Citigroup profit beats estimates on investment banking surge

Still, Citi’s shares slid about 3%. They are up about 24% this year so far.

Investment banking was a bright spot for the second straight quarter, as revenue jumped 31% to $934 million. Wall Street executives are optimistic the Federal Reserve’s interest-rate cut last month will pave the way for more deals and initial public offerings.

“We’re particularly proud of our progress,” CEO Jane Fraser told analysts on a conference call. “In a pivotal year, this quarter contains multiple proof points that we are moving in the right direction,” Fraser said, citing revenue growth, including from fees.

Citi’s deal pipeline remained robust, Chief Financial Officer Mark Mason said in a call with reporters. In debt capital markets, a traditional area of strength, the bank benefited from investment grade issuance as clients looked to get back into the market, he said.

Citi’s operating expenses declined 2% in the third quarter.

The bank increased its allowance for credit losses by about $1.9 billion, driving down net income to $3.2 billion, or $1.51 per share. That was down from $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.

In terms of consumer behavior, those on lower incomes are facing pressures, while middle-income clients are being more selective with spending, Mason said. The highest-earning consumers are driving most of the spending growth, focused on experiences and essentials, he added.

“The consumer in our portfolio is really continuing to perform as expected,” and have returned to seasonal patterns, Mason said.

Services revenue climbed 8% to $5 billion, fueled by a 24% 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% to $1.2 billion, lifting overall markets revenue 1%.

But bond trading revenue lagged, falling 6% to $3.6 billion.

In the U.S. retail banking division, revenue climbed 3% to $5 billion, buoyed by 8% growth in credit card revenue to $2.7 billion.

Meanwhile, retail banking revenues fell 8%, and in the retail services arm handling credit card partnerships, revenue slipped 1%.

In the retail services unit that houses credit card partnerships, “it’s really about, how do we improve the returns, repricing and in some instances, exiting those partnerships,” Mason said.

He cited good returns on a credit card launched this year with retailer Dillard’s, and said the bank was looking carefully at return levels when it renews card agreements.

Its wealth management division, a key part of Fraser’s growth strategy, posted revenue growth of 9% in the quarter to $2 billion. Head of wealth Andy Sieg said higher clients’ investment balances drove the growth. “Our clients have $5 trillion in assets invested, mostly elsewhere, and we’re starting to increase our share in it.”, Sieg said in a phone interview on Tuesday.

REGULATORY EFFORTS

Fraser has sought to grow profits, streamline the company and fix its longstanding regulatory problems.

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.

Several analysts questioned executives about efforts to address the consent orders. Fraser outlined the bank’s progress so far and said Citi did not expect any additional regulatory measures.

Fraser said the bank has simplified its structure to increase accountability, increased investments in its data reporting, enhanced stress testing and reduced high-risk processes with bolstered controls, she said.

The bank has tasked technology head Tim Ryan to work alongside Chief Operating Officer Anand Selva in fixing longstanding data management issues. The bank has also added a section to quarterly filings to address its work on its consent orders, or regulatory penalties.

In response to the Reuters article, Citi said it had about 13,000 people dedicated to the project to overhaul controls and systems, with thousands more supporting the effort across the bank.

“We continue to invest heavily in talent and training to ensure we have the right people and expertise in critical areas such as data, risk, controls and compliance,” the bank said.

On Tuesday after releasing earnings, CFO Mason said, “We are still hiring, particularly in areas around transformation and around risk and controls to ensure we’ve got the appropriate level of resources to get after those things the way we need to.”

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Tatiana Bautzer is a U.S. banking correspondent at Reuters in New York. She previously covered banks in Brazil, breaking news on deals by major global corporations, initial public offerings and bankruptcies. She has also delved into corruption scandals at Brazilian conglomerates and business disputes between billionaires. Prior to joining Reuters in 2015, Bautzer worked for business magazines Exame and Istoe Dinheiro and newspapers Valor Economico and O Estado de S. Paulo. She previously served as international correspondent for Valor Economico in Washington, D.C., covering multilateral institutions and trade. Bautzer holds a B.A. in Journalism and an MBA from the University of Sao Paulo.

Manya Saini reports on prominent publicly listed U.S. financial firms including Wall Street’s biggest banks, card companies, asset managers and fintechs. Also covers late-stage venture capital funding, initial public offerings on U.S. exchanges alongside news and regulatory developments in the cryptocurrency industry. Her work usually appears in the finance, markets, business and future of money sections of the website.