Citigroup reported better than expected third quarter earnings Friday before the market open along with two of the largest U.S. lenders, JPMorgan Chase (JPM) and Wells Fargo (WFC). All five of Citi’s core businesses, corporate lending; credit cards and US consumer banking; transaction services; buying and selling stocks and bonds; and private banking posted rising revenue. Citigroup was able to benefit from a rebound in investment banking fees, up 34 per cent from a year ago. Citi’s transaction services division reported one of its best quarters in years. However, “Continued deceleration in spending indicates an increasingly cautious consumer,” CEO Fraser cautioned on Friday.
Citigroup Q3 2023 Earnings
Q2 2023 earnings released at 8:00 a.m. ET; conference call at 11:00 a.m. ET via live webcast and teleconference.
- Net income to $3.5bn, up 2%.
- Revenues rose almost 9 per cent to $20.1bn.
- Investment banking fees up 34 per cent from a year ago.
- Fees from investment banking rose for the first time since the final quarter of 2021.
- Citi’s transaction services division also reported one of its best quarters in years.
- Revenue from credit cards that Citi issues in the name of Costco and other chain retailers rose 21 per cent from a year ago.
- Citi’s revenue from bond, commodity and currency trading was about $350mn higher than analysts had expected and 14 per cent higher than last year.
C: Stock Market Reaction
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Net Interest Income Benefit
Citi benefited from net interest income and now has the opportunity to extend duration at higher rates. Net interest income hit a fourth straight record.
Higher Interest Rates Increase Revenue …. But at a Cost
With higher interest rates from the Federal Reserve’s aggressive rate hiking revenues rose from a year earlier. Net interest income (NII) widened as the net interest margin widened, simply the gap has widened the gap between what the big commercial banks pay depositors and what they earn lending money out.
Tighter bank lending will be compounded by a pullback in “private Credit” and other non-bank lenders. This is particularly problematic for earnings and loan quality for small and mid-sized banks that have operated so aggressively in real estate finance over recent years. Office buildings are an obvious trouble spot, but commercial real estate in general is vulnerable. Cracks are appearing in the booming nationwide apartment marketplace, and there are indications of waning institutional interest in residential housing.
Oversea Market Exits
Over the last year, the bank announced plans to exit 14 international markets and has made progress on either closing sales or winding down 10 of those businesses.
Citigroup closed two more divestitures during the first quarter, including its consumer business in India to Axis Bank Limited that generated a gain on the sale. The deal was announced in March 2022. The sale includes retail banking, credit cards, wealth management and consumer loans, as well as the transfer of around 3,200 Citi employees. The transaction is anticipated to result in a regulatory capital release of $1.4 billion. Net income was down 19% year over year when excluding the impact of the sales.
Citigroup Last Quarter Earnings
CFO Mark Mason said it would be weeks before Citi set out further details of job cuts at the bank. He denied that uncertainty about the reorganization was weighing on the bank’s employees or operations.
“When you announce a reorganization of this magnitude, it creates some uncertainty,” said Mason. “But it was a very strong quarter.”
Source: Citigroup, TC, WSJ
From The TradersCommunity Research Desk