Citigroup’s Underdogs Save Quarter as Bond, Card Engines Lag

It was a moment for Citigroup Inc.’s overlooked Wall Street divisions to show what they can do.

The firm’s stock traders and investment bankers -- usually overshadowed by rivals’ larger franchises -- trounced analyst estimates in the second quarter and made up for weaknesses in Citigroup’s much bigger fixed-income and credit-card divisions. The surprise showing, and a release in reserves set aside for souring loans, helped the lender beat revenue and profit estimates in the period.

The results were the first under new Chief Executive Officer Jane Fraser and hinted at progress after the bank reorganized its equities unit under Fater Belbachir in a bid to become a top-four competitor in that business. The firm generated more than $1 billion from equities trading for a second straight period, the first time that’s happened since 2009.

“The pace of the global recovery is exceeding earlier expectations,” Fraser said Wednesday in a statement announcing earnings. “We saw this across our businesses, as reflected in our performance in investment banking and equities.”

Net income jumped nearly sixfold to $6.19 billion, beating the $4.67 billion average analyst estimates compiled by Bloomberg as the firm released $2.4 billion in reserves.

Citigroup’s results broadly mirrored trends across the industry. Most trading desks are cooling as last year’s market swings subside, but dealmakers are still busy helping corporations adjust strategies or finances. Consumers are spending more on cards, but the question is whether they will start to borrow more too.

Success in Equities

At Citigroup, the 37% jump in revenue from stock trading was an outlier. It was better than the 33% and 13% increase at Bank of America Corp. and JPMorgan Chase & Co., respectively, and contrasted the 12% slump at Goldman Sachs Group Inc.

“We have been investing broadly across our equities franchise,” Chief Financial Officer Mark Mason said on a conference call with journalists. “I think that’s positioned us well to gain share as the market evolves and we’ve been doing that.”

Citigroup, though, is known for its massive fixed-income trading division, where revenue slumped 43% to $3.21 billion from a year earlier, when pandemic-induced swings in volatility boosted results. While that was worse than analysts anticipated, it was in line with declines at JPMorgan and Goldman.

Fees from investment banking edged up to $1.77 billion, more than the $1.64 billion average of analyst estimates compiled by Bloomberg, with the firm citing jumps in fees from equity underwriting and advisory. Advisory revenue alone jumped 77% to $405 million.

The world’s largest credit-card issuer, Citigroup saw revenue from that business drop 11% to $4.02 billion as consumers paid off balances. While spending on Citigroup cards increased 40% as the U.S. economy rebounded from year-earlier lockdowns, arch-rival JPMorgan saw a 51% jump.

Strategy Revamp

Fraser, the first woman to run a U.S. banking giant, began reshaping its strategy as she prepared to take the helm in March. Citigroup has already announced this year that it will exit retail banking operations in 13 markets across Asia and Europe and will instead focus on building out its newly formed wealth division.

In the second quarter, expenses climbed 7% to $11.19 billion, slightly less than the $11.3 billion average of analyst estimates compiled by Bloomberg.

Mason warned the bank will be spending more on its underlying technology as it seeks to satisfy a pair of consent orders it received from regulators last year. That, along with an increase in spending on marketing as well as efforts to modernize Citigroup, caused the bank to increase prior guidance for costs, and the firm now expects expenses to increase by a percentage in the mid-single digits for the full year of 2021. Previously, they had forecast as much as a 3% gain in costs.

The updated guidance caused Citigroup’s stock to erase earlier gains. Shares dropped 0.7% to $67.90 at 11:27 a.m. in New York.

“This is something that we control,” Mason said. “We are making very deliberate decisions around the opportunities that we see across the franchise and it’s the right thing to do so we’re going to continue to do that.”

©2021 Bloomberg L.P.

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