Citi Fixed-Income Trading Surges 49%

(Bloomberg) -- Citigroup Inc. cut traders -- and got its mojo back.

Revenue from fixed-income trading surged 49% in the fourth quarter -- more than double the increase predicted by analysts -- after a slump that rattled the industry a year ago. The rebound, combined with surprisingly strong earnings from debt underwriting and consumer banking, pushed net revenue for the period to the highest since 2015.

The finale puts the trading division on stronger footing heading into a new decade, as executives pursue a series of profitability targets that have led to dismissals when revenue faltered. On Tuesday, they vowed to keep zeroing in on costs.

“We enter 2020 in a strong competitive position,” Chief Executive Officer Michael Corbat said Tuesday in a statement. He credited both “increased revenues and disciplined expense management.”

The trading windfall helped Corbat surpass a goal for return on tangible common equity of 12% in 2019. But managers already set a tougher target for this year and have been pointing to headwinds in the market.

Citigroup shares rose 2.2% to $82.38 at 9:51 a.m. in New York. The stock climbed 40% in the past year, outpacing the 22% advance of the 24-company KBW Bank Index.

JPMorgan Gains

Citigroup joins rival JPMorgan Chase & Co. in posting fourth-quarter fixed-income trading results that topped analyst predictions. Both benefited from an active final few weeks of the year that were helped by gains in spread products and rates.

“Fixed-income revenues were up significantly, reflecting both a recovery in activity level from the prior year and strong performance in the quarter, particularly in rates and spread products,” Chief Financial Officer Mark Mason said on a conference call with reporters.

Citigroup’s results contrast with a year earlier, when revenue from fixed-income trading -- the firm’s largest securities business -- plunged amid market turmoil in a dark omen for the industry. That time, the firm fell short of its full-year profitability target.

With trading results weak again in mid-2019, the bank set out to eliminate about 400 of its staff in that division. Revenue from the combined fixed-income and equities business beat analysts’ estimates in the third quarter, then trounced them in the fourth.

Traders focusing on bonds, commodities and currencies generated $2.9 billion during the year’s final months, far ahead of the $2.37 billion projection by analysts. That more than offset a surprise drop in the much smaller equities unit.

In the investment banking segment, the firm leaned on strengthening capital markets businesses -- particularly investment-grade underwriting -- to counter a drop in fees from advising on mergers and acquisitions. The segment’s biggest contributor, debt capital markets, boosted revenue 16% to $738 million.

The trading cuts weren’t the only personnel moves in the year’s latter months. Citigroup assigned Jane Fraser to run its consumer bank, already in the midst of an overhaul, when elevating her to company president in October. The division’s revenue climbed 5% to $8.46 billion, signaling a potential turnaround. That was the strongest fourth-quarter in half a decade.

Here are other key metrics from the quarter:

• Net income rose 15% to $5 billion, or $2.15 a share. Excluding a one-time tax benefit, the bank earned $1.90 a share, topping the $1.84 average estimate of 21 analysts tracked by Bloomberg.
• Expenses climbed 6% to $10.45 billion, higher than the $10.22 billion analysts estimated, as the bank spent more on compensation and continued investing in operations.
• Citigroup has been reducing the number of promotional offerings on its card products in a bid to increase interest income. Revenue from the bank’s card business climbed 6% to $5.34 billion.

©2020 Bloomberg L.P.