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Citigroup (C) Shares down on Soft Q2 Trading Revenue Outlook
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Shares of Citigroup Inc. (C - Free Report) tumbled 3.1% in yesterday’s trading session, after the company’s chief financial officer, Mark Mason, warned investors at the Morgan Stanley US Financials Conference that trading revenues might disappoint in second-quarter 2021.
Markedly, after the Federal Reserve injected significant liquidity in the U.S. markets to counter the impacts of the pandemic, numerous banks benefited from a surge in equity and fixed-income trading transactions as well as advisory services. The tailwind continued in first-quarter 2021 as well.
After the bumper time, Citigroup now expects activities to be moderate year over year, thereby, hindering trading revenues, which are likely to decline “in the low 30s percent” in second-quarter 2020 from a year ago. While equity performance has held ground, fixed income is likely to deter in light of the strong performance in 2020.
Echoing this, JPMorgan (JPM - Free Report) also signaled an end to the pandemic-era trading boom at the same conference. The company’s CEO, Jamie Dimon, projected a 38% year-over-year plunge in trading revenues in the second quarter. Specifically, he stated that the second quarter will be “more normal” for trading business, with revenues coming in at “something a little bit north of $6 billion, which is still pretty good, by the way.”
At the same conference, State Street (STT - Free Report) upped its guidance for total year-over-year fee revenue growth to 4-5% from the previously mentioned 2-3% growth. This was supported by strength in the equity markets.
Citigroup also sees its investment banking (“IB”) revenues to be down “in the mid-to-high single-digit range”. Similarly, at the conference, Morgan Stanley’s (MS - Free Report) CEO warned that IB revenues are not going anywhere near the “gangbusters” level as recorded in first-quarter 2021. Nonetheless, IB revenues are expected to be still better than what it was in the pre-pandemic times.
Citigroup has been transforming to revamp its underlying technology, risk management and internal controls as part of remediation highlighted by the Office of the Comptroller of the Currency and the Federal Reserve last year.
Higher investments in such an overhaul might inflate expenses. In fact, Mason said that second-quarter expenses will likely increase to “somewhere in the middle” of $11.2 billion to $11.6 billion. It should be noted that during the same period last year, the company was able to cut back expenses significantly on the back of shutdowns and remote-working scenarios, and incurred operating expenses of $10.4 billion.
Moreover, the company continues to invest in businesses like wealth management, IB, and treasury and trade solutions.
Lastly, management’s commentary on its North America consumer banking business also indicates toward unimpressive second-quarter performance. In first-quarter 2021, the company reported revenues of $4,428 million, witnessing a year-over-year decline of 15%. For second-quarter 2021, North America consumer banking revenues are “likely to be down at similar level to what they were in the first quarter in terms of the year-over-year performance.”
As credit-card holders pay back their loans at faster rates, the company is seeing slower loan growth and this is putting pressure on lending volumes. Nonetheless, Citigroup expects a pick-up in loan growth in the second half of the ongoing year.
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Citigroup (C) Shares down on Soft Q2 Trading Revenue Outlook
Shares of Citigroup Inc. (C - Free Report) tumbled 3.1% in yesterday’s trading session, after the company’s chief financial officer, Mark Mason, warned investors at the Morgan Stanley US Financials Conference that trading revenues might disappoint in second-quarter 2021.
Markedly, after the Federal Reserve injected significant liquidity in the U.S. markets to counter the impacts of the pandemic, numerous banks benefited from a surge in equity and fixed-income trading transactions as well as advisory services. The tailwind continued in first-quarter 2021 as well.
After the bumper time, Citigroup now expects activities to be moderate year over year, thereby, hindering trading revenues, which are likely to decline “in the low 30s percent” in second-quarter 2020 from a year ago. While equity performance has held ground, fixed income is likely to deter in light of the strong performance in 2020.
Echoing this, JPMorgan (JPM - Free Report) also signaled an end to the pandemic-era trading boom at the same conference. The company’s CEO, Jamie Dimon, projected a 38% year-over-year plunge in trading revenues in the second quarter. Specifically, he stated that the second quarter will be “more normal” for trading business, with revenues coming in at “something a little bit north of $6 billion, which is still pretty good, by the way.”
At the same conference, State Street (STT - Free Report) upped its guidance for total year-over-year fee revenue growth to 4-5% from the previously mentioned 2-3% growth. This was supported by strength in the equity markets.
Citigroup also sees its investment banking (“IB”) revenues to be down “in the mid-to-high single-digit range”. Similarly, at the conference, Morgan Stanley’s (MS - Free Report) CEO warned that IB revenues are not going anywhere near the “gangbusters” level as recorded in first-quarter 2021. Nonetheless, IB revenues are expected to be still better than what it was in the pre-pandemic times.
Citigroup has been transforming to revamp its underlying technology, risk management and internal controls as part of remediation highlighted by the Office of the Comptroller of the Currency and the Federal Reserve last year.
Higher investments in such an overhaul might inflate expenses. In fact, Mason said that second-quarter expenses will likely increase to “somewhere in the middle” of $11.2 billion to $11.6 billion. It should be noted that during the same period last year, the company was able to cut back expenses significantly on the back of shutdowns and remote-working scenarios, and incurred operating expenses of $10.4 billion.
Moreover, the company continues to invest in businesses like wealth management, IB, and treasury and trade solutions.
Lastly, management’s commentary on its North America consumer banking business also indicates toward unimpressive second-quarter performance. In first-quarter 2021, the company reported revenues of $4,428 million, witnessing a year-over-year decline of 15%. For second-quarter 2021, North America consumer banking revenues are “likely to be down at similar level to what they were in the first quarter in terms of the year-over-year performance.”
As credit-card holders pay back their loans at faster rates, the company is seeing slower loan growth and this is putting pressure on lending volumes. Nonetheless, Citigroup expects a pick-up in loan growth in the second half of the ongoing year.
The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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If you’re looking for big gains, there couldn’t be a better time to get in on a young industry primed to skyrocket from $17.7 billion back in 2019 to an expected $73.6 billion by 2027.
After a clean sweep of 6 election referendums in 5 states, pot is now legal in 36 states plus D.C. Federal legalization is expected soon and that could be a still greater bonanza for investors. Even before the latest wave of legalization, Zacks Investment Research has recommended pot stocks that have shot up as high as +285.9%.
You’re invited to check out Zacks’ Marijuana Moneymakers: An Investor’s Guide. It features a timely Watch List of pot stocks and ETFs with exceptional growth potential.
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