revenue for the year. So March happened, 3 quarters, 3 times $80 million, $240 million. So the 2.5% goes up to 2.7% and changed. We just rounded it to 2.7%. But technically, it will be 2.74%. And the math is as simple as that. Now that's certainly in place for the March rate hike, and that's the way we calculated the impact of the June rate hike. I do think that as we go forward with future rate hikes -- as you get more and more rate hikes, we'll probably see a bit of compression in that $80 million just because the expectation would be that deposit betas are increasing.

Right, right. Okay. No. That's fair enough. That's about as simple math as you can do. Great.

Thank you. I'm...

There you go. It works. Simple is good. On the trading side, just obviously this -- the volatility early in the year has helped, especially in the Equities side. But generally, I think the perception is -- has been that it's a good thing. Obviously, March, maybe FICC was a little bit tougher. But how are you feeling? I know it's hard to predict on a quarterly basis. But how are you feeling about the business from here? You've had -- volatility has been good. But with the more recent market downturn, maybe institutional investors are heading for the sidelines a bit. But how are -- how should we be -- how are you thinking about FICC right now, the outlook there? And obviously in the Equities side, there's a build-out. But just generally, what are sort of the puts and takes around the businesses?

Well, as far as from an Equities point of view, we certainly feel really good about the business that we're building in Equities. And so -- and I think this quarter's performance at least provides a point of evidence for it, although we were building up market share all during last year as well. But I think this is just another proof point. When it comes to FICC, it really is the investor that is a little bit of a variable there. And one of the things that we've talked about is the fact that investors, depending upon market conditions, are either in the market transacting or else, as you just said so, they sometimes drift to the sidelines. That's one of the reasons why we like the fact that in our rates and currencies business, in particular, 45% of the client revenues that we generate in that business are from corporate clients. And that gives us a fairly strong foundation in our rates and currency business because corporations need to fund their balance sheet every day, which means every day, you've got the ability to have a conversation with either a global treasurer or a local treasurer about what he or she needs to do in order to make payments, fund their working capital needs. And all of that helps to drive a lot of the activity in our rates and currencies business. So good core foundation, but it's the market volatility that ultimately will determine the size of the revenue flows that any institution is going to see in the FICC business.

Got it. And I guess just the final thing from there just building out. In IP, how are you thinking about the pipe -- what's the pipeline look like? What's -- how are you thinking -- how's the DCM, ECM, M&A? How are you thinking about the outlooks there?

Saul, I would say that the first quarter, we saw volumes down, and our drop in Investment Banking is pretty much right in line with what aggregate volumes were. But I would describe where we are today is not having hit the stop button but the pause button. And I think part of it is that I think we've seen some things on the approval, the regulatory, the legal side that have caused some of the big transactions to take pause. And I'd say the other piece right now, which we're actively involved in, is, in particular, in the U.S. in the C-suite, the introduction of tax reform has people thinking and rethinking strategy and appropriately so, right. We've taken traditionally a high global tax rate, made it a lower tax rate and rather than global being territorial. And so people are and appropriately so, and we're very involved in those conversations rethinking that. And so I would say the pipeline, as we go forward, we think, looks good. And we expect activity to pick back up.

Your next question is from the line of Steven Chubak with Nomura Instinet.

John, so I wanted to dig into some of the NII guidance that you have given. It sounds from what I could glean that given the growth that you're contemplating or anticipating within core accrual NII as well as the declines or more subdued revenues on the trading NII side as well as the legacy runoff book, it feels like, for the full year, we should see NII relatively flat. And I was just hoping you can affirm whether that's the right way to think about it. Or are there other factors that we need to consider?

We told you that core accrual net interest revenue should grow $2.7 billion this quarter -- I mean, this year. I wish it was 1 quarter, this year. The legacy asset runoff is $500 million, so that's $2.2 billion. And trading will be, as we've said, a bit unpredictable. But it's hard to imagine that we're going to get $2 billion of runoff in trading near this year. It could happen, I guess, but that's not the way we're planning it.

Okay, understood. And, John, just wanted to dig into some of the efficiency comments you made with regards to some of your digital efforts within consumer. As we think about the long-term expense trajectory from here, I was just hoping you could shed some light on what you think is an achievable efficiency target for retail banking specifically. It's something that we hear from investors quite often, just given that your margins are well above some of your U.S. retail bank peers, whether you expect to see meaningful conversions there. And how should we think about the timing?

Yes. I don't want to get into guidance for individual product lines within a business. At Investor Day last year, we gave you our targets for Citi overall, and I think we shared some targets for GCB as well as ICG. But as you can imagine there, there's a lot of tradeoffs to go on in between different subproducts in each of those businesses. And I really don't want to get into specific targets for specific products.

Okay. Fair enough. And just one more for me on the stressed capital buffer. You mentioned that you'd estimated an SCB of roughly 3%. I just wanted to clarify if that estimate is based on your 2017 results or is that more of an average over the last couple of years.

No. That was based on 2017, Steve.

Your next question is from the line of Betsy Graseck with Morgan Stanley.

Question just on LIBOR and the three months, 1 month base differential that happened this quarter. How did that impact you guys in the NIM?

Very little. I mean, I wouldn't say none but it isn't a noticeable factor that we would point out for anything. It certainly -- we had very little impact on any of our funding schemes or on how the businesses had performed. So it's interesting to look at but it didn't really impact us at all.

And on trading, same thing?

Again, it's part of the conversation that you have with clients. It's a great thing. It's a great conversation starter, and so it can lead to a whole series of discussions as to how clients might be thinking about things or observations in the market. But for how it impacted our business in particular, no.

Right. And then front-end skew of your rate sensitivity, I mean, that is LIBOR based and prime based. I'm assuming both, but it's just the basis that changed in the quarter didn't impact you. Is that correct?

Yes. Look, everything balances out. I mean, we have a slight reduction, of course, in our forward-looking IRE as a result of some of these moves and putting more things to work in the business. But it didn't impact anything structurally, no.

So then when I look at the core accrual NIM, the one on Page 10, the 3.54% this quarter, we can build off of that for the rest of the year, given the forward curve looking for a couple of more rate hikes?

Yes. The expectation would be that we would continue to see some growth in that core NIM.

Okay, great. And then just lastly, I know we had a lot of questions already on the ESLR. Your SLR is relatively high, and that's been high for a little while. Is it -- should we read anything into that? Like are you saying by having a relatively high SLR already that you've maxed out your opportunities on the lower risk-weighted asset business lines or maybe you have a different answer?

Well, I guess, the answer would be SLR has never been a binding constraint for us. And so we've never really had to optimize the SLR. We've never had a problem in getting there. When you talk about lower risk-weighted assets as -- and now, we're moving much more to standardized approach, it's not a big -- there's not a larger gap between what you would think about as an advanced approach or really risk-based RWA and GAAP assets anymore. There's some but it's less so. So the SLR is interesting. We would applaud the increased flexibility that it can grant us but it never -- it really hasn't been something that has really impacted our overall business. What impacts us would be our focus on maintaining a 3% GSIB score and managing to that target of 11.5% CET1 ratio that we talked about. So I mean, SLR is somewhat of a fallout from those two efforts.

And does it matter at all if the rules were to change to take cash out of the denominator? I know the proposal does not have that expected but there's a question in there looking for feedback on that topic. Would it matter to you if that was the case or not?

Well, again, we're always going to applaud increased flexibility and applaud the application of logic to regulatory ratios. And why you would need to hold capital against cash, I still don't understand. So yes, I'd like to see that just because I think it's logical.

I don't think, John, it would change the business strategy.

It wouldn't change our business strategy. Absolutely not.

Your next question is from the line of Ken Usdin with Jefferies.

Mike, in your opening comments, you made a good blend of thought across better, synchronized global growth and yet the volatility. And I just wanted to ask you, this comes up a lot with the investor community but tends to be more resilient in the business model. We've seen better results out of Asia and Latin America, especially in Consumer. How resilient is that improved growth and trajectory versus -- and what do you hear when you're talking to the regions about, perhaps, the jitters that get caused out of the volatility and how that might impact growth?

Well, when you think about Latin America or Asia and you look at what's going on in those economies, economies are, across the board, strong. We talked about this global synchronized growth, and when you're on the ground, you absolutely feel it. You feel it from the consumer perspective. You feel it at the corporate level. And I think some of the volatility that we see with morning tweaks or kind of stances that vary from time-to-time, I won't say the world is numb or numbing to that but I think that the positive things that are happening in the advancements we see on growth on the ground are overwhelming that. And that, to us, is very positive.

Okay, got it. As a follow-up to that, John, can you just talk to us broadly then also about your outlook for credit? I don't think you've changed anything with regard to your card outlook, like you mentioned in your prepared remarks but anything notable to see underneath the surface in terms of some of the -- a little moving parts on the consumer side, LatAm better and then the U.S. normalizing as we expected. But just your overall thoughts on cost of credit and forward expectation would be great.

Yes, actually, we continue to see credit performing very, very well, whether it be in the North America businesses or in Mexico or in Asia when it comes to consumer. When you take a look at that slide, I think it's 7, and it's been pretty stable across the board. And as we look into the delinquencies, which we give you at least insight into the 90-day delinquencies, we don't see anything bumping up. So we feel pretty good about the credit picture across the consumer business. And in like fashion, we feel really good about the credit performance of our ICG portfolio as well. As I mentioned, 80% of our portfolio is investment-grade, and that's clearly the way that the ICG loan book has been performing.

Your next question is from the line of Erika Najarian with Bank of America.

My questions have been asked and answered.

Your next question is from the line of Gerard Cassidy with RBC.

You guys had some strong numbers in the Treasury and Trade Solutions on a year-over-year basis. It looked like you had up -- high single-digit revenue growth, and Securities Services was mid-teens. How much can you say was due to market share gains versus just a better interest rate environment for you guys?

I don't want to split the revenue growth. Obviously, there's 3 aspects, I think, in that. And 1 is continued volume growth with existing clients. We're doing more with every client, so we're gaining wallet share with our existing clients. We're also gaining wallet share outside of the existing clients by bringing on new clients, and that certainly is a story in security services in particular but also in the commercial card aspect of TTS. And then the last would be the impact of rates but I just don't have a percentage in my head, Gerard. Is it 60-40? Is it 70-30? 50-50? I just can't give you that but it's -- all three components are working in those businesses.

I see. And we talk a lot about digitalization on the consumer side of the business. And you guys touched on what you're doing on your Investor Day with digitalization in this area. How important is that to maybe win new business as some of your competitors may not just be as good as you on the digitalization side?

Well, I think it's important on a couple of fronts, clearly, in terms of winning new customers. But as you think about the digital strategy here, we're really out trying to change three things, one, the way we acquire. If you actually look at our acquisitions over the last year or so, about 1/3 of those are now coming through to us digitally. So the experience is better. And as we can get that hopefully through the straight-through processing, we've got the ability to take costs out. Second is around the way that we transact and interact with existing clients. So as an example, our efforts to radically reduce the number of paper statements that we're sending out on a monthly or on a regular basis, and we've shown a lot of progress there. And I think the third piece is really around the service. And in 2017, we reduced volumes to call centers, we think, by about 12 million phone calls. We think we're on track to likely do that again this year. You can pretty quickly run the math between the cost of a analog phone call versus a digital engagement. When you go on, you look at our apps in terms of your ability to check your balances, to move moneys, to make payments and to do these things, those are 3 big drivers. And what John referenced before is what we laid out in the Investor Day around this $1.5 billion of efficiency we think we can get out of our consumer business. And going back to the earlier question, how -- what does this trajectory look and feel like and why should we believe that there's the potential of an acceleration into late '18, '19 and '20? And so we're all over this. We view it to be a competitive advantage. And as part of that, what John mentioned in terms of our push into national digital banking and using a lot of our existing technology to continue to lever our consumer platform.

And Gerard, it's the same story on the corporate side. These digital capabilities, this -- expanding all the platforms, again, our strategy really gets to focusing on those large multinationals. So now, we've given those global treasurers, the regional treasurers, the ability to have a view into their working capital, not just in the regional office or the global office but in every operating subsidiary that they have around the world. And they're able then to manage their working capital, move funds off of their tablet. So they can sit in whatever city you want to pick, whether it's New York, London and Zurich or Beijing, and they can actually see on their tablet the working capital requirements in their international subsidiary and move funds through our application. We think that that's a real competitive advantage, especially as we're starting to see more and more company expand into more and more countries. That's the power of our network.

John, you didn't list Portland Maine as one of those cities.

I thought about that, Gerard, but I wasn't sure if that's where you were today.

There you go. You guys are unique in your international business versus some of your peers. Is there any behavior differences between your international or non-U.S. consumer customers versus Americans on the digital usage or how they behave?

Yes, in some cases, very much so. So you can go look at smart devices, you can look at digital engagement. As you can imagine, Asia is really at the forefront on a lot of things we're doing in terms of digital engagement, united transactions and things coming through and things we're putting in place. And while moving and moving at a reasonable pace, you can simply walk into one of our branches in Mexico and recognize that Mexico is still predominantly a physical or an analog experience for our customers but changing and evolving. And again, what we like is we got the technology elsewhere in the world that we can continue to roll out. We don't have to invent it from Mexico. It exists. And I would just say that the world is at varying stages of digital engagement but all headed in the same direction.

Great. And then just lastly. Mike, you touched about the breadth of the equity trading revenues being in cash and prime brokerage, et cetera. Have you guys seen any impact yet from the MiFID rules that went into effect? I know it is early but any early read on that yet?

So we've obviously been engaged and been working with our clients towards making sure everybody is MiFID-compliant. I would say, those -- from our perspective, we believe those conversations have been very constructive, and the conversations we've been involved in are largely holistic approaches to what we're going to provide. And I would say the engagement has been good. And then I would describe today that we haven't had any surprises to the negative in any material way to how we thought this would roll out.

Your next question is from the line of Al Alevizakos with HSBC.

You've done a very good analysis to explain to us how the business is working with -- effectively with transaction banking working with your FX and rates business and the importance of your corporate clients. However, I would like to know your view about how you're feeling regarding the macro environment, especially regarding trade finals. Given all the news flow that we see everywhere regarding tariffs and all these kind of things that are happening with China and Russia, would it be possible to somehow quantify any potential downside for us?

Sure, sure. So one is, when you look at -- coming out of 2017 and some of the numbers that were published, and I think it was the IMF published a report in January that talks about the 175 countries that they track, somewhere in the magnitude of 150 or 155 of those countries actually grew exports year-over-year, the largest number that I could remember on history. And so trade is alive. Trade is well. So that's kind of piece one as we come into '18. Piece two is when you think about the distribution of trade, while 80% of global trade is denominated in dollars, about 20% of global trade affects the U.S. And so as we think about our business, our businesses is, I think, very representative of global trade in that about 20% of our trade business is U.S.-related. And therefore, 80% is rest of world. So from our perspective and the diversification that we have, for us, it's not necessarily a question of who's trading it but is it trading and is it moving. And I think as we've done our analysis, at least as it pertains to us, the impact of a U.S.-China trade war is probably a bigger macro event than it is a Citi-specific trade event, meaning that I'm just hard-pressed to believe that if you've got 2 of the book ends of the global economy that the world is counting on for growth, and you've got a trade war going that growth is likely to suffer, and that's likely to have a spillover to the rest of the economy, seems -- as of today and as of recent conversations that -- from what, I'm sure, we're all reading that things have deescalated a bit there and seem to be headed in a more positive direction. But I think it's in everyone's best interest to try and avoid a trade war, if we can.

Sure. And if I may follow up on Gerard's question regarding MiFID II. You already mentioned that Asia Pacific equities were very strong. How was Europe, especially in cash and deliveries?

It was good. It was also strong. And again, I think, from a -- again, I talked a little bit about the product, the underlying mix between cash, derivative, et cetera. But as we look at North America, we look at EMEA and we look at Asia, again, good, balanced participation in that growth.

Your final question is from the line of Brian Kleinhanzl with KBW.

I just had one quick question. On the credit cost, you said you're expecting them to tick up from here. But I want to make sure there was no change in your credit card NCL guidance, you're still comfortable with 2018 and medium-term targets that you laid out previously?

Yes.

Okay. And then a separate question. There seem to be a lot of concerns about deposit costs and where they're going from here. I mean, your deposit costs were only up 8 basis points quarter-on-quarter but are you seeing something different in the market over the last month or two that makes you concerned as well that there's isn't a more meaningful inflection in deposit costs? Are you starting to see irrational pricing in the market, perhaps, or deposits moving faster, deposit gambles, I guess, going up or something else in the market that we're not seeing in the numbers that you reported?

No. The way I would characterize it, Brian, is, I think, at least from our view, our deposit betas are, by and large, operating exactly as we had modeled them to this point. I do think that -- and this may be what you're hearing, as we continue to get rate increases, as the rate increases -- increase also in frequency, you're going to start to see some pressure on those deposit betas. It's just inevitable, and it's going to happen. Hasn't happened yet but I think we're all seeing pretty much the same thing, that the betas will move up. Now the betas moving up is all part of our forward projections, and so it's not a surprise to us but it's just something that you have to expect to happen.

Was the deposit beta this quarter below still what you were expecting?

Mixed. No, I'd say corporate betas have moved up certainly more than consumer betas. And that's been consistent, at least in the last year. So you do have a mixed component in beta. Not every beta is the same. And so our deposit performance is a mix of what's going on with our corporate deposits as well as our consumer deposits.

There are no further questions.

Great. Thank you, Natalia, and thank you all for joining us on what I know is a very busy day. If you have any final questions, please reach out to us and IR. Thanks.

This concludes today's call. You may now disconnect.