Consumers Boost Citigroup’s Second-Quarter Performance

The first major bank earnings report demonstrates consumers may be key to the second-quarter profits of the largest financial institutions.
Vincent RyanJuly 15, 2019

Thanks to Citigroup‘s global consumer banking franchise and a one-time gain from an IPO, Citigroup posted a solid second quarter. Revenues and profits rose despite poor performance in trading and investment banking.

Revenue in Citigroup’s global consumer bank rose 3% to $8.5 billion as profit climbed 11% to $1.41 billion. The bank’s credit card business had a particularly strong quarter. The North American branded cards business posted a 7% growth rate in branded cards revenues and an 8% growth rate in branded cards average purchase.

A Better Way to Do Ecommerce

A Better Way to Do Ecommerce

Learn how Precision Medical leveraged OneWorld to cut the cost of billing in half and added $2.5M in annual revenue.

Citi also added $3 billion in consumer deposits in the quarter.

But the performance of Citi’s trading and investment banking units prevented the quarter from being even better. Excluding the one-time IPO gain related to Citi’s investment in Tradeweb, a fixed income and derivatives trading platform, Citi reported its third-straight decline in trading revenues — 4%.

Investment banking revenue, meanwhile, dropped 10% to $1.28 billion.

“Heightened geopolitical uncertainty, the lackluster performance of several high-profile IPOs, and expectations of even cheaper financing after the Fed begins to cut rates are some of the reasons likely suppressing management teams from engaging with investment banking groups to raise debt and equity capital,” said Max Gokham, head of asset allocation at Pacific Life Fund Advisors. “Similarly, many institutional investors are staying on the sidelines as they await more clarity on trade tensions, Brexit, and monetary policy by the Fed, [the European Central Bank], and [the Bank of Japan].”

second-quarter performanceCiti’s net income, including the Tradeweb gain, rose 7% to $1.95 per share, helped by a 2% reduction in expenses (the bank cut $100 million more than analysts expected) and a lower effective tax rate (22%).

While Citi posted growth in consumer, mortgage, and commercial and industrial loans, credit quality did not deteriorate. Total non-accrual assets declined 9% from the prior-year period to $3.7 billion. Consumer non-accrual loans declined 7% to $2.2 billion, and corporate non-accrual loans fell 13% to $1.4 billion. In addition, the bank’s allowance for loan losses was essentially flat.

Despite Citigroup’s solid quarter, “no one will care,” longtime banking analyst Dick Bove of Rafferty Capital Markets told Fox Business.

“They are going to focus, focus, focus on what’s going to happen to interest rates at the Fed,” he said. Interest rate cuts, many believe, will hurt banks’ profits. Bove, however, said there is “no historical evidence of that whatsoever.”

On the Citigroup earnings call, CFO Mark Mason said that the bank’s lending revenue this quarter would be about $50 million lower if the Fed cuts the benchmark interest rate by a quarter of a point.

Photo: Getty Images