Citi Rebounds After Vowing to Boost Revenue in ‘Choppy Waters’

(Bloomberg) -- Citigroup Inc. rebounded after executives assured investors that some costs are poised to drop and revenue won’t.

The bank is eliminating positions and investing in new technology that will help it save at least $500 million this year as it seeks to improve an efficiency ratio that’s disappointed investors in the past. While expenses proved stubborn in the quarter, ticking up 1.5% to exceed analysts’ estimates, bank executives said they expect revenue to climb modestly this year.

“As we’ve seen wallets decline, particularly in parts of our market-sensitive businesses, we’ve taken some actions to adjust capacity and with that comes a cost associated with it,” Chief Financial Officer Mark Mason said on a conference call with reporters, noting that the bank has been trying to manage its travel and events costs.

Citigroup cut its expectations for annual net interest income for the year as the New York-based company continues to adjust to the Federal Reserve’s move to lower its benchmark interest rate. NII will now increase between 2% and 3% this year, the bank forecast, adding that the lower expectations should be offset by higher fee income, which would result in a modest bump to annual revenue.

The bank joined rivals in posting trading results that defied pessimistic expectations, slipping less than 1% in an especially tumultuous quarter. Analysts had predicted a 4% drop. Stronger-than-estimated revenue from investment banking and credit cards also helped results.

“The environment is highly unpredictable given how much of it is at the mercy of political machinations, whether it’s trade negotiations or even the elusive resolution on Brexit,” Chief Executive Officer Michael Corbat said Tuesday. “We will help our clients navigate these choppy waters.”

Shares of Citigroup climbed 2% to $71.66 at 1:04 p.m. in New York, after falling as much as 2.2% earlier Tuesday. The stock has jumped 38% this year, compared with the 18% advance of the 67-company S&P 500 Financials Index.

Efficiency Target

Citigroup began culling its trading ranks in July, part of Corbat’s push to make good on a long-promised and elusive efficiency goal. The third-quarter results are a sign -- albeit preliminary -- that the firm may be able to avoid the feedback loop that’s dogged many competitors: Efforts to pare expenses also risk cutting business. Fixed-income trading, the bank’s biggest source of revenue from Wall Street, was unchanged, bolstered by G-10 rates and currencies.

Goldman Sachs Group Inc.’s traders turned in revenue of $3.29 billion in the third quarter, more than analysts had anticipated, as the bank saw strength in commodities and interest rates. JPMorgan Chase & Co. said trading revenue climbed 14%, more than the 7.5% gain analysts had predicted.

Citigroup’s investment bankers also posted a surprise increase in revenue, led by a 7% jump in debt underwriting. Revenue from advising corporations on mergers and acquisitions was helped by deals in Europe, the Middle East and Africa. Similar to stock trading, equity underwriting slipped amid the market turmoil. Concern that startups may be overvalued after a long market rally hurt a number of prominent initial public offerings in recent months.

While the bank said on Tuesday that its return on tangible common equity improved to 12% for the year, in line with its annual target for that metric, executives faced criticism from analysts who said there was growing uncertainty over the firm’s ability to improve that figure next year.

“Two years ago, you said the restructuring is over,” Mike Mayo, an analyst at Wells Fargo & Co., said on separate conference call, noting Citigroup’s returns are still below peers. “Maybe you need to retract the statement that the restructuring is over and take a new, fresh look.”

Here are other key metrics from Citigroup’s earnings:

• Net income rose more than 6% to $4.9 billion, or $2.07 a share. Excluding a one-time tax benefit, the bank earned $1.97 a share, topping the $1.95 that analysts expected.
• The bank added $2 billion in deposits from its digital banking efforts, and executives said they expect to begin offering retail banking products to some of its co-brand credit-card customers soon.
• Citigroup has been focused on reducing the number of promotional offerings on its card products. It’s a move that helped third-quarter results as revenue from the bank’s proprietary card business in North America climbed 11% to $2.3 billion. Overall spending on the firm’s cards climbed 5% to $142 billion in the quarter.

To contact the reporter on this story: Jenny Surane in New York at jsurane4@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Dan Reichl

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