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Citigroup (C) Q1 Earnings Top Estimates on Reserve Releases

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Citigroup C delivered a positive earnings surprise of 1.4% in first-quarter 2021 on significant reserve releases. Income from continuing operations per share of $3.62 handily outpaced the Zacks Consensus Estimate of $2.56. Also, results compared favorably with $1.06 in the prior-year quarter.

The stock gained more than 2% during pre-market trading, reflecting investors’ optimism with the results. Notably, the full-day trading session will display a clearer picture.

Citigroup recorded higher market revenues during the reported quarter. Remarkably, equity market revenues jumped on favorable market conditions and strong client volumes, driven by stellar derivatives, cash equities and prime finance performance. However, fixed income revenues were down due to an exceptionally good quarter last year.

At the same time, investment banking revenues increased, driven by equity underwriting, primarily reflecting higher SPAC activity, as well as growth in debt underwriting, partially offset by lower revenues in Advisory. Further, markable reserve releases during the quarter supported results.

Alongside results, the company announced a major strategic action whereby the Global Consumer Banking segment will be exiting 13 markets, including Australia, Bahrain, China, India, Indonesia, Korea, and more. With this move, Citigroup seeks to focus more on operations in Asia and EMEA on four wealth centers — Singapore, Hong Kong, the UAE, and London.

Net income was $7.9 billion compared with the $2.5 billion recorded in the prior-year quarter.

Revenues Decline, Expenses Flare Up

Revenues were down 7% year over year to $19.3 billion during the March-ended quarter. The top line, however, surpassed the Zacks Consensus Estimate of $18.9 billion. Lower revenues from Institutional Clients Group (ICG) and Global Consumer Banking (GCB), along with Corporate/Other resulted in this decline.

In the ICG segment, revenues came in at $12.2 billion during the January-March quarter, down 2% year over year. Lower treasury & trade solutions along with fixed income market revenues were partly offset by higher investment banking and corporate lending revenues.

GCB revenues decreased 14% year over year to $7.03 billion. Lower revenues in North, Latin America and Asia GCB due to the pandemic resulted in this decline. Notably, both retail banking and card revenues witnessed declines.

Corporate/Other revenues came in at $70 million, down 4% from $542 million witnessed in the prior-year quarter. This downside stemmed from the impact of low rates.

Operating expenses at Citigroup flared up 4% year over year to $11.1 billion. Continued investments in the franchise transformation, including investments in infrastructure, risk management and controls, along with higher repositioning costs, resulted in this upsurge. These were partly negated by efficiency savings.

Stable Balance Sheet

At the end of the first quarter, Citigroup’s end of period assets totaled $2.31 trillion, up 2% sequentially. Deposits were up 10% from the prior quarter to $1.3 trillion. The company’s loans fell 1% to $666 billion.

Credit Quality: A Mixed Bag

Citigroup’s costs of credit for the March quarter were negative $2.06 billion against $7 billion recorded in the year-earlier quarter. Markedly, release of allowance for credit loss reserves in the ICG and GCB segments was aided by an improved macroeconomic outlook and lower loan volumes.

Cost of credit includes reduced net credit losses of $1.7 billion and a credit reserve release of $3.9 billion, and other benefits of $50 million.

Total non-accrual assets jumped 21% year over year to $5.1 billion. The company reported a rise of 17% in consumer non-accrual loans to $2 billion. Also, corporate non-accrual loans of $3.1 billion jumped 25%.

Citigroup’s total allowance for loan losses was $21.6 billion at the end of the reported quarter, or 3.29% of total loans compared with the $20.4 billion, or 2.84%, recorded in the year-ago period.

Solid Capital Position

At the end of the January-March period, Citigroup’s Common Equity Tier 1 Capital ratio was 11.7%, up from the prior-year quarter’s 11.1%. The company’s supplementary leverage ratio in the quarter came in at 7%, up from 6%.

As of Mar 31, 2021, book value per share was $88.18, up 5% year over year, and tangible book value per share was $75.5, up 5%.

Capital Deployment

During the quarter, Citigroup repurchased 23 million common shares and returned a total of $2.7 billion to shareholders in the form of common stock repurchases and dividends.  

Our Viewpoint

Citigroup delivered impressive results this time around on reduced costs of credit. Solid equity market revenues and equity underwriting business aided the bank, despite being unfavorably impacted by lower debt underwriting and a disappointing advisory business. The company displays capital strength, reflecting liquidity amid the coronavirus-impacted environment.

One can consider a strong brand like Citigroup to be a sound investment option for the long term, given its global footprint and attractive core business. Nevertheless, several legal hassles remain concerns for the company.

Citigroup Inc. Price, Consensus and EPS Surprise

Citigroup Inc. Price, Consensus and EPS Surprise

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

At present, Citigroup carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Mega Banks

Solid mortgage and capital markets performance supported Wells Fargo’s (WFC - Free Report) first-quarter 2021 earnings of $1.05 per share, which surpassed the Zacks Consensus Estimate of 69 cents.

Large reserve releases, along with solid capital markets performance, drove JPMorgan’s JPM first-quarter 2021 earnings of $4.50 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.

Given the strong capital markets performance, Goldman Sachs’ (GS - Free Report) first-quarter 2021 earnings per share of $18.60 significantly surpassed the Zacks Consensus Estimate of $9.79. Also, the bottom line compares favorably with $3.11 per share earned in the year-earlier quarter.

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