Financial Services

Citigroup’s second-quarter results underline tough Wall St trading

Bank posted jump in earnings thanks to cost control, share repurchases

Citi shares have rallied by 40 per cent so far this year. Photograph: Getty Images

Robert Armstrong
Mon Jul 15 2019 - 13:45

Citigroup kicked off the second-quarter earnings season for Wall Street with results that underlined the tough trading conditions for investment banks.

The fourth-largest US bank by assets suffered a 5 per cent decline in trading revenues in the second quarter and a 10 per cent drop in investment banking activities such as mergers and acquisitions advisory and debt underwriting.

However, Citi still managed to post a better than expected 12 per cent jump in earnings per share thanks to cost control, share repurchases and improved performance at its US consumer bank.

Mike Corbat, chief executive, said the bank had shown discipline in expense, credit and risk management in the face of the "uncertain environment".

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Overall, second-quarter revenues rose 2 per cent to $18.8 billion (€16.7 billion). Lower operating expenses, a more favourable tax rate and a big fall in the share count translated that modest top-line growth into adjusted earnings per share of $1.83, a 12 per cent increase. Analysts had been expecting EPS of $1.80.

Moderately higher reserves for loan losses, primarily in its credit card division, were a drag on earnings for Citi, which employs 2,500 people in Dublin at its European banking unit.

Rival forecasts

Investment banking revenue dropped by a 10th, slightly better than the mid-teens decline the bank had forecast in its mid-quarter update, as debt underwriting activity improved towards the end of the quarter. The capital markets results were broadly in line with the forecasts of other big US banks, which report later this week.

After Citi received a passing grade in this year's Federal Reserve stress tests, it committed to returning $21.5 billion to shareholders in share buybacks and dividends over the next 12 months. In the second quarter, the bank's share count fell 10 per cent from the year before.

The US retail operation, which struggled last year, grew 3 per cent, as the crucial Citi-branded cards division picked up momentum.

Citi shares have rallied by 40 per cent so far this year, nearly doubling the performance of the S&P 500, as investors have become more confident that the bank can hit its 2020 target of return on tangible common equity of 13.5 per cent. The return was 11.9 per cent for the second quarter, unchanged from the first. – Copyright The Financial Times Limited 2019

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