Citi beats profit estimates on investment banking, wealth strength
Citigroup beat Wall Street estimates for third-quarter profit, helped by stronger investment banking and wealth management revenue. Trading profits rose only 2 per cent year on year amid market volatility and higher interest rates, while the bank reaffirmed its return target of 11 per cent.
Citigroup beat Wall Street estimates for third-quarter profit on Tuesday, helped by stronger investment banking revenue and transactions with multinational companies as well as higher earnings from wealth management.
Trading profits gained only 2 per cent from a year earlier and fell 27 per cent against the previous quarter, mainly due to a drop in equity trading revenue. Wall Street banks are navigating a volatile market backdrop as the conflict in Iran pushed oil prices higher, fuelling inflation concerns and prompting the US Federal Reserve to raise interest rates and bond markets worldwide to sell off dramatically.
"There is no doubt that high interest rates and the threat of continued Fed hikes is weighing on trading and IB activity in a measurably negative vector," said Brian Mulberry, chief market strategist at Zacks Investment Management. "However, the ability for Citi to drive positive growth from multiple business units is the strength of the balance sheet today, growth in Services, Wealth, and strong NII will offset short term weakness in trading to support continued ROTCE at or above the targeted 11 per cent going into 2027."
Citi reported a profit of US$2.85 per share in the third quarter, compared with analysts' average estimate of US$2.66 per share, according to data compiled by LSEG. Profit increased to US$5.25 billion in the three months ended September 30, compared with US$3.8 billion a year earlier, but net income was 10 per cent lower than the second quarter. The bank posted an 11.5 per cent return on tangible common equity, or ROTCE, in the third quarter and a year-to-date return of 12.6 per cent, ahead of its 11 per cent target.
Citi's investment banking revenue increased 9 per cent from a year ago to US$1.35 billion but fell 13 per cent over the previous quarter as equity and debt underwriting activity slowed. Services had the highest growth among Citi's five businesses, with 15 per cent growth in revenue and 27 per cent profit growth. Wealth management also grew revenue by 15 per cent and increased client assets by the same percentage.
Citi's profit with credit cards fell 8 per cent in the third quarter from a year earlier, despite clients spending 13 per cent more and taking 9 per cent higher loan volumes, due to higher reward costs, payments to partners and credit provisions. Loss provisions in its US consumer cards segment were US$1.9 billion in the quarter, 4 per cent above a year ago.
The New York-based bank is nearing the end of a multi-year restructuring in which it sold international businesses and worked on fixing compliance, controls and data deficiencies. The last divestment to be completed is from its Mexican unit Banamex, which Citi now owns 51 per cent of and expects to list on the stock exchange next year. Shares of the bank fell about 0.4 per cent in premarket trading after the results, though they have risen 13 per cent this year, outperforming the broader bank stock index.