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Citigroup, Inc. (NYSE:C)
Q1 2018 Earnings Conference Call
April 13, 2018 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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.

Susan Kendall -- Head of Investor Relations

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.

Michael L. Corbat -- Chief Executive Officer

Thank you, Susan, and good morning, everyone. Earlier today, we reported operating 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 one 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. 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 US, 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. In Mexico and Asia, we saw a 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 made in recent years and client engagement remains 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 one 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 had synchronized global growth in a macro economic environment, which is as positive as we've seen since before the financial crisis. US 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 in 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?

John Gerspach -- Chief Financial Officer

Thanks, Mike. 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 is 57.9% for the quarter, roughly 50 basis 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, the 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 the 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 US 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 for 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 is more than offset by a reduction in money market balances as clients put more money to work in investments. In keeping with this focus on wealth management, assets under management 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 of a client's 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 buildout will take time. New features will begin to roll out toward 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 remains strong with average loans growing by 5% and purchase sales up 8% year-over-year. We continue to generate growth in total interest earning balances this quarter, up about 6% year-over-year, excluding Hilton, as recent vintages continue 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 US 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 continued to drive transaction volumes to lower cost channels, and digital engagement remains 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 built roughly $119 million of loan loss reserves 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% basis points for 2018.

On Slide 6, we show results for international consumer banking in constant dollars. First quarter revenues of $3.3 billion grew by 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 one-time gain. Excluding the gain, retail banking grew 6% driven by our wealth management business, reflecting favorable market conditions. 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 and 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 as well as 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 and 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. 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 pre-tax 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 pre-tax losses 20 the range of around $200-250 million per quarter in corp/other is a fair run rate for the remainder of 2018. This is an improvement from our prior outlook for quarterly losses in the range of $250-300 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 the 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 the lower day count. Our core accrual net interest margin improved by eight 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 vetted 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. Our tangible book value per share, increased to $61.00.

In summary, we made good progress toward our longer-term goal 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 topline 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 US retail banking, retail services, Mexico, and Asia. In US 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 instructional 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 security 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.

Questions and Answers:

Operator

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

John McDonald -- Sanford C. Bernstein & Co., LLC

Good morning, John and Mike. John, I wanted to ask about the longer term efficiency target, if you're starting the low 50s on the efficiency ratio. Do the accounting changes change that goal? Can you remind us what the timeline for getting to that efficiency goal is over the next few years?

John Gerspach -- Chief Financial Officer

Yeah, sure. The accounting changes impacted our overall efficiency by 50-60 basis points, so I don't think that really changes our target of getting into the low 50s at all. Again, our target is to get into those low 50s by 2020. That's still our target and we still figure that we're on progress to do that.

John McDonald -- Sanford C. Bernstein & Co., LLC

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. If you're at 57-58, what would drive that acceleration in '19 and '20? Can you talk a little bit about the spending arch you're doing on investing, and maybe the savings that you expect? Do those ramp up and drive it or is it all revenue assumptions that drive this improvement in the outer years?

John Gerspach -- Chief Financial Officer

No, no, no. Fair question. But, we targeted this year for another 100 basis point improvement as compared to the prior year. I'll give you the fact that, when you take a look at the first quarter efficiency ratio at 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. When you look at the rest of the year, you have to expect continued topline momentum. We talked about more or less 3% sustained revenue growth.

But, there are also several drivers in play as it would relate to the expense base. First, 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.

Finally, we're taking the opportunity today to invest in the franchise, both to continue topline momentum as well as to [audio breaks up] counter significant efficiency savings that we've outlined for you at Investor Day. 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.

So, when you get growth in the core businesses, we'll 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.

John McDonald -- Sanford C. Bernstein & Co., LLC

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

John Gerspach -- Chief Financial Officer

Yes. That fact has been noticed by me.

John McDonald -- Sanford C. Bernstein & Co., LLC

Okay. 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?

John Gerspach -- Chief Financial Officer

That's exactly part of the plan. That's all in 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. I think we've made significant progress in some of the investments and we are certainly on track to achieve those savings. But, you haven't seen the bulk of those savings yet. Those are savings we expect to come on in the second half of this year and then even more so in '19 and '20.

As you note, key to achieving these savings is the drive toward creating self service digital and mobile capabilities. And those capabilities are designed to both enhance the client's experience and also drive operational efficiencies through reducing customer calls and paper statement.

John McDonald -- Sanford C. Bernstein & Co., LLC

That's helpful. Thank you. Just on the new proposals -- the SCB proposal we saw come out this week -- is that in line with what you're thinking of the 11.5% CET1 ratio target? I know you incorporated SCB into that. Could that evolve over time in terms of how much management buffer you're putting on your regulatory minimums? Your thoughts on that.

John Gerspach -- Chief Financial Officer

At Investor Day, we laid out the 11.5% for you as being our target. We discussed various components imbedded in that target, and one of those components included a stressed capital buffer, which we estimated at 3%. 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 document 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%. As we discussed then, one of the things that we recognize is that the proposed rule is going to create a certain amount of variability in a firm's requirements. We put in a 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 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.

John McDonald -- Sanford C. Bernstein & Co., LLC

Okay. Thanks, John. Very helpful.

Operator

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

Glenn Paul Schorr -- Evercore ISI

Hello. Thanks. John, follow-up to your comments when we were talking about NII and the trading related NII and ICG having headwinds in a rising rate environment. 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 review on rates? Can you pass it through to customers that are using your balance sheet? What are your thoughts on that?

John Gerspach -- Chief Financial Officer

The answer to all of those questions is 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. So, the balance 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 is a structural element of the balance sheet, but I don't think that we want to get into having an interest rate view of businesses that are trading interest rates.

Glenn Paul Schorr -- Evercore ISI

Okay, I appreciate that. Prior to the recent fed letters, there was a fed letter last month. One of the things it did was more aggressively stress card losses, which I thought were already really aggressively stressed -- but, whatever. Do you have a view on how much worse it is, why they did that now, and does it have any impact on how you 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?

John Gerspach -- Chief Financial Officer

No. I'm choosing my words very carefully here, Glenn. One of the issues that I think there has been a lot of discussion about has been the lack of transparency in some of the fed models that drive CCAR, into how scenarios are developed. So, we don't have a great deal of understanding in how the fed comes up with some of their views. 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 the views from the fed change as well. The short answer is no, we are not changing the way we look at our cards book.

Glenn Paul Schorr -- Evercore ISI

Okay. I appreciate it. Thanks, John.

Operator

Your next question is from the line of Matt O'Connor with Deutsche Bank.

Matthew O'Connor -- Deutsche Bank

Hello. I thought it was a very clean and straightforward quarter, so I appreciate that. I 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. Can you elaborate on the revenue strength there in terms of some of the products and what drove that?

John Gerspach -- Chief Financial Officer

We saw a lot of good activity coming out of Asia in this quarter. It's actually a build on of things we saw from the second half of last year. I think it speaks to a lot of the growing economies in Asia, a little bit more positive outlook. Fortunately, given the breadth of our franchise, we're in position to capture a lot of that. But, it's fairly broad based. The fixed income business in Asia actually performed very well this quarter. Equity has 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 -- Deutsche Bank

Conceptually, how much of the franchise -- when we look at the East Asia -- revenues are kind of global corporates doing business versus maybe a notch below, like more local companies?

John Gerspach -- Chief Financial Officer

Most of our book is focused on serving the needs of the large multinationals. That's one of the reasons why, if you look at overall in the ICG, in our corporate lending book and corporate exposures we've given you, roughly 80% of that book is investment grade. That's because it really is concentrated in those large multinationals. We service their subs in Asia and everything else. There is a growing cadre of large, local corporates that are also multinational. But still and all, our overall business is dominated by the large multinationals and their subs are based in the US and Europe.

Matthew O'Connor -- Deutsche Bank

Okay. That's helpful. Thank you.

Operator

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

James Mitchell -- Buckingham Research Group

Good morning. One of the biggest questions I get on you guys surrounds the US card business and how to think about or size the teaser rate impact and how it can rebound eventually in terms of conversion rates and the size of the portfolios. We can maybe take an educated guess, but if there is any help you can give us in trying to think through 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.

John Gerspach -- Chief Financial Officer

We've never talked specifics about the exact dollar amount of promotional balances that we've built up. So, I'm not going to go into that level of detail. But, we have told you that 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. Now, it should continue to reduce throughout the balance of 2018 and then into 2019. We're never going to drive it to zero because it certainly is an important piece of the growth strategy for the business. But, we acknowledge that it was a little outside 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. They're down slightly from the end of December to the end of March. But, the basis of our plan is drive that even lower during the course of this year.

James Mitchell -- Buckingham Research Group

And what's been your experience with balances that convert to interest bearing? A rough percentage -- how should we think about that?

John Gerspach -- Chief Financial Officer

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

James Mitchell -- Buckingham Research Group

Okay. That's helpful. On equities trading, you had very significant growth year-over-year, mostly in the market making component. I assume that's derivative. How much of that is outside volatility this quarter, or do you really think there's some sustainability in that growth?

John Gerspach -- Chief Financial Officer

I think it's a combination of both. The overall market condition for equities was very strong in the first quarter. We benefited from that. But, at the same time, we've been making the investment that we've been talking about -- the sustained investments in our platforms, talent, expanded capabilities in order to serve the needs of our clients -- and putting more balance sheet to work to deepen those relationships. I think our performance this quarter is a combination of both favorable market and the foundation that we've built through all of that investment.

So, we feel really good about our performance. We think 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 toward the number five position in equity markets, which is something we targeted getting to several years ago.

Michael L. Corbat -- Chief Executive Officer

And what was nice about it is the breadth in terms of the combination of cash derivative, Delta One, and prime finance all showing nice sequential and year-over-year gains. 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. I think we feel good about the progresses and some of the stickiness that comes with that.

John Gerspach -- Chief Financial Officer

Yeah. Very good.

James Mitchell -- Buckingham Research Group

Thanks, guys.

Operator

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

Mike Mayo -- Wells Fargo Securities

Hi. If you could just give more information on the credit cards and 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. I thought the new data point -- you said there was 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? If so, is that because the promotions are sticking once they reprice from 0% to 14-24%, or is that due to other reasons?

John Gerspach -- Chief Financial Officer

Okay, Mike. If I miss one of the questions, please remind me what it was. You're absolutely correct -- 6% growth in the interest earning balances this quarter compared to 4% last quarter. That is an acceleration. That's what we've been talking about, the fact that we did expect that growth rate to accelerate, and it has. 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 the promotional vintages now maturing and then a good portion of those promotional balances sticking with us as interest earning balances.

The reference of something in the range of a little less than 50% was an answer to Jim's question as far as if you give promotional balances, how much of that do you think sticks with you. 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?

Mike Mayo -- Wells Fargo Securities

No, I think that's helpful. I'm still -- look, I'm 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 on the outside to know how good a deal it is for you guys. So, you're not giving us the total balance of the promotional balances -- 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?

John Gerspach -- Chief Financial Officer

You're going to see -- we talk about some of the revenue impacts in '18 holding the overall business revenues flat. You should start to see growth in '19. More specifically, 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. That 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 have one 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 -- if you look year-over-year -- even with that percentage declining, we're still getting growth in net interest revenue in US branded cards ex-Hilton. Something north of 2% -- 2.4% or 2.3%. 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%.

Mike Mayo -- Wells Fargo Securities

Alright. Thank you.

Operator

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

Saul Martinez -- UBS

Hi. Good afternoon. You increased your expectation for core accrual NII to 2.7 from 2.5. I guess you're incorporating an additional rate hike. But, can you remind us, if we do see or three four hikes, how much you benefit from each incremental rate hike on a quarterly basis? Can you remind is what the sensitivity is there?

John Gerspach -- Chief Financial Officer

Yeah. It's very simple to do so. The March rate hike happened and we did not have that in our previous outlook. Our guidance had been that, for each quarter, we'd get an additional 25 basis point rate hike, and it should add about $80 million worth of net interest revenue for the year. So, March happened. Three quarters. Three times 80 is 240. So, the 2.5 goes up to 2.7 and change. We just rounded it to 2.7. Technically, it would be 2.74. 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 just because the expectation would be that deposit betas are increasing.

Saul Martinez -- UBS

Right. Okay. That's fair enough. That's about as simple math as you can do.

John Gerspach -- Chief Financial Officer

Thank you. I'm a simple guy.

Saul Martinez -- UBS

Well, there you go. Simple is good. It works. On the trading side, the volatility early in the year has helped, especially on the equities side. But, generally, the perception has been that it's a good thing. March SIC may have been a little bit tougher. But, how are you feeling? I know it's hard to predict on a quarterly basis. How are you feeling about the business from here? You've had volatility that's been good, but with the more recent market downturn, maybe institutional investors are heading for the sidelines a bit. But, how are you think about SIC right now -- the outlook there? In the equity side, there's a buildout, but just generally, what are the puts and takes around the businesses?

John Gerspach -- Chief Financial Officer

As far as from an equities point of view, we certainly feel really good about the business that we're building in equities. I think this quarter's performance provides a point of evidence for it, although we were building up market share all during last year as well. I think this is just another proof point. When it comes to SIC, it is the investor that is a little bit of a variable there. We've talked about the fact that investors, depending upon market conditions, are either in the market transacting or else 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 revenue that we generate in that business are from corporate clients.

That gives us a fairly strong foundation in our rates and currency business. Corporations need to fund their balance sheet every day, which means every day you have the ability to have a conversation with either a global treasurer or a local treasurer about what he/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 SIC business.

Saul Martinez -- UBS

Got it. On IB, what's the pipeline look like? How is DCM, ECM, M&A -- how are you think about the outlooks there?

Michael L. Corbat -- Chief Executive Officer

Saul, I would say that the first quarter we saw volumes down and our drop in investment banking is pretty much right in the line with what aggregate buy ins were. But, I would describe where we are today as not having hit the stop button, but the pause button. Part of it is we've seen some things on the approval, regulatory, and legal sides -- that it caused some of the big transactions to take pause. The other piece right now, which we're actively involved in, is in the US and the C-Suite. The introduction of tax reform has people thinking and rethinking strategy, and appropriately so. 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 this conversation -- rethinking that. I would say the pipeline, as we go forward, looks good and we expect activity to pick back up.

Saul Martinez -- UBS

Great. Thanks a lot.

Operator

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

Steven Chubak -- Nomura Instinet

Good afternoon. 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 declines in 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. Can you affirm whether that's the right way to think about it? Or, are there other factors that we need to consider?

John Gerspach -- Chief Financial Officer

We've told you the core accrual net interest revenue should grow $2.7 billion this year. The legacy asset runoff is $500 million. So, that's $2.2 billion. Trading will be 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.

Steven Chubak -- Nomura Instinet

Okay. Understood. I 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, could you 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 US retail bank peers, whether you expect to see meaningful convergence there and how should we think about the timing?

John Gerspach -- Chief Financial Officer

Yeah, 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 is a lot of trade-offs that go on in between different sub products in each of those businesses. I don't want to get into specific targets for specific products.

Steven Chubak -- Nomura Instinet

Fair enough. On the stress capital buffer, you mentioned that you'd estimated an SCB of roughly 3%. Is that estimate based on your 2017 results or is that more of an average over the last couple of years?

John Gerspach -- Chief Financial Officer

No, that was abased on 2017, Steve.

Steven Chubak -- Nomura Instinet

Okay. Perfect. Thanks very much.

Operator

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

Betsy Graseck -- Morgan Stanley

Good morning. On LIBOR and the three-month/one-month basis differential that happened this quarter, how did that impact you guys in the NIM?

John Gerspach -- Chief Financial Officer

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

Betsy Graseck -- Morgan Stanley

And on trading, same thing?

John Gerspach -- Chief Financial Officer

Again, it's part of the conversations that you have with clients. It's a great conversation starter. 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.

Betsy Graseck -- Morgan Stanley

Right. The frontend skew of your rate sensitivity, 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?

John Gerspach -- Chief Financial Officer

Yeah. Everything balances. We have a slight reduction in our forward looking IRE as a result of some of these and putting more things to work in the business. But, it didn't impact anything structurally. No.

Betsy Graseck -- Morgan Stanley

When I look at the core accrual NIM, the one on Page 10, the 354 this quarter, we can build off of that for the rest of the year, given the forward curve is looking for another couple of rate hikes?

John Gerspach -- Chief Financial Officer

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

Betsy Graseck -- Morgan Stanley

Okay, great. I know we had a lot of question already on the ESLR. Your SLR is relatively high and it's been high for a little while. Should we read anything into that? 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.

John Gerspach -- Chief Financial Officer

Well, SLR has never been a binding constraint for us. 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, now we're moving much more to standardized approach. There is not as large a gap between what you would think about as an advanced approach or a really risk based RWA and GAAP assets anymore. There are some, but it's less so.

So, the SLR is interesting and we would applaud the increased flexibility that it can grant us. But, it really hasn't been something that has impacted our overall business. What impacts us would be our focus on maintaining a 3% [audio cuts out] score and managing to that target of 11.5% CET1 ratio that we talked about. SLR is somewhat of a fallout from those two efforts.

Betsy Graseck -- Morgan Stanley

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?

John Gerspach -- Chief Financial Officer

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

Michael L. Corbat -- Chief Executive Officer

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

John Gerspach -- Chief Financial Officer

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

Betsy Graseck -- Morgan Stanley

Okay. Thanks for the color.

Operator

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

Ken Usdin -- Jefferies & Co.

Hi. Thanks. Mike, in your opening comments, you made a good blend of thought across better synchronized global growth and yet the volatility. I wanted to ask, this comes up a lot with the investor community, but it 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 what do you hear when you're talking to the regions about the jitters that get caused out of the volatility and how that might impact growth?

Michael L. Corbat -- Chief Executive Officer

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

Ken Usdin -- Jefferies & Co.

Got it. John, can you talk to us broadly about your outlook for credit? I don't' think you've changed anything with regards to your card outlook like you mentioned in your prepared remarks. But, anything notable to see underneath the surface in terms of the moving parts on the consumer side -- Lat Am better and the US normalizing as we expected. But, just your overall thoughts on cost of credit and forward expectation would be great. Thanks.

John Gerspach -- Chief Financial Officer

We continue to see credit performing very, very well, whether it be in the North America business, Mexico, or in Asia when it comes to consumer. You take a look at that slide -- I think it's seven -- it's been pretty stable across the board. 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. 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 I mentioned, 80% of our portfolio is investment grade, and that's clearly the way that the ICG loan book has been performing.

Ken Usdin -- Jefferies & Co.

Okay. Thank you.

Operator

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

  1. Erika Najarian -- Bank of America Merrill Lynch

Hi. My questions have been asked and answered. Thank you.

Operator

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

Gerard Cassidy -- RBC Capital Markets

Hi. You guys had some strong numbers in the treasury trade solutions on the year-over-year basis. It looked like it was high single-digit revenue growth. 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?

John Gerspach -- Chief Financial Officer

I don't want to split the revenue growth. There are three aspects in that. One is continued volume growth with existing clients. We're doing more with every client. We're gaining wallet share with our existing clients. We're also gaining wallet share outside of the existing clients by bring on new clients. That certainly is a story in security services in particular, but also in the commercial cards 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? 70/30? 50/50? I just can't give that. But, it's all three components working in those businesses.

Gerard Cassidy -- RBC Capital Markets

I see. We talk a lot about digitalization on the consumer side of the business. 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 be as good as you on the digitalization side?

Michael L. Corbat -- Chief Executive Officer

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 a third of those are now coming through to us digitally. So, the experience is better. And, as we can get that hopefully through to straight through processing, we have the ability to take costs out.

The second around the way that we transact and interact with existing clients. As an example, our efforts to radically reduce the number of paper statements that we're sending out on a monthly or regular basis -- we've shown a lot of progress there. The third piece is around the service. 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 an analogue phone call versus a digital engagement.

When you go on and look at our apps, in terms of your ability to check your balances, to move monies, to make payments, those are three big drivers in what John referenced before, what we laid out on Investor Day around this $1.5 billion of efficiency we think we can get out of our consumer business. Going back to the earlier question, what does this trajectory look and feel like? Why should we believe that there's the potential of acceleration into late '18, '19, and '20? We're all over this. We view it to be a competitive advantage. 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.

John Gerspach -- Chief Financial Officer

And, Gerard, it's the same story on the corporate side. These digital capabilities, expanding all of the platforms -- our strategy gets to focusing on those large multinationals. So, now we've given those global treasurers, 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 they have around the world. They're able, then, to manage their working capital, move funds, off of their tablet.

They can sit in whatever city you want to pick -- New York, London, Zurich, or Beijing -- and they can see on their tablet working capital requirements in their international subsidiary and move funds through our application. We think that's a real competitive advantage, especially as you're starting to see more and more companies expand into more and more countries. That's the power of our network.

Gerard Cassidy -- RBC Capital Markets

Okay. You guys are unique in your international business versus some of your peers. Are there any behavior differences between your international, or non US consumer customers, versus Americans on the digital usage or how they behave?

Michael L. Corbat -- Chief Executive Office

Yes. In some cases, very much so. You can go look at smart devices, digital engagement -- as you can imagine, Asia is really at the forefront in a lot of things we're doing in terms of digital engagement, the amount of transactions, things coming through, and things we're putting in place. While 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 analogue experience for our customers. But, we're changing and evolving. We like that we have the technology elsewhere in the world that we can continue to roll out. We don't have to invent it of Mexico. It exists. I would just say the world is at varying stages of digital engagement, but all headed in the same direction.

Gerard Cassidy -- RBC Capital Market

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

Michael L. Corbat -- Chief Executive Office

We've been engaged and working with our clients toward making sure everybody is MiFID compliant. From our perspective, we believe those conversations have been very constructive. The conversations we've been involved in are largely holistic approaches to what we're going to provide. The engagement has been good and we haven't had any surprises to the negative in any material way to how we thought this would roll out.

Gerard Cassidy -- RBC Capital Market

Thank you.

Operator

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

Al Alevizakos -- HSBC Holdings plc

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

Michael L. Corbat -- Chief Executive Officer

Sure. One is, when you look at coming out of 2017 and some of the numbers that were published. I think it was the INF published a report in January that talks about the 175 countries they track. Somewhere in the magnitude of 150-155 of those countries actually grew exports year-over-year -- the largest number that I can remember on history. So, trade is alive and well. That's 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 US. So, as we think about our business, it's very representative of global trade in that about 20% of our trade business is US related and therefore 80% is rest of world. From our perspective, and the diversification that we have, for us it's not necessarily a question of who is trading it, but is it trading and is it moving. As we've done our analysis, at least as it pertains to us, the impact of a US/China trade war is probably a bigger macro event than it is a Citi specific trade event.

I'm hard pressed to believe that, if you have two of the bookends of the global economy that the world's counting on for growth, and you have a trade war going, growth is likely to suffer and that's like to have a spillover to the rest of the economy. As of today, and as of recent conversations, it seems 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.

Al Alevizakos -- HSBC Holdings plc

Sure. Regarding MiFID, You mentioned that Asia specific equities were very strong. How was Europe, especially in cash and deliveries?

Michael L. Corbat -- Chief Executive Officer

It was good. It was also strong. I talked a little bit about the product and the underlying mix between cash derivative, etc. But, as we look at North America and at Asia, good balanced participation in that growth.

Al Alevizakos -- HSBC Holdings plc

Thank you very much.

Operator

You last question is from the line of Brian Kleinhanzl with KBW.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc.

Thanks. On the credit cards, you said you're expecting them to tick up from here. But, I wanted to make sure there was no change in your credit card NCL guidance and still comfortable with 2018, and the medium term targets that you laid out previously.

John Gerspach -- Chief Financial Officer

Yes.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc.

Okay. There are a lot of concerns about deposit costs and where they're going from here. Your deposit costs were only up eight basis points quarter-on-quarter. But, are you seeing something different in the market over the last month or two that makes you concerned that there is a more meaningful inflection in deposit costs? Are you starting to see irrational pricing in the market perhaps or deposits moving faster? Deposit gamblers, I guess, going up? Or something else in the market that we're not seeing in the numbers that you reported?

John Gerspach -- Chief Financial Officer

No. I would characterize it that, 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 -- and this may be what you're hearing -- as we continue to get rate increases, and with rate increases also in frequency, you're going to start to see some pressure on those deposit betas. It's just inevitable that it's going to happen. It hasn't happened yet, but I think we're all saying pretty much the same thing. The betas will move up.

Now, betas moving up is all part of our forward projections, so it's not a surprise to us. But, it's just something that you have to expect to happen.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc.

Were the deposit betas this quarter below still what you were expecting?

John Gerspach -- Chief Financial Officer

No. Corporate betas have moved up certainly more than consumer betas and that's been consistent -- at least for the last year. So, you do have a mixed component in beta. Not every beta is the same. So, our deposit performance is a mix of what's going on with our corporate deposits and our consumer deposits.

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc.

Okay. Thanks for taking my questions.

Operator

There are no further questions.

Susan Kendall -- Head of Investor Relations

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

...

Operator

That does conclude today's call. You may now disconnect.

Duration: 79 minutes

Call participants:

Susan Kendall -- Head of Investor Relations

Michael L. Corbat -- Chief Executive Officer

John Gerspach -- Chief Financial Officer

John McDonald -- Sanford C. Bernstein & Co., LLC

James Mitchell -- Buckingham Research Group

Glenn Paul Schorr -- Evercore ISI

Matthew O'Connor -- Deutsche Bank

Gerard Cassidy -- RBC Capital Markets

Mike Mayo -- Wells Fargo Securities

Betsy Graseck -- Morgan Stanley

  1. Erika Najarian -- Bank of America Merrill Lynch

Brian Kleinhanzl -- Keefe, Bruyette & Woods, Inc.

Saul Martinez -- UBS

Ken Usdin -- Jefferies & Co.

Al Alevizakos -- HSBC Holdings plc

Steven Chubak -- Nomura Instinet

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