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Stellar Trading Performance to Aid Citigroup (C) Q4 Earnings

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Increase in client activities and rise in market volatility are likely to have aided Citigroup’s (C - Free Report) trading revenues (both equity and fixed-income), driving fourth-quarter 2020 earnings, slated for a Jan 15 release.

Prevailing concerns related to the pandemic, along with other major developments, including the U.S. Presidential elections and the optimism surrounding the coronavirus vaccine, led to a continued significant rise in market volatility in fourth-quarter 2020. Along with substantial volatility, client activity remained strong. Thus, Citigroup’s trading businesses are expected to have received significant boost in the to-be-reported quarter.

Other Factors at Play

Low Consumer Banking Revenues: Citigroup might have witnessed weak consumer banking revenues, mainly due to reduced consumer activity on a high unemployment level during the fourth quarter and uncertainty surrounding the new stimulus package. Global card fees might have been hurt to an extent on lower consumer spending. Looking forward to the fourth quarter, management expects lingering pressure in consumer, reflecting the adverse impact of rates and lower levels of activity related to COVID-19.

Decent Investment Banking (IB) Fees: Global M&A activity continued to impress during the October-December quarter as dealmakers across the globe were active during this period with rise in M&A deal value and volume. Therefore, this might have had a positive impact on Citigroup’s advisory fees.

Moreover, IPO activities were strong, and as companies tried to build liquidity to tide over the pandemic-induced crisis, there was a substantial rise in follow-up equity issuances.

Also, equity market performance was impressive and overall debt issuances were on an upswing given the lower interest rates. Thus, equity underwriting and debt origination fees are anticipated to have gone up in the quarter under consideration.

Overall, the consensus estimate for corporate and IB fees of $1.28 billion indicates a 7.9% fall from the previous quarter’s reported number.

Muted Net Interest Income (NII) Growth: Lower interest rates near-zero level might have continued to dampen the bank’s net interest margin during the quarter to be reported.

Per the Fed’s latest data, rise in loans might have been low during the quarter under review. Particularly, weakness in revolving home equity and commercial and industrial (C&I) loans, are expected to have offset growth in commercial real estate and consumer loans. Apart from these, the lingering coronavirus concerns have continued to hurt business sentiments across industries, which might have affected loan demand.

Therefore, a soft lending scenario is likely to have curtailed growth in Citigroup’s net interest income to some extent.

The Zacks Consensus Estimate for NII of $10.4 billion suggests a slight decline from the sequential quarter.

Rise in Expenses: Management is focused on protecting employees and supporting customers. Targeted investments in the franchise are being made where the best opportunities for the future are foreseen, and accelerated investments done to achieve excellence in the risk and control environment and enhance operations for a fully digital world. As a result, management projects expenses to be up around 2% on a full-year basis.

Reserve Build: Based on the macro outlook, the bank does not expect additional reserve builds, but given the remaining uncertainty, any material releases is also unlikely this quarter. Management expects credit losses to begin to rise this year and peak toward the end of 2021 as government stimulus and other programs roll-off and unemployment remain high.

Here is what our quantitative model predicts:

Citigroup have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Citigroup is +1.29%.

Zacks Rank: Citigroup currently carries a Zacks Rank of 3, which further increases the predictive power of ESP.

Over the last seven days, the Zacks Consensus Estimate for earnings has recorded an upward revision on analysts’ optimism. However, the consensus mark suggests a 28.9% plunge on a year-over-year basis.

Further, the Zacks Consensus Estimate for sales of $16.58 billion indicates a 9.8% decline from the prior-year quarter.


Citigroup Inc. Price and EPS Surprise Citigroup Inc. Price and EPS Surprise

Citigroup Inc. price-eps-surprise | Citigroup Inc. Quote

Other Banks Worth a Look

Here are a few other bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. (CFR - Free Report) is +4.5% and the stock sports a Zacks Rank of 1 (Strong Buy), at present. The company is slated to report fourth-quarter 2020 numbers on Jan 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Bancshares Incorporated (HBAN - Free Report) is set to release earnings figures on Jan 22. The company, which flaunts a Zacks Rank of 1 at present, has an Earnings ESP of +3.73%.

U.S. Bancorp (USB - Free Report) is scheduled to announce quarterly results on Jan 20. The company has an Earnings ESP of +0.44% and currently carries a Zacks Rank of 3.

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