Citigroup profit beats estimates on investment banking boost
· CNA · Join:Citigroup posted a smaller-than-expected drop in profit for the third quarter thanks to gains in investment banking, sending its shares more than 2 per cent higher in premarket trading on Tuesday.
The third-largest U.S. lender's dealmakers joined rivals at JPMorgan Chase and Wells Fargo in benefiting from a rebound in capital markets as corporate clients issued more debt and equity.
Investment banking was a bright spot for the second straight quarter, as revenue jumped 31 per cent to $934 million. Wall Street executives are optimistic that the Federal Reserve's interest-rate cut last month will pave the way for more deals and initial public offerings.
"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," CEO Jane Fraser said in a statement.
Total operating expenses declined 2 per cent in the third quarter.
Citi's total allowance for credit losses rose to about $22.1 billion at the end of the quarter, compared with $20.2 billion a year earlier.
That led to its net income dropping to $3.2 billion, or $1.51 per share, compared with $3.5 billion, or $1.63 per share, a year earlier.
It still handily beat analysts' average expectations of $1.31 per share, according to estimates compiled by LSEG.
Services revenue climbed 8 per cent to $5 billion, fueled by a 24 per cent surge in revenue for securities services to $1.4 billion.
A stock-market rally at the end of the quarter propelled equities trading revenue up 32 per cent to $1.2 billion, lifting overall markets revenue 1 per cent.
But bond trading revenue lagged, falling 6 per cent to $3.6 billion.
In the U.S. retail banking division, revenue climbed 3 per cent to $5 billion, buoyed by 8 per cent growth in credit card revenue to $2.7 billion.
Meanwhile, retail banking revenues fell 8 per cent, and in the retail services arm handling credit card partnerships, revenue slipped 1 per cent.
Its wealth management division, a key part of Fraser's growth strategy, posted revenue growth of 9 per cent in the quarter to $2 billion.
Fraser has sought to grow profits, simplify the company and fix its longstanding regulatory problems.
On Friday, Bank of America's profit in the third quarter fell on the back of lower interest income. Earnings at rival JPMorgan Chase and Wells Fargo beat estimates last week, underpinned by strong consumer finances.
REGULATORY EFFORTS
In 2020, the Office of the Comptroller of the Currency and the Federal Reserve fined Citi $400 million and ordered the bank to fix persistent risk management and data governance failures.
Earlier on Tuesday, Reuters reported that Citi has struggled to adequately train employees in risk, compliance and data roles, citing the bank's own assessment, shedding light on why it was taking years to fix regulatory issues even as billions are spent on an overhaul.
The regulators again fined Citi in July for failing to make enough headway on those problems. It got some relief when the Federal Reserve terminated a 2013 enforcement action on the bank's anti-money laundering programs earlier this month.
Citi is giving special attention to data, an area "where we got the feedback that we weren't moving fast enough", Chief Financial Officer Mark Mason told investors in September.
It has tasked technology head Tim Ryan to work alongside Chief Operating Officer Anand Selva in fixing the bank's longstanding data management issues. The bank has also added a section to quarterly filings to address its work on the multiple regulatory penalties, known as consent orders.
Citi shares have gained 28 per cent so far this year, while an index tracking large-cap banks is up 25 per cent and the S&P 500 index has climbed 23 per cent over the same period.
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