Citigroup's Q3 Performance Surpasses Expectations

On May 7, 2024, Citigroup unveiled its third-quarter financial results, which surpassed Wall Street's projections, thanks to robust growth in investment banking and wealth management. Despite this, the banking giant allocated additional funds to cushion against potential loan losses. Interestingly, Citigroup's shares, which had seen an uptick prior to the market opening, ended the day 5.1% lower.

Key Financial Metrics

The following is a detailed comparison of Citigroup's reported figures against the forecasts made by Wall Street analysts, as surveyed by LSEG:  

• Earnings per Share (EPS): The bank reported $1.51 per share, surpassing the expected $1.31.
• Revenue: Citigroup's revenue reached $20.32 billion, exceeding the anticipated $19.84 billion.

Financial Performance Breakdown

During the third quarter, Citigroup's net income dipped to $3.2 billion, or $1.51 per share, down from the previous year's $3.5 billion, or $1.63 per share. This decline was attributed to an increased cost of credit, including a $315 million addition to Citi's credit loss provision. Mark Mason, the Chief Financial Officer, indicated on an analyst call that there has been a "stabilization" in loan delinquencies among retail services clients, and the bank is "well reserved" in this regard.

Revenue for the quarter increased by 1% to $20.32 billion, up from $20.14 billion in the same period last year. This growth was fueled by an 18% surge in banking revenue, with the investment banking division leading the way with a 31% increase. Wealth management revenue also saw a 9% rise.

On the markets front, equity markets revenue experienced a 32% year-over-year increase, while fixed income revenue saw a 6% decline.

Strategic Focus and Transformation

Jane Fraser, who assumed the role of Citigroup's CEO in March 2021, has been prioritizing the bank's transformation. This includes reducing the bank's global footprint and streamlining its workforce. She stated during the call, "Our transformation is our number one priority. This quarter, we closed another longstanding consent order which related to the effectiveness of our anti-money laundering systems. We have increased our investments in areas where we have not made sufficient progress, such as data quality management."

Fraser further emphasized, "I and the management team remain steadfast and determined to get this transformation right and to get this done."

Financial Outlook and Expenses

Citigroup's net interest income fell by 3% year over year to $13.4 billion, as the margin shrank. Excluding the markets business, net interest income was $11.96 billion, which also showed a decline from the previous year. The company anticipates that the non-markets metric will remain roughly the same in the fourth quarter as in the third quarter. However, Citigroup did not provide guidance for net interest income for 2025.

The bank managed to reduce expenses by 2% year over year and expects full-year expenses to align with the guidance of $53.5 billion to $53.8 billion, barring some regulatory costs.

Market Performance

As of Monday, Citigroup's shares had risen more than 28% year to date, outperforming both the S&P 500 and the broader financial sector. Other major banks that have reported their third-quarter results have also exceeded earnings expectations, including Goldman Sachs and JPMorgan Chase.

Conclusion

Citigroup's third-quarter results demonstrate a strong performance in key areas, such as investment banking and wealth management, despite the challenges posed by increased provisions for credit losses. The bank's commitment to its transformation strategy, under the leadership of CEO Jane Fraser, is evident in its focus on improving operational efficiency and addressing past compliance issues. While the market's reaction to the results was initially positive, the share price decline at the end of the day suggests that investors may be taking a cautious approach, considering the broader economic and market uncertainties.