Citi profit beats on surge in investment banking, services strength
Adds CEO and CFO comments on regulatory actions in paragraphs 6-8
By Tatiana Bautzer and Manya Saini
July 12 (Reuters) -Citigroup C.N beat Wall Street expectations for second-quarter profit on Friday, boosted by a jump in investment banking, markets and services revenue, but shares fell 2%amid investor worries about expenses, dividends and market share.
The third largest U.S. lender reported a profit of $1.52 per share in the three months ended June 30, aboveanalysts' expectations of $1.39, according to LSEG data.
Citi had a 7.2% shareholder return in the second quarter, far from its target of 11% to 12%, said Warren Kornfeld, senior vice president in the financial institutions group at Moody’s Ratings.
"The results again reflect the services sector's strength. But Citi has challenges in broadening market share and reducing expenses in its other segments."
The stronger resultscome two days after U.S. regulators fined Citi $136 million for making "insufficient progress" in fixing data management problems identified in 2020. Regulators also required the lender to demonstrate it was putting enough resources toward those efforts.
During a conference call with analysts, Citigroup CEO Jane Fraser and Chief Financial Officer Mark Mason fielded extensive questions about the bank's share buyback and dividend plans in the context of Citi's regulatory problems. The bank announced potential acquisitions of up to $1 billion in stock over the next quarter and Fraser said regulators did not cap dividend payments to shareholders.
The bank's plan to allocate resources to regulatory fixes has notyet been agreed with regulators, Mason and Fraser said. In areas where regulatory work looks like it could face delays, Citi will determine root causes and decide whether more technology spending, additional applications or platform adjustments, or more employees are needed, Mason added.
Mason and Fraser explained the bank's problems with the quality of its data and added Citi has unified many systems that collect data for regulatory reporting. But more work is needed to ensure reports that use thousands of data points have good quality data, without needing manual checks from employees. The CFO also said priority is being given to the regulatory reports that are more important to U.S. regulators.
Jane Fraser is carrying out a sweeping overhaul in an effort to improve the bank's performance, cut costs and simplify its sprawling businesses. As part of the turnaround, Citi aims to shrink its workforce by 20,000 over the next two years.
Revenue in the second quarter came in at $20.1 billion, up 4% from a year earlier, buoyed by a $400 million gain from the conversion and partial sale of Visa stock in May.
Citi now breaks out earnings individually for its five businesses — services, markets, banking, U.S. personal banking and wealth, which were previously housed under broader divisions.
Investment banking fees jumped 60% in the second quarter to $853 million. The surge comes as a prolonged industry-wide slump in deals finally shows signs of a meaningful recovery. The gains fueled a 38% climb in broader revenue for the banking division to $1.6 billion, which also includes corporate lending.
"We see continued strong debt issuance this quarter, good M&A, the IPO market has shown a glimpse of revival and the pipeline ... is quite strong," Mason said on the call. "M&A will potentially play a larger role in the mix in the back half of the year."
Citi hired JPMorgan Chase veteran Viswas Raghavan as head of banking earlier this year to revitalizethe division catering to multinational corporations.
Services revenue increased 3% to $4.7 billion. The unit houses Citi's treasury and trade solutions business, which the company touts as its crown jewel. Fraser and other leaders highlighted their strategy for the services business at an investor day last month.
Markets revenue climbed 6% to $5.1 billion, lifted by a 37% jump in equities trading revenue.
EXPENSES ON TOP OF GUIDANCE
Operating expenses fell 2% to $13.4 billion in the quarter as the bank saved money from the reorganization that simplified its structure. Citiexpects full-year expenses to be at the high end of its previously forecast range of $53.5 billion to $53.8 billion, excluding fines from regulators received by the bank this year, Mason said.
Rival JPMorgan Chase JPM.N reported a rise in second-quarter profit on Friday, while Wells Fargo's WFC.N net income declined and it missed estimates for interest income.
Citi's wealth management division, a key part of Fraser's growth strategy, has yet to grow significantly, with revenue up 2% this quarter to $1.8 billion.
The lender's U.S. personal banking revenue grew 6%, reaching $4.9 billion, mainly due to growth in branded cards.
Analysts have called 2024 a transitional year for Citi as it becomes leaner under Fraser's turnaround.
Investors have also cheered the efforts and rewarded Fraser with a 28% jump in the bank's stock this year, far outperforming closest rivals JPMorgan and Bank of America BAC.N, as well as the broader equity markets .SPX.
Reporting by Tatiana Bautzer in New York and Manya Saini in Bengaluru; Editing by Lananh Nguyen, Shounak Dasgupta and Nick Zieminski
면책조항: XM Group 회사는 체결 전용 서비스와 온라인 거래 플랫폼에 대한 접근을 제공하여, 개인이 웹사이트에서 또는 웹사이트를 통해 이용 가능한 콘텐츠를 보거나 사용할 수 있도록 허용합니다. 이에 대해 변경하거나 확장할 의도는 없습니다. 이러한 접근 및 사용에는 다음 사항이 항상 적용됩니다: (i) 이용 약관, (ii) 위험 경고, (iii) 완전 면책조항. 따라서, 이러한 콘텐츠는 일반적인 정보에 불과합니다. 특히, 온라인 거래 플랫폼의 콘텐츠는 금융 시장에서의 거래에 대한 권유나 제안이 아닙니다. 금융 시장에서의 거래는 자본에 상당한 위험을 수반합니다.
온라인 거래 플랫폼에 공개된 모든 자료는 교육/정보 목적으로만 제공되며, 금융, 투자세 또는 거래 조언 및 권고, 거래 가격 기록, 금융 상품 또는 원치 않는 금융 프로모션의 거래 제안 또는 권유를 포함하지 않으며, 포함해서도 안됩니다.
이 웹사이트에 포함된 모든 의견, 뉴스, 리서치, 분석, 가격, 기타 정보 또는 제3자 사이트에 대한 링크와 같이 XM이 준비하는 콘텐츠 뿐만 아니라, 제3자 콘텐츠는 일반 시장 논평으로서 "현재" 기준으로 제공되며, 투자 조언으로 여겨지지 않습니다. 모든 콘텐츠가 투자 리서치로 해석되는 경우, 투자 리서치의 독립성을 촉진하기 위해 고안된 법적 요건에 따라 콘텐츠가 의도되지 않았으며, 준비되지 않았다는 점을 인지하고 동의해야 합니다. 따라서, 관련 법률 및 규정에 따른 마케팅 커뮤니케이션이라고 간주됩니다. 여기에서 접근할 수 있는 앞서 언급한 정보에 대한 비독립 투자 리서치 및 위험 경고 알림을 읽고, 이해하시기 바랍니다.