Citi CEO expects growth in investment banking, markets on strong activity

By Utkarsh Shetti and Pritam Biswas

March 10 (Reuters) - Citigroup C.N expects mid-teens percentage growth in its investment banking fees and markets revenue in the first quarter, CEO Jane Fraser said on Tuesday, as the Wall Street bank sees strong activity in both divisions despite escalating global tensions.

The widening Middle East conflict, since the U.S.-Israel first attacked Iran more than a week ago, has pushed up oil prices, stoking concerns of inflationary pressures and threatening to disrupt supply chains.

"Despite everything, corporate activity - very strong at the moment. Large-cap M&A is not missing a beat right now," Fraser said at an RBC conference.

Strength in equities and fixed income is driving growth at Citi's capital markets division, Fraser said, adding that the mergers and acquisitions market remains "vibrant" at a time of sustained investment in artificial intelligence and automation.

Fraser said the bank was confident in its 10% to 11% return on tangible common equity target for the year.

Periods of heightened volatility typically benefit trading desks at investment banks, as clients reshuffle portfolios and hedge downside risks.

Shares of Citigroup were up nearly 3% in morning trading.

MIDDLE EAST RISK PERSISTS

A prolonged Middle East crisis paired with a convergence of concerns in AI valuations and private credit risk would be "more problematic," Fraser said.

Fraser said the impact from the conflict would depend largely on how long the turmoil lasts and whether disruptions in the Straits of Hormuz, one of the world's key oil transit chokepoints, can be contained.

Sustained higher oil prices stemming from a prolonged disruption of tanker traffic through the Strait could fuel inflation and complicate central banks' efforts to manage interest rates globally, she said.

Fraser also said she expects some idiosyncratic risks to emerge in private credit from lenders with weaker underwriting standards, but stressed the issue was not systemic.

Private credit has come under pressure amid thin or non-existent liquidity, opaque valuations and a surge in investor redemptions.

SEVERANCE COSTS FRONT-LOADED

Citi is in the midst of a sweeping turnaround plan under Fraser designed to cut costs, fix regulatory problems and boost profits to help the bank catch up with rivals.

Reuters reported in January that the bank was cutting about 1,000 jobs as part of a plan to downsize its workforce, with more employees expected to be laid off this month.

Fraser said Citi will be front-loading some severance expenses in the first quarter, adding that the bank is expecting those costs to be a little lower than last year.