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Citi may need to refocus on regulatory fixes amid restructuring, analysts say

FILE PHOTO: The logo for Citibank is seen on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City

(Reuters) - Citigroup may need to prioritize fixing regulatory issues amid its global reorganization efforts, analysts at J.P.Morgan wrote in a note.

U.S. regulators have asked Citi for urgent changes to the way it measures default risk of its trading partners and the bank's own auditors have found a plan to improve internal oversight to be lacking, Reuters reported on Monday.

The bank is working through two 2020 consent orders, in which the U.S. Federal Reserve and the Office of the Comptroller of the Currency directed Citi to fix longstanding and widespread deficiencies in its risk management, data governance and internal controls.

Alongside these, CEO Jane Fraser is carrying out the biggest overhaul in decades at the third largest U.S. lender as its profits and stock performance lagged rivals.

The pressure from regulators may require Citi to ramp up its efforts in the area of regulatory issues, keeping expenses elevated, the J.P.Morgan analysts wrote.

"(It) could push them towards the higher end of Citi's $51 billion - $53 billion medium term range for annual expenses if these are material," the analysts wrote.

Citi's guidance for 2024 operating leverage -- which measures how revenue growth translates to growth in operating income-- should still hold, Wells Fargo analyst Mike Mayo wrote in a note.

Mayo, however, said in an interview on Monday "the jury is still out on the ability of Jane Fraser to execute on this vision (of transforming the business)."

"These next eight weeks are a critical period in her CEO tenure," he said, referring to the reorganization, through which Citi is trying to simplify its structure and bring profitability in line with peers.

Mayo previously said 2024 was part of a "multi-decade inflection point" for the bank and that its stock could double over the next three years. He rates Citi as his No. 1 pick.

(Reporting by Manya Saini and Niket Nishant in Bengaluru, additional reporting from Lananh Nguyen in New York; Editing by Shinjini Ganguli)