By Tatiana Bautzer and Prakhar Srivastava
Oct 13 (Reuters) – Citigroup beat Wall Street estimates for third-quarter profit on Tuesday, helped by stronger investment banking revenue and transactions with multinational companies as well as higher earnings from wealth management.
Trading profits gained only 2% over a year ago, but fell 27% against the previous quarter, mainly due to a drop in equity trading revenue.
Wall Street banks are navigating a volatile market backdrop as the conflict in Iran pushed oil prices higher, fueling inflation and prompting the US Federal Reserve to raise interest rates and bond markets worldwide to sell off dramatically.
“There is no doubt that high interest rates and the threat of continued Fed hikes is weighing on trading and IB activity in a measurably negative vector,” said Brian Mulberry, chief market strategist at Zacks Investment Management.
“However, the ability for Citi to drive positive growth from multiple business units is the strength of the balance sheet today, growth in Services, Wealth, and strong NII will offset short term weakness in trading to support continued ROTCE at or above the targeted 11% going into 2027.”
Shares of the bank were down 0.4% in early trading after the results. Citi’s shares have risen 13% this year, outperforming the broader bank stock index.
Citi’s investment banking revenue increased 9% from a year ago to $1.35 billion but fell 13% over the previous quarter as equity and debt underwriting activity slowed. Citi’s CFO Gonzalo Luchetti said the bank gained market share over the last year, but also went through the industry slowdown in the third quarter from the record deal volume in the first half of the year.
“I think across the industry, there’s a moderate decline from that in terms of the growth rate in the third quarter,” Luchetti told reporters during a conference call.
Citigroup posted an 11.5% return on tangible common equity, or ROTCE, in the third quarter and a year-to-date return of 12.6%, ahead of its 11% target.
“We expect to exceed this year’s return target, even as we pull forward investments toward our 11-13% near-term goal — the next waypoints on our path to sustainable returns of 14-15%,” CEO Jane Fraser said in a statement.
Rival JPMorgan Chase’s third-quarter profit increased on Tuesday, while Wells Fargo’s profit rose, helped by growth in its loan book and higher interest income.
Citi reported a profit of $2.85 per share in the third quarter, compared with analysts’ average estimate of $2.66 per share, according to data compiled by LSEG.
The bank said it has returned $4.1 billion to shareholders including buybacks and dividends in the third quarter, accumulating share repurchases of $13.3 billion this year.
Bank stocks have come under pressure in recent weeks as a sharp rise in bond yields raised concerns that higher borrowing and funding costs could weigh on loan growth and dealmaking.
INVESTMENT BANKING, TRADING REVENUE SLOWS FROM Q2
Global investment banking revenue exceeded $90 billion in the first nine months of the year and Citi was placed fifth among global banks by fees during the period, according to Dealogic.
Citi’s banking revenue, which includes corporate lending, was up 6%, at $1.74 billion. But equity and debt issuance slowed late in the quarter.
US government bond yields rose to multi-decade highs in September, affecting capital markets. Companies such as Oura Ring, Holtec Nuclear and SB Energy postponed planned IPOs.
Citigroup’s equity underwriting revenue fell 19% from the second quarter, though still 77% higher compared to a year earlier.
Markets were volatile in the third quarter and trading revenue rose 6% compared to a year ago to $6.11 billion. Revenue with equities trading rose 14%, while fixed-income trading revenue was up 4%.
But the bank had 13% lower trading revenue compared with the second quarter. Those trading revenues were off this quarter as fixed income and commodities revenues were down (that has impacted every bank report this morning as well),” Mulberry said.
Services had the highest growth in the third quarter among Citi’s five businesses, with 15% higher revenue and 27% profit growth. Wealth management also grew revenue by 15% and increased client assets by the same percentage.
LOWER PROFITS WITH CREDIT CARDS
Citi’s profit from credit cards fell 8% in the third quarter from a year earlier. Clients spent 13% more and took 9% higher loan volumes as the US economy has continued to expand at a solid pace, supported by resilient consumer spending and business investment.
But Citi’s profit from cards fell due to higher reward costs and payments to partners, as well as credit provisions.
Loss provisions in its US consumer cards segment were $1.9 billion in the quarter, 4% above a year ago, as borrowers deal with moderating wage growth, inflation and higher interest rates. Luchetti said the reserve increases were deliberate. “We think it reflects prudence and helps us solve for a range of potential macro outcomes in a dynamic environment,” he added.
The New York-based bank is nearing the end of a multi-year restructuring in which it sold international businesses, simplified the organization and worked on fixing compliance, controls and data deficiencies.
Citi is seeking to rapidly resolve its efforts to address regulatory demands that have long dogged the bank, in order to fully refocus on growth.
The last divestment to be completed is of its Mexican unit Banamex. Citi now owns 51% of Banamex and expects to take it out of its balance sheet and list it on the stock exchange next year.
Profit increased to $5.25 billion, or $2.85 per share, in the three months ended September 30, the third-largest US lender reported. This compares with $3.8 billion, or $1.86 per share, a year earlier. But the bank’s net income was 10% lower in the third quarter compared to the second.
(Reporting by Prakhar Srivastava in Bengaluru and Tatiana Bautzer in New York; Editing by David Gaffen, Pooja Desai and Nick Zieminski)
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