Citi CEO Vows Cost-Cutting Success to Continue as Trading Slumps

(Bloomberg) -- At Citigroup Inc., bean counting and boring banking are in ascendance. Trading, not so much.

The lender said it will continue to cut costs in the second half of the year after trimming more than analysts expected last quarter. That outlook helped the stock rebound from a deeper drop after disappointing trading results.

“We’re going to do everything within our power” to meet a goal of a 12% return on tangible equity this year, Chief Executive Officer Mike Corbat said in response to skepticism from analysts regarding the target during a conference call Monday. The firm won’t end planned investments in technology or risk its efforts to improve safety and soundness, he said. “But everything else is on the table.”

Citigroup shares fell 0.3% at 12:05 p.m. in New York trading, making it the second-best performer in the 24-company KBW Bank Index. The other major banks all fell as Citigroup’s trading decline may herald a fourth straight quarterly drop for that business across Wall Street.

The results from Citigroup, the first giant U.S. bank to report earnings for the quarter, underscore how sell-side traders haven’t been able to capitalize on market swings. Markets keep getting jolted by President Donald Trump’s unpredictable threats to ratchet up tariffs on countries such as China and Mexico, as well as the Federal Reserve’s shifting stance on interest rates. That’s sent investing clients to the sidelines, taking a toll on banks matching buyers and sellers.

“As we saw volatility around the rate forecast, it really had an impact on investor client sentiment,” Chief Financial Officer Mark Mason said on a conference call with reporters. “Client conviction remains challenged.”

At Citigroup, revenue from trading slipped roughly 5%, excluding a one-time gain on a stake in Tradeweb Markets Inc., which held an initial public offering. The decline was worse than analysts projected, and helped counter the strongest second quarter for its consumer division since 2013.

Citigroup’s struggle to improve efficiency and earnings from consumers was a sore spot for shareholders as the year began. Investors are paying particular attention to costs after companywide revenue climbed less than 1% in 2018. Unable to rein in expenses fast enough, executives missed their own cost target, hurting their credibility with analysts.

Cutting Costs

Corbat has projected the firm can save as much as $600 million annually after investing in technologies to run operations. The second quarter marked progress, with expenses down 2% to $10.5 billion -- almost $100 million lower than the average estimate from analysts.

Investment banking revenue dropped 10% to $1.28 billion. That was slightly better than analysts estimated, helped by a surprise 2% gain in fees from underwriting debt. Revenue from advising on mergers and acquisitions slumped 36%.

The situation in the consumer business improved in the second quarter as it added $3 billion in deposits and as cardholder spending jumped 6%. Altogether, revenue from consumer banking climbed 3% to $8.51 billion, surpassing analysts’ projections. Revenue in those operations had stagnated in this year’s first three months.

Read more: Airline miles for a bank account? Citi vies with Goldman online

Competitors JPMorgan Chase & Co., Wells Fargo & Co. and Goldman Sachs Group Inc. are set to report results Tuesday, with Bank of America Corp. and Morgan Stanley following later in the week.

Here are other key numbers from the quarter:

• Citigroup set aside $2.09 billion to cover the cost of souring loans, a 16% increase that was in line with analysts’ estimates. Citigroup attributed the increase to additional spending on cards as well as “normalization” in credit quality within the institutional business.
• Total revenue climbed 2% to $18.8 billion including the $350 million gain tied to Tradeweb, an electronic trading platform. Analysts had projected $18.5 billion.
• Net income rose 7% to $4.8 billion. Earnings per share excluding the gain on Tradeweb were $1.83. Analysts had estimated adjusted per-share earnings of $1.80.

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, Daniel Taub

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