ii view: Citigroup beats forecasts but mixed metrics

Third-quarter results to 30 September

• Adjusted revenue up 3% to $20.32 billion
• Earnings per share (EPS) down 7% to $1.51 per share
• Capital cushion or CET 1 ratio of 13.7%, up from 13.6% in Q2

Chief executive Jane Fraser said:

"In a pivotal year, this quarter contains multiple proof points that we are moving in the right
direction and that our strategy is gaining traction. 

“Our incredible people continue to serve clients through our diversified business model and
strong balance sheet."

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ii round-up:

Citigroup Inc (NYSE:C) today detailed revenues and earnings that beat Wall Street forecasts as the US banking giant continued to drive a major business transformation programme.

Third-quarter adjusted revenue climbed 3% year-over-year to $20.32 billion, aided by growing investment banking and wealth management sales. Wall Street estimates were for $19.84 billion. Earnings fell 7% from a year ago to $1.51 per share, hindered by increased bad debt provisions, although still better than forecasts for $1.31 per share. 

Citigroup stock rose 2% in early US trading only to then fall by a similar amount. They came into this latest news up by close to 30% year-to-date. That’s similar to rivals JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC). The S&P 500 index is up 23% in 2024.   

Citi’s transformation programme has included a move from two giant divisions to five core businesses, aiding a spotlight on areas of growth and reducing management layers and costs. 

Quarterly operating costs fell 2% from a year ago to $13.3 billion. Revenue at the banking division climbed 18% to $1.67 billion, including a near one-third jump in investment banking sales to $934 million. 

Profit for the US personal banking business fell by close to a third year-over-year to $522 million, dented by increased credit card loss provisions. 

Shareholder returns of $2.1 billion for the quarter included a quarterly dividend of $0.56 per share, up from the prior quarter’s $0.53 per share.

Accompanying management comments flagged ongoing confidence for the bank to meet full-year expenses and revenue targets. Fourth-quarter and full-year results are likely mid-January. 

ii view:

Citigroup is today focused on being a banking partner for institutions with cross-border needs, a global leader in wealth management and a valued personal bank in its home US marketplace. In 2023, US personal banking generated its biggest slug of sales at just over 24%. Markets, including equity and fixed income businesses, came a close second at 24%. Followed by services, offering treasury and trade solutions at 23%. Then banking, both corporate and investment, at 18%, and wealth management most of the balance.   

For investors, credit card provisions in this latest quarter offer disappointment. Further expected US interest rate cuts are likely to lower future net interest income. Competition across the financial sector remains intense, while previous overseas business disposals under the transformation programme have reduced geographical diversification. 

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More favourably, a transformation programme at the bank continues. Diversity across its operations persists despite a more focused strategy. A capital cushion, or CET1 ratio of 13.6% remains robust, while a focus on shareholder returns leaves the shares on a forecast dividend yield of around 3.3%.

On balance, and despite ongoing risks, management’s drive to increase efficiency, plus a consensus analyst fair value estimate near $73 per share offer scope for optimism over the long term.   

Positives: 

• Business transformation
• Attractive dividend payment (not guaranteed)

Negatives:

• Uncertain economic outlook
• Reduced geographical diversity

The average rating of stock market analysts:

Buy