ii view: Citi beats estimates after personal banking boost

This major bank has been focusing on its US banking operations and offers a dividend yield of around 4%. We assess prospects. 

First-quarter results to 31 March

• Revenue up 12% to $21.45 billion
• Net income up 7% to $4.6 billion
• Earnings per share up 8% to $2.19 
• Capital cushion or CET 1 ratio of 13.4%

Chief executive Jane Fraser said:

“Citi delivered strong operating performance, showing good revenue growth and expense discipline despite the tumultuous environment for banks. Our robust and well managed balance sheet was a source of strength for our clients and we continue making progress in executing our strategy.”

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ii round-up:

US banking giant Citigroup Inc (NYSE:C) reported revenues which beat Wall Street forecasts as higher central bank interest rates pushed interest income upwards. 

First quarter revenue of $21.4 billion beat analyst estimates for nearer $20 billion with revenues for its Personal Banking and Wealth Management business climbing 9% year-over-year to $6.45 billion. 

Citigroup shares rose by almost 5% in post results trading having come into this latest news up by around 4% year-to-date. That’s similar to the UK’s Lloyds Banking Group (LSE:LLOY), although behind a 10%-plus gain for Asia-focused HSBC Holdings (LSE:HSBA). 

Citi operates through the two divisions of Personal Banking and Wealth Management (PBWM) and Institutional clients. Strong loan growth across its US Personal Banking business more than countered a fall in non-interest income due to lower demand for investment products across Wealth Management.

Revenues at its Institutional client’s division rose 1% to $11.23 billion, with strength in Trade Solutions and Fixed Income markets countering weakness for Equity related businesses. 

Under head Jane Fraser, Citi has been selling overseas businesses where it believes it cannot compete effectively. A pre-tax gain of $953 million during the quarter, primarily relating to the sale of its India consumer business, along with higher overall group revenues, helped earnings for the period climb 8% year-over-year to $2.19 per share.  

In early April, Citi declared a dividend of $0.51 per share worth $1 billion in total, unchanged from the previous quarter.

ii view:

Formerly known as Global Consumer Banking, Citi’s Personal Banking and Wealth Management business now looks to reflect its streamlined, strategic focus on US Personal Banking. Its retail bank, credit cards and wealth management business service more than 100 million customers. 

Its Institutional Clients division serves the complex needs of companies, financial institutions, public sector bodies and investment managers. It facilitates $4 trillion of transactional flows each day, the equivalent of Germany’s GDP. 

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For investors, a highly uncertain economic outlook and now potential slowdown in lending from the wider banking industry in the wake of the Silicon Valley Bank collapse, cannot be ignored. Reduced geographical diversity following its retreat from consumer markets overseas warrants consideration, too, while recent job layoffs from tech giants such as Amazon could start to squeeze unemployment higher, impacting bad debt provisions. 

On the upside, a more focused strategy is now being pursued, diversity across operations remains high and increased interest rates have pushed interest income higher. An historic and estimated future dividend yield of around 4% is also attractive. 

On balance, and while some caution remains sensible given economic uncertainty, a tangible book value per share of $84.21 and comfortably above the current share price, appears to offer grounds to remain patient. 

Positives: 

• Business transformation
• Attractive dividend payment (not guaranteed)

Negatives:

• Uncertain economic outlook
• Reduced geographical diversity

The average rating of stock market analysts:

Strong hold