Citigroup Inc (C) Q2 2022 Earnings Call Transcript

Citigroup Inc (NYSE: C) Q2 2022 earnings call dated Jul. 15, 2022

Corporate Participants:

Jennifer Landis — Head of Investor Relations

Jane Fraser — Chief Executive Officer

Mark Mason — Chief Financial Officer

Analysts:

John McDonald — Autonomous Research — Analyst

Glenn Schorr — Evercore ISI — Analyst

Erika Najarian — UBS — Analyst

Mike Mayo — Wells Fargo Securities — Analyst

Ken Houston — Jefferies — Analyst

Ebrahim Poonawala — Bank of America — Analyst

Betsy Graseck — Morgan Stanley — Analyst

Steven Chubak — Wolfe Research — Analyst

Matt O’Connor — Deutsche Bank — Analyst

Gerard Cassidy — RBC Capital Markets — Analyst

Vivek Juneja — JP Morgan — Analyst

Andrew Lim — Societe Generale — Analyst

Presentation:

Operator

Hello and welcome to Citi’s Second Quarter 2022 Earnings Review with the Chief Executive Officer, Jane Fraser and Chief Financial Officer, Mark Mason. Today’s call will be hosted by Jen Landis, Head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time.

Ms. Landis, you may begin.

Jennifer Landis — Head of Investor Relations

Thank you, operator. Good morning and thank you all for joining us. I’d like to remind you that today’s presentation which is available for download on our website citigroup.com may contain forward-looking statements which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings.

With that, I’ll turn it over to Jane.

Jane Fraser — Chief Executive Officer

Thank you Jen, and thank you everyone for joining us today. When we last spoke, we said the macro and geopolitical outlook was complex and uncertain. So in one sense little has changed, however, the headwinds have certainly crystallized and is against that backdrop that I’m proud of the results our team delivered this quarter as we execute on our strategy and transformation.

There are amounting costs to the series of supply shocks we’ve experienced, and now we need to pay attention to an additional S in ESG and that is security. In addition to energy and cyber security, food security has also come into sharper focus, threatening to spread the humanitarian cost of the war well beyond Europe. Resiliency is the new priority for governments and corporates alike. And all of this is adding to inflationary pressures, which are in turn being met with a more hawkish response from the Fed and other central banks all contributing to sharply lower US consumer confidence. Higher rates and QT will keep volatility high. That said, world sentiment has shifted little of the data I see, tells me the US is on the cusp of a recession. Consumer spending remained well above pre-COVID levels with household savings providing a cushion for future stress and as any employer will tell you, the job market remains very tight. Similarly, our corporate clients see robust demand and healthy balance sheet, with revenue softness attributed to supply chain constraints so far. So while the recession could indeed take place over the next two years in the US, it’s highly unlikely to be a sharper downturn as others in recent memory. I’m just back from Europe, where it’s a different story. We expect a very difficult winter coming and that’s due to disruptions in the energy supply. There is also increasing concern about second order effects on industrial production and how that will affect economic activity across the continent, and the mood is of course further darkened by the belief that the war in Ukraine will not end anytime soon.

In Asia a rebound in China also faces some constraints, given the potential for future lockdown [Technical Issues] property sector. Given this uncertain environment, I’m quite pleased with our overall performance. We reported net income of $4.5 billion and EPS of $2.19 and then RoTCE of 11.2%. We grew revenues at 11% year-over-year, whilst remaining on track to meet our expense guidance for the year. Services continued to show excellent momentum with revenues up 28% year-over-year, while some of that growth is a result of the rate environment, we had double-digit fee growth consistent with the strategy we presented to you in March. TTS in particular fired on all cylinders as clients took advantage of our global network, leading to the best quarter this business has had in a decade. The market volatility that we saw in the first quarter continued into the second, driving corporate clients in particular to be more active in risk management, contributing to revenue growth of 25% in markets. The volatility we saw in foreign exchange rates, commodities and equity derivatives favored our mix and we were more efficient in our capital usage. Now, while this level of activity is related to where we are in the current cycle rather than a new baseline end market, I believe we are helping our clients navigate this environment quite well. And it shows how our emphasis on our corporate clients globally, given their consistent trading needs is a differentiating one for us in market.

On the flip side, that same environment continues to put a great deal of pressure on the Investment Banking wallet, with our revenues down 46%. However, we are seeing an increase of lending as our clients have been less inclined to obtain financing through the debt markets given the recent swings. In US Personal Banking, the positive drivers we saw in our two credit card businesses over the last few quarters converted into solid revenue growth this quarter, most notably 10% growth in Branded Cards. And you can see, how resilient the consumer is in the US through the elevated payment rates and the low level of credit losses. They have however shifted their spend far more to travel and entertainment, which are now outpacing 2019 levels. While volatility can be an opportunity for our trading desks, there are surprises or headwind for wealth management. Asia again was hit harder than other regions, leading to flat year-over-year wealth management revenues overall. That said, we continue to execute our wealth strategy across the number of fronts, including building our base of client advisors, expanding our Private Bank’s physical footprint to reach 20 countries with the additions of Germany and France, and increasing referrals from our branch network in the US. So, the underlying strategic drivers for the long-term growth of this business continue to advance.

Overall, while we did have a slight build in reserves, given the increasing possibility of a recession, we are operating from a position of strength. Our capital, liquidity, credit quality and reserve levels are strong and our diversified business mix also positions us well for the choppy waters on the horizon. Well, while the world has changed since we presented our Investor Day to you in March, our strategy has not. We have continued to execute it with discipline and with urgency.

The quarterly report card on Slide 3 should help you hold us accountable for our progress. We are laser focused on the long-term goals we set out in March and I see this quarter’s performance is validating that we are indeed on the right path. Simplifying the firm is a high priority and we made good progress executing on our divestitures, such as closing the sale of Australia during the quarter. We are well into the sales process in Mexico working through the regulatory and legal dynamics that can be expected in a transaction of this nature.

In terms of Russia, we continue to shrink the size of our business and take steps to reduce our financial exposure. Given the complex environment, we are considering the full range of possibilities to exit our consumer and commercial banking businesses, including portfolio sales. As divestitures such as Australia progressed, we are beginning to eliminate stranded costs and simplify our model, and this discipline is critical to ensuring we have the resources to invest in the businesses where we want to gain or maintain a competitive advantage and to ensure the success of our transformation. To that point, we were particularly pleased that our AML consent order was lifted by the OCC in April. We are committed to ensuring our technology, controls and processes are up to the standards, our regulators expect of us and we expect of ourselves.

Let me end on capital. We increased our CET1 ratio to 11.9% this quarter whilst returning $1.3 billion in capital, including a rather modest level of buybacks. Our tangible book value per share now exceeds $80. Despite the strength of our balance sheet and reserves, our Stress Capital Buffer is set to increase to 4% in the fourth quarter as a result of this year’s stress test scenario. So over the near term, we plan to build to a CET1 ratio of approximately 13% including 100 basis point management buffer. Over the medium term, our CET1 target remains at 11.5% to 12%. We are prioritizing our dividend and are pausing our share repurchases as we build capital. We have a management buffer which we can use to help ensure a smooth path to our required levels. And, Mark will walk you through our approach in a few minutes.

We will generate significant capital given our earnings power and the completion of pending divestitures. We know how important buybacks are to shareholder value creation, in particular, when we are trading at these levels and are committed to restarting them as soon as it is prudent to do so. We will make every effort to optimize our capital, especially in businesses such as market, so we balance the needs of our clients, our investors and our regulators. Overall, in a challenging macro and geopolitical environment, our team delivered solid results and the Bank is in a very strong position to weather uncertain times whilst playing to our strengths. I’m confident about the path ahead and I’m pleased with our early progress.

Now I’d like to turn it over to Mark and then we’d be delighted as always to take your questions.

Mark Mason — Chief Financial Officer

Thank you Jane and good morning everyone. I’m going to start with the firmwide financial results focusing on year-over-year comparisons for the second quarter, unless I indicate otherwise, then spend a little more time on expenses, capital and Russia and then turn to the results of each segment and end with 2022 guidance.

On Slide 4, we show financial results for the full firm. As Jane mentioned earlier, in the second quarter we reported net income of $4.5 billion and EPS of $2.19, with an RoTCE of 11.2% on $19.6 billion of revenue. In the quarter, total revenues increased 11% with growth in both net interest income as well as non-interest revenues. Net interest income grew 14%, driven by higher rates as well as strong volumes across ICG and PBWM. Non-interest revenue grew 5% driven by fixed income and services which more than offset lower non-interest revenue in Investment Banking and PBWM. Total expenses of $12.4 billion increased 8% largely driven by transformation business led investments and volume-related expenses. On a year-to-date basis, expenses were up 12%, but excluding divestiture related impacts were up 9%, also driven by the factors I just mentioned.

Cost of credit was $1.3 billion, driven by net credit losses of $850 million and an ACL build of approximately $400 million. At the end of the quarter, we had approximately $18.3 billion in total reserves, with a reserve to funded loan ratio of 2.44% and are well capitalized with a CET1 ratio of 11.9%.

On Slide 5 we show an expense walk for the second quarter with the key underlying drivers. As I mentioned earlier, expenses increased by 8%. 3% of the increase was driven by transformation investments with about two-thirds related to risk, controls, data and the finance programs, and approximately 25% of the investments in those programs are related to technology. And as of today we have over 9,000 people dedicated to the transformation. About 2% of the expense increase was driven by business led investments as we continue to hire commercial and investment bankers as well as client advisors in wealth. And we continue to invest in the client experience as well as front office onboarding and platforms. 2% was due to higher revenue and volume related expenses, largely in markets and cards, and approximately 1% was driven by compensation as well as other risk and control investments, partially offset by productivity savings and the impact of foreign exchange translation. Across all these buckets, we continue to invest in technology, which is up 14% for the quarter.

Before we move on from expenses, we wanted to provide some tangible examples of what we are working on regarding our transformation and some of the benefits we expect to see over time. The transformation is designed to improve our governance and processes, enhance our policies and leverage technology to strengthen our controls. We’ve been actively investing in technology to improve automation and hiring people to stand up these efforts. To this end, we are enhancing our risk management processes and capabilities across a number of areas. For example, in banking, we’ve gone live with a new platform and now begun to consolidate our 37 loan processing systems to one loan servicing platform. And we have continued to build out our infrastructure to enhance our stress testing capabilities across the firm, particularly useful in this market. Given the power and importance of data, we are redesigning our data governance and data organization, which will help us improve the timeliness and quality of our data. These foundational data related changes will allow us to simplify and improve client onboarding and deepening product development as well as enhance our data analytics for every function. And we are streamlining our financial planning process to allow for multiple scenarios with greater frequency, including more agile capital planning. And we signed with a major software provider to begin a multi-year process of modernizing and moving our 16 ledger platforms deployed across 121 instances to one cloud-based ledger. And while we are in the early stages of these initiatives, we expect the efficiencies from these investments to be key in helping us meet our Investor Day commitments.

On Slide 6, we show net interest income, loans and deposits. In the second quarter, net interest income increased by approximately $1.1 billion on a sequential basis, driven by higher rates, day count, growth in loans as well as the impact of the European dividend season on our markets business. on a year-over-year basis, net interest income increased by approximately $1.5 billion, driven by higher interest rates as well as volumes across businesses. And we grew average loans by approximately 3% in ICG, mainly in trade finance and 4% in PBWM. Legacy Franchises loans declined largely driven by the reclassification of loans to held for sale. And sequentially the gross yield on our loans increased by 35 basis points and the cost of our interest bearing deposits increased by 20 basis point.

On Slide 7, we show our summary balance sheet and key capital liquidity metrics. We maintained a very strong balance sheet. Of our $2.4 trillion dollars of assets about 22% or $531 billion are high-quality liquid assets or HQLA and we maintained total liquidity resources of approximately $964 billion. Our end of period deposits increased by 1% largely driven by TTS and wealth. On a sequential basis, deposits decreased by 1% including the impact of seasonality in wealth. From an RWA perspective, we saw both advanced and standardized RWA come down both year-over-year and sequentially as we continue to optimize RWA. We ended the quarter with a standardized CET1 ratio of approximately 11.9% and standardized remains the binding requirement. And our tangible book value per share was $80.25, up 3%.

On Slide 8, we show a sequential CET1 ratio walk to provide more detail on the drivers this quarter, and our goals over the next few quarters. First, we generated $4.3 billion of net income to common, which added 34 basis points. Second, we returned $1.3 billion in the form of dividends and buybacks, which drove a reduction of about 10 basis point. Third, the interest rate impact on AOCI through our investment portfolio drove a 12 basis point reduction. Fourth, the decrease in disallowed DTA drove a 5 basis point increase. And finally, the remainder was driven by a combination of our net RWA optimization efforts as well as the 12 basis point benefit from the closing of the Australia sale. We ended the quarter with the CET1 ratio of 11.9%, 50 basis points higher than the first quarter and well above the regulatory requirement of 10.5%. We expect our regulatory requirement to increase to 11.5% in October of 2022 to account for the increase in our Stress Capital Buffer from 3% to 4%.

In January, our regulatory requirement will increase to 12% as a result of an increase in our GSIB surcharge. Combination of our earnings generation, closing of divestitures and continued RWA optimization efforts will be important tools as we manage towards our CET1 requirement. And our management buffer which was designed to temporarily address volatility will allow us to build gradually while continuing to support our clients. Given all of that, we do expect to build to a CET1 target of approximately 13% by mid-year 2023 which accounts for the increased regulatory requirement and assumes a 100 basis point management buffer. However, consistent with what we said at Investor Day, our medium term target remains at 11.5% to 12%. And while we are pausing buybacks for now, as I’ve said before, we remain committed to returning excess capital to our shareholders over time.

On Slide 9, we provide an update on our exposure to Russia. In 2Q, we reduced our exposure by $3.1 billion in local currency terms, which was more than offset by the ruble appreciation. As of today, the mix of our exposure has changed and is now reflecting a higher proportion of stronger credit name [Phonetic]. Additionally, our net investment in our Russian entity is now approximately $1.2 billion, up from about $700 million due to the ruble appreciation. As a result of the actions that we’ve taken to reduce our risk, we now believe that under a range of severe stress scenarios, our potential capital impact is estimated to be approximately $2 billion, down from the $2.5 billion to $3 billion last quarter.

On Slide 10, we show the results for our Institutional Clients Group. Revenues increased by 20%, largely driven by TTS, markets, security services as well as a gain on loan hedges, partially offset by a decrease in Investment Banking revenues. Expenses increased 10%, driven by transformation, business led investments and volume-related expenses, partially offset by productivity savings. Cost of credit was a benefit of $202 million, with a net ACL release of $220 million and net credit losses of only $18 million. The release was largely driven by a reduction in Russia related risk, partially offset by a build due to increased global macro uncertainty. This resulted in net income of approximately $4 billion, up 16%. We grew average loans by 3%, largely driven by TTS loans, which were up 17%. Average deposits grew 1% driven by the deepening of existing client relationships and new client acquisitions and ICG delivered in RoTCE of 16.6%.

On Slide 11, we show revenue performance by business and the key drivers we laid out at Investor Day which we will show you each quarter. In Services, we continue to see a very strong new client pipeline and deepening with our existing client and expect that momentum to continue. In Treasury and Trade Solutions, revenues were up 33%, driven by 42% growth in net interest income as well as 17% growth in NIR as we saw strong growth with both mid and large corporate clients. And we continue to see healthy underlying drivers in TTS that indicate continued strong client activity, with US dollar clearing volumes up 2%, cross border flows up 17% and commercial card volumes up 61%. Again these metrics are indicators of client activity and fees and on a combined basis drive approximately 50% of total TTS fee revenue.

Securities Services revenues grew 16% as net interest income grew 41%, driven by higher interest rates across currencies. And NIR grew 8%, largely reflecting elevated activity levels in Issuer Services. Overall, Markets revenues were up 25%. The macro environment played to our strengths with the volatility leading to elevated corporate client activity. Fixed Income Markets revenues were up 31% driven by FX, rates and commodities, due to active engagement with our corporate clients as we help them manage risk associated with volatile markets. Equity Markets revenues were up 8% driven by strong equity derivative performance, partially offset by less client activity in cash and a net decrease in prime balances as lower asset valuations more than offset new client balance. Banking revenues, excluding gains and losses on loan hedges were down 28% driven by Investment Banking as heightened geopolitical uncertainty and the overall macro backdrop impacted client activity, partially offset by higher revenue in Corporate Lending. So, we feel very good about the progress we are making here, as we continue to deepen existing client relationships as well as acquire new clients.

Now turning to Slide 12, we show the results for our Personal Banking and Wealth Management business. Revenues were up 6% as net interest income growth was partially offset by a decline in non-interest revenue largely driven by partner payments in Retail Services. Expenses were up 12% driven by transformation, business led investments and higher volume driven expenses, partially offset by productivity savings. Cost of credit of $1.4 billion was up as we added reserves given the increase in overall uncertainty in the macro environment, compared to a net ACL release last year and NCLs were down 19% as we continue to see strong credit performance across portfolios. Average loans grew 4% driven by strong growth in Branded Cards as well as growth across Retail Services and Wealth. Average deposits grew 6%, driven by growth across retail and wealth. We continue to maintain a strong reserve to loan ratio of 7.5% in our US cards businesses and PBWM delivered an RoTCE of 6.8% while a low return this was driven by the ACL build and an increase in expenses in the quarter.

On Slide 13, we show PBWM revenues by product as well as key business drivers and metrics. Branded Cards revenues were up 10% driven by higher interest on higher loan balances. We are seeing encouraging underlying drivers with new accounts and card spend volumes both up 18% and average loans up 11%. Retail Services revenues were up 7%, also driven by higher interest on higher loan balances, partially offset by higher partner payments. So despite payment rates remaining elevated, the investments we have been making have driven growth in interest earning balances of 3% in Branded Cards and 2% in Retail Services and we believe we will continue to grow these balances in the second half of the year.

Retail Banking revenues were up 6% primarily driven by deposit spreads and volumes. Wealth revenues were flat as investment fee headwinds offset NII growth driven by deposits and loan volumes. Excluding Asia revenues were up 4%. We’re starting to see the leading indicators pick up with average deposits up 7% and client advisors up 8%. And we are seeing strong [Technical Issues] and over 50,000 Citigold clients since last year.

On Slide 14, we show results for Legacy Franchises. Revenues declined 15% largely driven by the closing of the Australia consumer sale, the Korea wind down and muted investment activity in Asia. And as we mentioned, this quarter we closed the sale of the Australia consumer business, which was a benefit of up to $1.5 billion of capital.

On Slide 15, we show results for Corporate/Other. Revenues increased largely driven by higher net revenue from the investment portfolio and expenses were down.

On Slide 16, we briefly touch on the full year 2022 outlook. At this point, we continue to expect full year revenues to be up in the low single-digit range. Relative to Investor Day, the rate curve is certainly giving us a tailwind from an NII perspective and Markets revenues are up for the first half of the year. However, as we mentioned earlier, we are seeing much lower levels of investment banking activity and this will likely continue for the remainder of the year.

In terms of expenses, we still expect to grow expenses by 7% to 8% excluding the impact of divestitures. While we are seeing some impact from inflation, we believe the efficiencies that we’re executing against and the impact of foreign exchange translation should offset these headwinds.

And with that said, Jane and I would be happy to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question will come from John McDonald with Autonomous Research. Your line is now open.

John McDonald — Autonomous Research — Analyst

Hi, good morning. Mark, I was hoping that maybe you could unpack the guidance for 2022 a little bit more. It seems like you’ve got more good guys and bad guys maintain the guidance, but maybe within that, could you give us a little bit more color on what you’re expecting on net interest income, where the trend seems strong? And then maybe what you’re assuming for markets in the back half of the year? Thank you.

Mark Mason — Chief Financial Officer

Yes. Thank you, John and good morning to you. As you said, we have seen the benefit certainly in the quarter here of the pick-up in rates and certainly all indicators of that the rate increases will likely continue through the balance of the year. And as you’ve heard me say before, I do expect that we will see continued growth in loans, particularly on the card side and we saw some of that start to play in sooner than expected, because I had talked about it being in the back half of the year, we saw some of that even here in the second quarter. So we do continue to think we’ll get some lift there. We also expect to see continued momentum on the Services side, both in TTS and likely in Securities Services as well and that growth is more than just rates, but certainly a portion of that does come from rates as well. Where the pressure is going to come is in the non-interest revenue and we saw that certainly in the quarter here on the Investment Banking side, we saw that obviously in some of the Wealth businesses, particularly in Asia and that’s where some of the offset is that we’d expect against that NII momentum.

Now the reality I think is that, we’ll have to see how this plays out as it relates to Markets. All the uncertainty that’s out there in the environment thus far have played — as played to our favor given our focus on corporate clients and what have you. But I’d tell you that, as I look at the full year based on what we know now and with the uncertainty that’s out there, I continue to feel comfortable with that guidance probably to the higher end of that low single-digit growth that I’ve talked about.

John McDonald — Autonomous Research — Analyst

Okay. And then maybe as a follow-up, just remind us where you are on net interest income sensitivity. You’ve updated the way I think you look at it relative to peers and relative to rates. Just remind us where you are on that and what kind of deposit pricing assumptions are embedded in that?

Mark Mason — Chief Financial Officer

Sure. So, important to kind of just level set John, great question. We got to think, there are couple of drivers that kind of come into play when we think about the sensitivity. So one is, obviously the mix and so in our case, we’ve got about two-thirds of our deposits or wholesale about a third are consumer. We’ve got obviously 70% of ours are in US denominated and the rest are kind of non-US, and that mix is important when you think about betas, when you think about sensitivity and how they play out, particularly in a rising rate environment at the pace that we’ve seen and that pace varies for both the US versus the non-US currencies. And so that’s all going to be a factor and kind of how we think about it. You’re right, in our disclosure, we forecast our IRE disclosure based on a run-off balance sheet assumption, and what I’ve been describing the past couple of quarters and approach — is an approach that’s more consistent with peers, which assumes a static balance sheet and under that analysis, if we were to look at an assumption for 100 basis points parallel shift in rates across currencies, we think that would generate roughly a $2.5 billion increase in NII.

Now for us that’s going to skew towards non-US dollars. About 80% of that would be non-US dollar, about 20% US dollar and that shift is in part because we’ve seen already a significant increase in the US. We’ve seen some increase in non-US but nowhere near the magnitude that we’ve seen in the US. So I’ll stop there. Hopefully that addresses your question?

Operator

Thank you. Our next question will come from Glenn Schorr with Evercore ISI. Your line is now open.

Glenn Schorr — Evercore ISI — Analyst

Thanks very much. Mark, I wonder if you could just elaborate on the headwind in non-interest revenue within PBWM and Retail Services. It sounds to me like you extended a contract for a partner or something like that? And then maybe bigger picture, in Cards, you just mentioned rising card loans. We all want rising loans, but in the backdrop in the economic outlook we’re facing, how do you decipher what’s good rise in card loans versus a little concerning rising card loans?

Mark Mason — Chief Financial Officer

Sure. Let me take the — take them in that order. So on the Retail Services side, it has nothing to do with kind of an extension of a contract or anything like that. What I’m describing is that it is a partner business that we have there in Retail Services. And what that means is that, there is a sharing of the profits associated with the business that we generate. And so what happens is in this rising rate environment, we’ve seen and the activity from a volume point of view, we’ve seen an increase in the net interest income that we’ve generated and what that means is that there is more — fortunately more profits to share with our partners. The sharing of those profits play through the non-interest revenue line. So it comes out of — comes out as a fee as a contra-revenue as we share those with clients. So that’s the driver of the swing that you see happening there or the pressure that we have in PBWM as it relates to Retail Services.

In terms of the cards growth. The cards growth we feel very good about it. There certainly is a — an environmental dynamic that’s playing out as it relates to consumers and corporates. But what I would say is that you’ve also heard us describing more marketing spend, more advertising spend, more acquisitions, 18% growth in acquisition. We’ve been targeting growing our customer base there, while staying within our risk appetite and the parameters that we’ve set and have been very disciplined about. And that started to pay off and that is a — that is part of what I described in terms of the loan growth that is materializing. There is nothing that we see of significance as we grow these loans that would suggest, one, that they’re outside of the focus that we’ve had to date because they’re not, nor that there is any material risk in terms of outsized losses. If you look at our loss rates, our loss rates are for Branded Cards 1.5%, Retail Services 2.6%, those are 50% of what we would normally — what we used to describe as a normal loss rate, NCL rate through a cycle. And so we feel very good about the loans that we’re growing. There is obviously risk, but we also feel very good about the reserves that we have.

Operator

[Operator Instructions] Our next question will come from Erika Najarian with UBS. Your line is now open.

Erika Najarian — UBS — Analyst

Yes, hi. My first question is actually a follow-up to John’s question, Mark. I think that it’s always been more challenging to forecast net interest income for Citigroup and the net interest income and net interest margin certainly surprised to the upside. So I guess, let me re-ask the question, appreciate the $2.5 billion for each 100 basis point in parallel shift, but as we think about the US forward curve, how should we think about the trajectory of net interest income from that $10.58 billion from here and clearly as we think about a deposit base it’s two-third wholesale. How should we think about both deposits flow — deposit growth and deposit beta as we think about the second half of the year? In other words, does the rate of change quarter-over-quarter accelerate now or decelerate?

Mark Mason — Chief Financial Officer

There is a lot there, but I mean, I think what I’d say is a couple of things. One is, we’ve obviously seen a rapid increase in rates. And that the speed at which rates increases matters a lot as it relates to the betas. And so, particularly on the wholesale corporate side. And so we have seen betas increase there. They’re probably at about to slightly a little bit better than we would have expected, but we would expect that momentum to continue in the back half of the year given the forecast for continued rate increases.

The other thing that I’d point out, just given your point around the ability to forecast from a Citi point of view, if you look at the first half of the of the year, we did about I think was $1.8 billion or so over the prior year. Ex-markets, so NII, ex-markets $1.8 billion year-over-year first half. To give you a bit more guidance on how we’re thinking about it in light of the rate curve and in light of our mix, I’d tell you that I expect about another $1.8 billion or so in the back half. So that’s probably year-over-year 8%-ish [Phonetic] or so, on a full year basis based on again our mix, our assumption around betas and our current assumptions around how the curve would likely play out. Let me pause there and see if Jane wants to add anything to that.

Jane Fraser — Chief Executive Officer

Yes, I’d also add in our institutional deposits account for about 65% of Citi’s deposit base, but 55% of them are operational deposits and the TTS deposits have increased by $134 billion since pre-COVID, but the operational deposits increased by $141 billion and the non-operating decreased. So, with QT on the horizon, we would certainly expect the amounts of deposits in the system to shrink. We anticipate this would primarily impact non-operating balances. And I think we feel very good about the stickiness of the deposit base we’ve got and particularly internationally, where these are operating accounts in that are extremely sticky and frankly in all environments.

Mark Mason — Chief Financial Officer

Good point.

Erika Najarian — UBS — Analyst

Thank you. And just my follow-up question is, that was really an impressive capital build this quarter, particularly since it’s been an issue with investors since — especially since the SCB came out. I think a piece that we may be missing as we think about the continued build to 13% is sort of what the CET1 benefit is from Slide 19. So similar to sort of the — I guess it was 12 basis points that accreted from the Australia sale. Is there any way you could give us a range on as the deals close for the Philippine, Thailand, Bahrain, Malaysia in the second half of the year, how that could boost your CET1 and get you closer to that 13% bogey?

Mark Mason — Chief Financial Officer

Yes, I guess, let me kind of answer it in a more fulsome way if you don’t mind and then I’ll certainly make sure that I give you a sense for the contribution of what we expect from divestitures to the capital impact. So, again there are couple of drivers that are going to be important to us building to ultimately the 13% for as long as that is in place given the SCB. One is obviously the income generation. And with a very strong quarter as it relates to income generation, I feel good about the back half of the year, as I’ve just given you some guidance on. The other is, don’t forget, we’ve had 160 basis points on the two-year, since the beginning of the year to the end of the first quarter in terms of rate increases. Another 60 basis points in the second quarter and this is going to be, there were AOCI impacts from that, 34 basis points in the first quarter and as we point out here, another 12 basis points in the second has a pull to par that we expect to start to play out and continue to play out in the balance of the year, that’s going to be an important factor.

The third, as you’ve heard us mention is, we’ve been working very hard to optimize our RWA and we’ll continue to do that. We paused the buybacks that’s a factor. And then as you mentioned the divestitures to close to $1.5 or so in Australia, I’ve talked about in the past about $4 billion for the year and in terms of capital impact amounted about $3.5 billion with Australia is what I’m currently expecting, and so a little bit less than what I talked about before, in part because of some of the movement in terms of the timing of some of these closing, still feel good about it just it’s a difficult market that we’re managing through. So that $3.5 billion total should give you a sense for how that translates into a CET1 impact that we’re expecting at least through the balance of this year and obviously it will be more to come as we continue to close out — sign and close out some of the remaining deals.

Jane Fraser — Chief Executive Officer

Yes, I mean I rather suspect that at the end of all of this, we’re going to have an over-abundance of capital. And I really feel good that Citi is already very well positioned for any environment. And as Mark said, we have a confluence of various factors going on. I mean, some of which are temporary that are causing this rapid build-up of capital for the industry. But I think we’re extremely well positioned for — lies ahead in terms of strong capital ratios, total liquidity resources, portfolio of credit quality is extremely high, well reserved and so we are very much looking forward to resuming share buybacks. As I said, once we’ve achieved this build, particularly given where we’re trading, and I want you to hear loud and clear that commitment.

Operator

Thank you. Our next question will come from Mike Mayo with Wells Fargo Securities. Your line is now open.

Mike Mayo — Wells Fargo Securities — Analyst

Hi. I’m trying to figure out if you’re lucky or smart. And the reason I say that is at your Investor Day, I mean right upfront, you said, you have five core interconnected businesses led by Services, led by TTS and then a few months later you have your best quarter in a decade. And it’s just seems so coincidental that you highlight that as a growth area and then just couple of quarters later boom, here we are. So how much of that TTS growth is simply because of one-off factor [Technical Issues] to a higher baseline because, let’s say, interest rates? And how much of that is due to market share gains? And just remind us what TTS and Securities Services is again because I think you got everyone’s attention with this quarter?

Jane Fraser — Chief Executive Officer

So why don’t I kick-off and then I’ll pass it to Mark, it’s danger here of how long you have Mike because there’s a lot to talk about. So I would encourage you to sit at the beach this weekend and have an excellent read of the supplement, because we provided you with a lot of good facts and proof points and information both around the Services businesses and the others about the early progress on the strategy. TTS was able to fire, as I said on all cylinders this quarter. About two-thirds of the performance was driven by business actions and one-third was by rates. And as Mark said, very active management of the deposit base, beta discipline across all the regions and the NIR growth that you saw was driven by Cards, by payments, by receivables and by trade.

When you look at the strategic drivers we laid out at Investor Day this quarter, across the board the transaction value up 17% year-over-year, clearing volume up 2% in US dollar, commercial card spend up 62% as that business recovered, average trade loan balances up 14%, average deposit balances up 2%. So that two-third that was not rates related. It has a very broad and substantive set of drivers behind it. As Mark said, puts us into a very strong position for continued momentum here. This level of year-over-year growth is very pleasing, but we would expect to see it revert to the medium-term guidance we gave you at Investor Day over time. But this was across the board, all elements firing and I will give a shout out to Shahmir, Head of TTS, as well as to our Security Services team, but he has really instituted a culture of intensity of tremendous focus, discipline and how he is running the business as well. And I think that is also a contributing factor to the confidence that you’re hearing from us about this. Mark, do you want to explain what TTS and securities…

Mark Mason — Chief Financial Officer

Again, as you’ve heard us describe the TTS franchises core to our business, it provides obviously a network to the large multinational clients in over 90 countries. We manage the full swap of their working capital and cash management needs. We also provide trade financing for them in the vendors and partners and this is essentially in many ways what differentiates our franchise from others and not only is it in and of itself a core growing high returning business, but it’s one of the businesses that is well connected to the rest of the franchise, when you think about the Markets business that we have and the FX that we manage on behalf of clients. And so — and this is a particularly relevant time for us to be engaged with those partners as they manage through supply chain issues and we’re there to again help them work through those things and provide them alternatives to their production and operations and similar type services we provide to our investor client base from a security services point of view. But the strategy here did not start with Investor Day, that is, we obviously spent time with you talking about that, but this has been a part of the franchise that we’ve been investing in on an ongoing basis. And it’s important that we continue to do that. Investments in technology, investments in on-boarding of new clients and the services we provide, an enhanced digital capabilities and the operation. So all of those things and some of that what you see here is those investments starting to pay-off.

Jane Fraser — Chief Executive Officer

And the same is exactly true in Securities Services. So I think the answer to your question is no we’re just being very disciplined.

Mark Mason — Chief Financial Officer

Yes. Well said.

Operator

[Operator Instructions] Our next question will come from Ken Houston with Jefferies. Your line is now open.

Ken Houston — Jefferies — Analyst

Hi, there. Thank you. Good morning. Just a follow-up on the RWA. When you talk about the premium of the $3.5 billion and can you help us just discern between what is a numerator impact and what’s the RWA impact of the sales that have been announced? And just — as it relates to just how far are you through the RWA optimization efforts? [Technical Issues]

Mark Mason — Chief Financial Officer

Thank you. The $3.5 billion, I referenced is all capital. So all numerator impact is what I’m describing. It’s both the — any premium that we get or impact gain from sale as well as the RWA that we have allocated as part of that business. And so that all kind of flows through from a numerator point of view. In the case of Australia for example, that would include both the RWA that we had attributed to that business as well as the CTA impact coming back into capital. So remember, we took a hit when we signed the deal associated with the CTA. I kept communicating that that would neutralize at when the deal was closed, in fact it did and that contributes to the roughly $1.5 billion there. In terms of RWA optimization efforts, it’s a continuous effort. We are constantly working through the balance sheet to make sure that it’s allocated to clients who generate the highest prospect for growth and leverage the breadth of the franchise and we’re going to continue to do that. And I think we — the team did a very good job in ICG, in particularly in Markets this quarter and making sure that we made progress against the revenue to RWA metric that they’ve been using, which is a proxy for returns. They worked very closely with clients to manage the recycling of trading inventory in a optimal way to optimize collateral positions and postings that that we have to increase initial margins on derivative trading where that makes sense and so they’ve been actively working the balance sheet and we’re going to continue to do that. We want to be there to serve our clients, but we want to make sure that we are generating an appropriate return for the use of capital.

Jane Fraser — Chief Executive Officer

And it’s part of the shift that we’ve been instituting to Paco and Andy in Markets and across ICG and across the firm. Our commitment to our shareholders to be more returns focused and to be managing the business differently, that way, this is a very obvious example of that because it’s multi-dimensional.

Operator

Thank you. Our next question will come from Ebrahim Poonawala with Bank of America. Your line is now open.

Ebrahim Poonawala — Bank of America — Analyst

Good morning.

Mark Mason — Chief Financial Officer

Good morning.

Ebrahim Poonawala — Bank of America — Analyst

I guess — around capital Mark just a two-part question. One, are we — am I hearing you right that you’re not going to leave the door open for buybacks until you get to 13%, appreciating what Jane said about some of the transitory impact from AOCI, why not be a bit more opportunistic? And just tied to that, what’s the risk that some of these deals get pushed out. I see Slide 19 where you’ve extended the timeline for a few deals given just the macro backdrop like is that a real risk or do you feel pretty good about the updated timelines? Thank you.

Mark Mason — Chief Financial Officer

Yes, sure. So look, I mean we are obviously going to take it quarter-by-quarter as it relates to buybacks and from a capital point of view. Again, without going through all of the things that reflect the environment that we’re in, you can see the uncertainty that’s out there, obviously the capital requirements with this SCB for the industry are higher, that’s unfortunate, we feel as though the right amount of capital was in the industry already. We’ve got to manage to that is a reg requirement. We’re going to do that, but will SCB gives us the opportunity to take those decisions quarter-by-quarter, we are pausing for now and next year there’ll be another DFAST process and there’ll be an SCB that comes out of that and frankly we should have the strength of higher PPNR that we’ve been generating to help contribute to what that outcome looks like. So we’ll take that quarter — quarter-by-quarter.

In terms of risk related to divestitures, again we did highlight we’re being very, very transparent with you all and with the world and we do see some delays that we highlighted from our original schedule that’s in the back of the presentation there. What we feel very good about getting to closure there and it’s not an if it’s a win and we feel like we’re on track with the schedule that we’ve highlighted for you.

Operator

Thank you. Our next question will come from Betsy Graseck with Morgan Stanley. Your line is now open.

Betsy Graseck — Morgan Stanley — Analyst

Hi. One more capital question. So on Slide — hi. On Slide 8, you do give the medium term outlook here for what you see as your long-term goals for capital the 11.5% to 12%. And so, implicit within that is an expectation that you’re regimens would fall to somewhere 200 basis points or so. And I get that the exits will be part of that. Is there a sense you can tell us, as you get more simplified what the SCB benefit would be. I thought it was something like 25 basis points, but I must be off there?

Mark Mason — Chief Financial Officer

Yes, look, I mean the 11.5% to 12% is consistent with what we talked about at Investor Day and the medium-term, as you know, Betsy for us is three to five years. We’ve got a couple of things that we’re working through, not the least of which are the divestitures, they will certainly contribute to that but so will some of the other things that I’ve mentioned including utilization of the DTA, the AOCI pullback and things of that sort. The divestitures certainly will help from an SCB point of view, but I think the stronger performance that we’re seeing will aid in that as well. And importantly, the mix change that we expect to come from executing on our strategy, a mix towards more sustainable predictable earnings, earnings that are coming from some of the areas of growth that we demonstrated this quarter like TTS and Securities Services, etc, etc. So there is time there. There is obviously a management buffer component of that that I think is certainly an important factor in consideration as we evolve our mix. And then there is the GSIB score, with not only a reduction in the divestitures that will impact peak to trough losses. There is also deposits that will go away with those and balance sheet evolution that will contribute to the — to reduction in GSIB score as well.

Jane Fraser — Chief Executive Officer

Let me just underline a couple of points. When we built our strategy, it was no need to generate greater returns, but it was to lower our capital requirements over time, as Mark said, and you can see how we’re executing that, both in terms of the shift in mix and the divestitures. Obviously we don’t control the regulatory capital framework, but we’re not managing for short-term shifts in SCB. As you know, the banks experience considerable variability in the SCB each year very much depending on the scenario chosen. So that’s why we continue with our commitment and confidence around the medium term.

Operator

Thank you. Our next question will come from Steven Chubak with Wolfe Research. Your line is now open.

Steven Chubak — Wolfe Research — Analyst

Hi, good morning, Jane. Good morning, Mark.

Mark Mason — Chief Financial Officer

Good morning.

Jane Fraser — Chief Executive Officer

Hey, Steven.

Steven Chubak — Wolfe Research — Analyst

So, I had a follow-up question for — arguably for Mark on NII, as the Fed continues down the path of the balance sheet normalization, I just wanted to clarify whether that $1.8 billion increase in NII you cited for the back half assumes stable deposits or some QT related attrition? And within ICG specifically, are there any insights you can share on what drove the increase in Markets NII and how that should traject given the historical liability sensitivity within the Markets business?

Mark Mason — Chief Financial Officer

On the first point, when I think about the back half of the year and quantitative tightening, I do expect that we will see some deposits — some continued deposit growth as I mentioned earlier, the pressure from quantitative tightening I think will certainly play out over time. But again, our focus is on growing the operating deposits that we have with clients and we think we’ve got good traction and ability to continue momentum with those operating deposits and again they put us in a position to really broaden the relationship with both those multinational clients as well as with some of our commercial clients where we’ve been getting good growth in momentum from. So yes, likely to be an impact across the industry, but we believe we can get some continued momentum, particularly on the operating deposits that we have with clients.

In terms of Markets NII, I mean you’ve got the European dividend that plays out in the second quarter. So that obviously is a factor there. And again, I’d point you to when we talk about markets, I really like to talk about total revenues because the nature of the security and the trading and the activity that we do there, can have an impact on NII and NIR and what really matters is, is the total revenues that we’re driving and generating out of that franchise. And as you can see, we did 25% growth in Markets revenue year-over-year. So, a very good quarter for them, for the Markets team for sure.

Operator

Thank you. Our next question will come from Matt O’Connor with Deutsche Bank. Your line is now open.

Matt O’Connor — Deutsche Bank — Analyst

Hi. Can you elaborate or comment about why the Russia exposure is kind of less of a risk or it’s a better mix than it was a few months ago? And then maybe related to that, quantify how much of the $8.4 billion is to subsidiaries of NLCs which does seem like it would be much, much lower risk? Thank you.

Mark Mason — Chief Financial Officer

Sure. Look the — what we’ve been doing very actively since the beginning of the year and certainly in the quarter as well has been working — we’ve been working to bring down our exposure in Russia and specifically with the clients that we serve there. And so that direct exposure on — in a local currency dollars, we brought down by some $900 million or so in the quarter. We brought down and reduced the cash and deposits that we have, by another $1.7 billion or so and then continue to bring down third-party related exposure by another $400 million and that’s been through working with clients to pay those exposures and loans down and in some instances giving them incentives to do so, and incentives to move their deposits out as well. So very active engagement from the team as it relates to that. What’s happened with that is the mix of the exposure that we have or that remains skew — has skewed towards the higher quality names and towards the global subsidiaries that we have in the country. And so with that mix shift to better quality names and the reduction in exposure that’s allowed for us to take down the reserves that we had related to the direct exposure in the quarter and so that has been I think good, very good progress in terms of that reduction, it gets overshadowed a bit with the ruble impact, but we’ve made good progress and we’re going to continue to actively do that. Approximately, Jane, you want to jump in on that?

Jane Fraser — Chief Executive Officer

Yes, no, I was going to jump in and turn to just sort of overall, let’s be very clear, we are systematically crunching down the size of our franchise. And as Mark says, the severe stress loss scenario is probably the best indicator of that which is now around about the $2 billion materially reduced. And we completely change the nature of our exposure, particularly when you think about today, most of our clients are multinationals. Many of the exposures there have parent guarantees against them, which is very helpful. What are we doing with them? Many of them that we’re helping them with the — with their exits from the countries and that obviously as you can all appreciate takes some time. So for those that are able to exit swiftly, it’s — that’s another factor that can help us reduce down our exposure presence and indeed our operations.

There are also others, though, that it is harder. I think we’ve all seen how difficult it is to disconnect the Russian economy from the West in a couple of key sectors, in particular food and in particular energy. And as you can imagine, given the nature of our Bank, we’ve been in the middle of some of those flows that are essential for the West and the multinationals that are supporting it. And so, you get a — you have a bit of a blended story here in terms of, we’re helping those that connects to exit but we’re also still playing the role that we have to and have been asked to in maintaining some of those flows. We anticipate that they will continue to reduce over time as the energy and food security issues get addressed. But it’s a complex environment and bottom line, you can hear us, we are pleased with how this has been managed by our teams.

Operator

Thank you. Our next question will come from Gerard Cassidy with RBC. Your line is now open.

Gerard Cassidy — RBC Capital Markets — Analyst

Thank you. Hi, Jane. Hi, Mark.

Mark Mason — Chief Financial Officer

Hi, Gerard.

Gerard Cassidy — RBC Capital Markets — Analyst

Mark, can you share with us, you both — both of you addressed in your opening remarks about the impact the market conditions had on Investment Banking and your peers have seen it as well. If the market conditions remain this way in the second half of the year and into 2023 just for Investment Banking not Markets, your trading business, do you guys — when do you guys have to take a sharper pencil to the expenses in that division or do you just let it run?

Jane Fraser — Chief Executive Officer

Maybe I kick off and then pass it over to Mark. Look, strategic advice is central’s vision to being the pre-eminent banking partner for multinational firms. We are continuing to strategically invest in talent and in the platform you can expect us to continue doing so with a particular focus on the tech, health care and financial services sectors, because those are ones where it is a decade-long shift that we’re going to see in their importance. And I — we’ve brought in some very strong bankers there. It always takes a few years to build share, build out the client relationships and to see the full fruits of those investments. We’re also focused on the broader opportunity by leveraging investments in Commercial Banking. I’m sure Mark will talk about that as well and in Markets in the connectivity there. So I think you’re going to see us take a strategic look at this on a long-term look rather than just a shooting from the hip on the expenses side, because we are building the firm for the long-term here. We’ll certainly be incredibly disciplined around expenses. You’ve seen that with us this quarter. We’ve talked about what we’ll do on expenses across the board in the firm as we comes — we come simpler impacting stranded costs, our organization structure, etc, but we are very serious about the investments that we’re making into some of the core talent in these areas and you shouldn’t be expecting us to make any significant material shifts right or left on this one. We’re deadly serious. Mark?

Mark Mason — Chief Financial Officer

Jane, I think that’s well said. The only thing I’d add is that the business is capital-light and is high returning through the cycle. And so we see a lot of value there. We want to be prepared to ramp-up when activity starts again. And as you said, it’s quite strategic for us. Since you kind of wound me up on the commercial banking activity, I have to jump at it. We — as you know, Jane, a very strong quarter in Commercial Banking, when I look at the revenue momentum there, just kind of leveraging the breadth of the franchise. We’re probably up 25% to 30% in revenues in that part of the business, and I know that’s part of our — as you know, that’s part of our core growth strategy that we talked about at Investor Day. So good momentum in that part of the franchise as well.

Jane Fraser — Chief Executive Officer

And obviously we are having benefits for our Investment Banking colleagues as well.

Mark Mason — Chief Financial Officer

Those synergies…

Jane Fraser — Chief Executive Officer

Important synergy.

Mark Mason — Chief Financial Officer

Yes.

Jane Fraser — Chief Executive Officer

Yes.

Operator

Thank you. Our next question will come from Vivek Juneja with JP Morgan. Your line is now open.

Vivek Juneja — JP Morgan — Analyst

Thank you. Jane, a question for you on Mexico. Given the comments of the Mexican President, would that limit the price that a buyer be willing to pay and what’s your sort of minimum price that you’re willing to accept? And if — what’s plan B, if the prices being bid don’t meet that hurdle?

Jane Fraser — Chief Executive Officer

Oh, Vivek. I’m not going to answer your question. But I’ll give you a few comments on Mexico, nonetheless, so we’re pleased with the interest in our Mexican franchise based on those discussions with the buyers, and it’s — the franchise is performing well. It’s more than maintaining its value. It’s contributing nicely to our financial results. But it’s still very early in this process. So when we have news for you, we will obviously convey that to you swiftly. But it’s early days and, as you’d expect with the transaction at this nature, we need to work through a variety of regulatory and legal proceedings. We are actively doing so. We’re working hard on separating market leading institutional franchise, which is a key part of our global network, taking the time necessary to do that the right way. And we have a variety of different options that we can always look at, but it’s far too early in the process here to speculate. But so far so good.

Operator

Thank you. Our next question will come from Andrew Lim with Societe Generale. Your line is now open.

Andrew Lim — Societe Generale — Analyst

Hi, good morning. Thanks for taking my question. I guess I’d like to have a better view from you on your outlook, on recession. Is this difficult to reconcile how investors feel about recession? It is obviously quite negative and seemingly a lot more negative than it was at of course okay. But when we look at you and some of your peers, the delta on the recession outlook, seems only a little bit worse than it was one quarter ago. So I was just wondering how you think about recession because you know some of the investors that we talked to, they look at the savings ratio is back to pre-pandemic levels, they look at mortgage affordability and it’s really quite dire and the perception they have is also the perhaps in consistent with the way you are looking at recessions. So perhaps you can give us a bit of color as to how you’re thinking about things?

Jane Fraser — Chief Executive Officer

Yeah, I’ll kick it off, pass it to Mark. Look, there is, we’ve talked about the current macroenvironment kind of shaped by the RRRs Russia, rates and recession. And it depends where in the world you are as to which ones prevailing. In the US, we’re more concerned about rates and imminent recession, the consumer and the corporate are healthy, the labor market is exceedingly tight. We are increasingly concerned about the possibility of a recession next year, but I think what you’re hearing from us quite loud and clear is that we think the economy is quite well positioned to withstand it. Europe. different story, for agility, their energy supply to any further shocks makes it more vulnerable and it’s kind of at the center of the storm, so we do believe that the continent is heading into a recession under the most likely scenario and could be as early as this fall.

In Asia, concerned the largely focused around China and its COVID — zero COVID policy. The economy is bouncing back, but you could have another way that could be more problematic there. So you put all these different factors, it’s a little bit depends where in the world that you are. When I think about Citi, look we are prepared for a variety of scenarios. We are absolutely ready. We run stress tests all the time given the unique set of risks facing the global economy right now. We have a set of playbooks honed over many years that can get instituted as necessary. And what matters for a Bank heading into a recession capital, liquidity, credit quality and reserves and we feel very good about all four of them. Very strong capital ratios as you’ve seen ending 2Q. Total liquidity resources just shy of a $1 trillion. Over 80% of our corporate exposures are investment grade. Our consumer clients are heavily prime.

And let’s just talk a little bit about the ICG NCL this quarter. When you look at the numbers, it was $18 million only. The health of the corporate is entering into the choppy waters is extremely strong and we have — we’ve got a very well reserved — reserve to funded loan ratio of 2.44%. So we have the — we have a lot of flexibility here. We have a severe recession. I think you’ll see certain actions taken although on being slower, but as a Bank, we are ready for a whole variety of different scenarios. Mark?

Mark Mason — Chief Financial Officer

Jane just to your point on reserves. Just in the quarter you saw, we took a reserve build, that reserve build was in part driven by our view on the potential for some downside in light of everything that we’re seeing in the concerns around recession. So we did take a bit of a build from a seasonal point of view on reserves. And as Jane mentioned, we feel very good about our reserve levels in the $18 billion that we have associated with our franchise.

Jane Fraser — Chief Executive Officer

Yes, I think the consumer, it’s just an unusual situation to be entering into this choppy environment, when you have a consumer with strong health and such a tight labor market. And I think that’s where you hear so many of us, not so much concerned about an imminent recession in the States.

Operator

Thank you. Our next question will come from Mike Mayo with Wells Fargo Securities. Your line is now open.

Mike Mayo — Wells Fargo Securities — Analyst

[Technical Issues] were down 6% quarter-on-quarter. Hi, can you hear me?

Jane Fraser — Chief Executive Officer

Yes we can Mike. Hello again.

Mike Mayo — Wells Fargo Securities — Analyst

Hi. Before I have my beach reading, thank you for that. Look to regain investor credibility, you’ve mentioned meeting various proof points. And can you remind us which proof points you’ve met, but which proof points we should hold you accountable to looking ahead in the next quarter and year?

Jane Fraser — Chief Executive Officer

Look, I think you hold us accountable for all the different proof points we laid out. We were — we went through a very thoughtful process to come up with the different KPIs for the strategy, and those are transparently put into the materials. We’re trying to make it as shareholder and investor friendly as possible in that respect. We — if you can see this quarter, the drivers exceeded expectations in some places. There were headwinds and others we laid them out very clearly. You saw us, we talked about services, so I don’t need to cover that one again. In Markets, we talked about optimizing RWA, driving the business with stronger capital productivity, also driving more of the Alpha Trade Solutions business, you see that. Personal Banking, returning to IEB and revenue growth from customer acquisition purchase sales being important metrics. Investment Banking is progress on key hires that we’ve been making. That’s obviously been a tough market to do so. But I’ve been pleased with the talent that we brought in and delighted with the talent that we have.

Wealth was more challenged, with lockdowns in Asia understandably slowing some progress on client acquisitions. And some of the key stress, strategy drive is there, but synergies more disciplined, tighter processes, reinforced by additional metrics on the scorecard you’ll be hearing us talking more and more about the delivery of those synergies. So it’s not really any difference from exactly what we laid out on Investor Day, right? We’ve laid out a strategy we have a lot of conviction around. We’ve laid out the different metrics to hold us accountable too and this should provide you a sense of progress along the way. And we’ve also talked about what we’re doing to get is cultural change of accountability of urgency, of intensity and excellence, and we’ll give you as many different indicators of where that’s working well and where it’s not as we go along.

Mark Mason — Chief Financial Officer

I’ll just add one thing to that Jane and that’s, Mike, I think you have to keep in mind that this is a very strong quarter for us. We feel very good about it, but it’s just a quarter right? And we talked about at Investor Day, a long-term strategy. And we gave you a sense for medium term targets and those things are going to be things that you hold us accountable between now and then, right. And so this is one quarter we feel great about it. We’re certainly glad that you’re recognizing it, but there’s a lot more wood the chop. We’re making a lot of investments in the franchise that we know are going to pay dividends in the future, and we look forward to kind of talking through continued progress in these KPIs. It won’t always be a straight line, but we remain confident that we’re going to get there.

Jane Fraser — Chief Executive Officer

Yes. And we fully recognize the magnitude of what we have to do and we are determined to get this done.

Operator

Thank you. Our next question will come from Vivek Juneja with JP Morgan. Your line is now open.

Jane Fraser — Chief Executive Officer

Hi, Vivek.

Vivek Juneja — JP Morgan — Analyst

Hi, Jane. Don’t worry I won’t trip you up on another one, you can’t answer hopefully.

Jane Fraser — Chief Executive Officer

Well I’m sorry, I didn’t say can’t, I said won’t. There is a [Speech Overlap].

Vivek Juneja — JP Morgan — Analyst

Okay. Yes, okay. You won’t. Hopefully this one you will. Mark, your 8% NII growth for full year, is there something in the second quarter that was unusually high that we should not carry forward? I’m just trying to reconcile that with the guide that you’ve given, because if we just take that forward, it would be above the 8%. So trying to reconcile what’s the difference.

Mark Mason — Chief Financial Officer

Each of the quarters obviously have different dynamics, different rate moves, different volume — levels of volume growth and what have you and so there is certainly different volume that was between quarter one and quarter two and I described kind of how rates would move between the quarters as well. And so, to simplify it, and because there is appropriate interest in how we think about it on an ex-markets basis, I just gave you the annualization of the half and what it would mean for the full year. So nothing that I would point out beyond what you would notice which is differences in rates and volumes across the businesses.

Operator

Thank you. There are no further questions at this time. I would now turn the call over to Jen Landis for closing remarks.

Jennifer Landis — Head of Investor Relations

Thank you all for joining today’s call. If you have any follow-up questions reach out to IR. Have a great day. Thank you.