Citigroup inc. signage is displayed on the Citigroup Center in Los Angeles, California, U.S. (Photographer: Patrick T. Fallon/Bloomberg)  

Citi's Stock Traders Pick Up Slack as Fixed-Income Stumbles

(Bloomberg) -- Citigroup Inc. is profiting from Donald Trump’s unpredictable presidency.

Wild stock markets through the end of March -- spurred by Trump’s tweets on global trade -- helped the firm’s equities business generate the most revenue since 2010, handily surpassing a $1 billion mark the bank said just weeks ago might be within reach. That made up for a surprise drop in fees from handling fixed-income products. A lower-than-forecast tax rate also left more profit for shareholders.

Citigroup is showing that big banks are capable of benefiting amid stock-market turmoil -- a question that’s loomed over Wall Street this year. Volatility spiked in February after a report on U.S. job creation shook up projections for interest-rate increases. In the weeks that followed, Trump kept investors on their toes by ratcheting up threats on Twitter to impose tariffs on Chinese goods.

“While market conditions have been uneven so far this year, our first-quarter results show our ability to deliver,” Chief Executive Officer Michael Corbat said Friday in a statement announcing results. “We look forward to sustaining this momentum for the balance of the year.”

Citigroup climbed 0.9 percent to $72.77 at 9:34 a.m. in New York. The share price had dropped 3.1 percent this year through Thursday, compared with the 0.3 percent decline of the S&P 500 Financials Index.

While the bank’s first-quarter profit beat analysts’ estimates, Corbat may still have to focus on expenses. The firm’s efficiency ratio -- a measure of what it costs to produce a dollar of revenue -- was 57.9 percent in the period. The company has said it hopes to whittle that closer to 57 percent for all of 2018. Because the first quarter often yields the most revenue for U.S. banks, it can get harder to improve the ratio as a year progresses, unless the bank finds ways to pare spending.

Citigroup held its first investor day in nine years last summer, where Corbat declared the company’s “restructuring is over” and set new financial targets. The firm is “on track,” he said Friday, for its multiyear goal of paying out $60 billion in capital to shareholders.

Swings in asset prices can benefit or burn investment banks that arrange trades for investors. To a point, moves spur clients to shift or hedge their positions, helping to generate fees. But violent swings can also spook clients, causing them to pull back from markets, or leave banks nursing losses on instruments they weren’t able to hedge or unload fast enough.

Citigroup’s revenue from equities trading surged 38 percent to $1.1 billion in the quarter, beating the $909 million average estimate of seven analysts. Chief Financial Officer John Gerspach told investors early last month the business might hit $1 billion, a mark it hadn’t eclipsed since 2015.

Bankers Struggle

Fixed-income trading fell 7 percent to $3.4 billion, missing the $3.7 billion average estimate compiled by Bloomberg. The bank blamed a slump in client activity in Group-of-10 rates and spread products. One bright spot, it said, was strong corporate-client activity in Group-of-10 foreign-exchange and local-markets rates and currencies.

The firm’s investment bankers also struggled. Revenue from that business, which includes underwriting and advising on corporate transactions, fell 10 percent to $1.1 billion, which the bank said reflected episodic deal activity during the quarter. While debt underwriting revenue of $699 million were in line with analysts’ estimates, stock underwriting and merger advisory fees missed forecasts.

Citigroup was the second big U.S. bank to report first-quarter results. JPMorgan Chase & Co. said on Friday revenue and profit for the first three months of 2018 rose to all-time highs, spurred by record results from stock trading. The firm’s bond-trading revenue rose 8 percent in the quarter to $4.55 billion, while the bank said fixed-income revenue was flat excluding one-time gains.

Here’s a summary of Citigroup’s results:

  • Net income climbed 13 percent to $4.6 billion, the most since the second quarter of 2015. It amounts to $1.68 a share. The average estimate of 13 analysts surveyed by Bloomberg was for per-share earnings of $1.62.
  • Revenue increased 2.8 percent to $18.9 billion, matching the average of 18 analyst estimates compiled by Bloomberg.
  • Operating expenses rose 1.9 percent to $10.9 billion, also in line with analysts’ estimates.
  • The bank said its tax rate for the quarter was 24 percent, compared with the 25 percent it had forecast for the year in January, shortly after Trump’s administration pushed through big reductions for corporations.

©2018 Bloomberg L.P.

Bloomberg
Stay Updated With Stock Market News on BloombergQuint