Citigroup beat Wall Street estimates for third-quarter profit on Tuesday, helped by stronger investment banking revenue and transactions with multinational companies as well as higher earnings from wealth management.
Trading profits gained only 2 percent over a year ago and fell 27 percent against the previous quarter, mainly due to a drop in equity trading revenue.
Wall Street banks are navigating a volatile market backdrop as the conflict in Iran pushed oil prices higher, fueling inflation concerns and prompting the US Federal Reserve to raise interest rates and bond markets worldwide to sell off dramatically.
"There is no doubt that high interest rates and the threat of continued Fed hikes is weighing on trading and IB activity in a measurably negative vector," said Brian Mulberry, chief market strategist at Zacks Investment Management.
"However, the ability for Citi to drive positive growth from multiple business units is the strength of the balance sheet today, growth in Services, Wealth, and strong NII will offset short term weakness in trading to support continued ROTCE at or above the targeted 11 percent going into 2027."
Shares of the bank fell about 0.4 percent in premarket trading after the results. Citi's shares have risen 13 percent this year, outperforming the broader bank stock index.
Citi's investment banking revenue increased 9 percent from a year ago to US$1.35 billion (HK$10.53 billion) but fell 13 percent over the previous quarter as equity and debt underwriting activity slowed.
Citigroup posted an 11.5 percent return on tangible common equity, or ROTCE, in the third quarter and a year-to-date return of 12.6 percent, ahead of its 11 percent target.
"We expect to exceed this year's return target, even as we pull forward investments toward our 11-13% near-term goal — the next waypoints on our path to sustainable returns of 14-15%," CEO Jane Fraser said in a statement.
Rival JPMorgan Chase's third-quarter profit increased on Tuesday, while Wells Fargo's profit rose, helped by growth in its loan book and higher interest income.
Citi reported a profit of US$2.85 per share in the third quarter, compared with analysts' average estimate of US$2.66 per share, according to data compiled by LSEG.
The bank said it has returned US$4.1 billion to shareholders including buybacks and dividends in the third quarter, accumulating share repurchases of US$13.3 billion this year.
Bank stocks have come under pressure in recent weeks as a sharp rise in bond yields raised concerns that higher borrowing and funding costs could weigh on loan growth and dealmaking.
Global investment banking revenue exceeded US$90 billion in the first nine months of the year and Citi was placed fifth among global banks by fees during the period, according to Dealogic.
Citi's banking revenue, which includes corporate lending, was up 6 percent, at US$1.74 billion. But equity and debt issuance slowed late in the quarter.
US government bond yields rose to multi-decade highs in September, affecting capital markets. Companies such as Oura Ring, Holtec Nuclear and SB Energy postponed planned IPOs.
Citigroup's equity underwriting revenue fell 19 percent from the second quarter, though still 77 percent higher compared to a year earlier.
Markets were volatile in the third quarter and trading revenue rose 6 percent compared to a year ago to US$6.11 billion. Revenue with equities trading rose 14 percent, while fixed-income trading revenue was up 4 percent.
But the bank had 13 percent lower trading revenue compared with the second quarter.
"Those trading revenues were off this quarter as fixed income and commodities revenues were down (that has impacted every bank report this morning as well)," Mulberry said.
Services had the highest growth in the third quarter among Citi's five businesses, with 15 percent growth in revenue and 27 percent profit growth. Wealth management also grew revenue by 15 percent and increased client assets by the same percentage.
Citi's profit with credit cards fell 8 percent in the third quarter from a year earlier. Clients spent 13 percent more and took 9 percent higher loan volumes as the US economy has continued to expand at a solid pace, supported by resilient consumer spending and business investment.
But Citi's profit with cards fell due to higher reward costs and payments to partners, as well as credit provisions.
Loss provisions in its US consumer cards segment were US$1.9 billion in the quarter, 4 percent above a year ago, as borrowers deal with moderating wage growth, inflation and higher interest rates.
The New York-based bank is nearing the end of a multi-year restructuring in which it sold international businesses, simplified the organization and worked on fixing compliance, controls and data deficiencies.
Citi is seeking to rapidly resolve its efforts to address regulatory demands that have long dogged the bank, in order to fully refocus on growth.
The last divestment to be completed is from its Mexican unit Banamex. Citi now owns 51 percent of Banamex and expects to take it out of its balance sheet and list it on the stock exchange next year.
Profit increased to US$5.25 billion, or US$2.85 per share, in the three months ended September 30, the third-largest US lender reported. This compares with US$3.8 billion, or US$1.86 per share, a year earlier. But the bank's net income was 10 percent lower in the third quarter compared to the second.
Reuters
