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Citigroup (C) Q3 Earnings Beat Estimates, Expenses Escalate

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Citigroup (C - Free Report) delivered an earnings surprise of 30.3% in third-quarter 2021. Income from continuing operations per share of $2.15 handily outpaced the Zacks Consensus Estimate of $1.65. Also, results compared favorably with $1.36 in the prior-year quarter.

Citigroup recorded strong results in the investment banking and equity markets, in addition to strong fee growth in Treasury and Trade Solutions. Momentum in deposits and wealth management assets under management as well as budding engagement across its digital channels have worked out well for the firm.

Revenues dropped 1% from the prior-year quarter’s levels, including a pre-tax loss of nearly $680 million related to the sale of the Australia consumer business in Global Consumer Banking (GCB). Excluding the loss on sale, revenues moved on 3%, largely steered by growth across the Institutional Clients Group (ICG).

At the same time, investment banking revenues increased, driven by equity underwriting as well as growth in advisory and debt underwriting.

However, normalization in market activity across rates and spread products in the Fixed Income Markets within the ICG, lower average card loans in GCB and lower interest rates marred results.

Net income was $4.64 billion compared with $3.15 billion recorded in the prior-year quarter.

Revenues Decline, Expenses Flare Up

Revenues were down 1% year over year to $17.15 billion in the September-ended quarter. The top line, nonetheless, surpassed the Zacks Consensus Estimate of $17.36 billion. Lower revenues from the business segment, GCB, caused the decline.

In the ICG segment, revenues were $10.8 billion in the July-September quarter, up 3% year over year. Higher total banking, equity markets and securities services revenues were partly offset by lower fixed income revenues.

GCB revenues declined 13% year over year to $6.3 billion. Lower revenues in North America and Asia along with declining average card loans and deposit spreads resulted in the decline. Notably, both retail banking and card revenues witnessed declines.

Corporate/Other revenues were $108 million, improving from a loss worth $224 million witnessed in the prior-year quarter.

Operating expenses at Citigroup rose 5% year over year to $11.5 billion. Continued investments in the franchise transformation and other strategic investments resulted in the upsurge. These were partly negated by efficiency savings.

Balance Sheet Improves

At the end of the third quarter, Citigroup’s end-of-period assets totaled $2.36 trillion, up 1% sequentially. Deposits were up 3% from the prior quarter’s numbers to $1.35 trillion. The company’s loans fell 2% to $665 billion.

Honed Credit Quality

Citigroup’s costs of credit for the September-ended quarter were a negative $0.2 billion against $2.4 billion recorded in the year-earlier quarter. This reflected on the release of allowance for credit loss reserves, backed by higher portfolio credit quality and an improved macroeconomic outlook.

Total non-accrual assets declined 25% year over year to $4 billion. The company reported a fall of 6% in consumer non-accrual loans to $1.6 billion. Also, corporate non-accrual loans of $2.4 billion plunged 33%.

Citigroup’s total allowance for loan losses was $17.7 billion at the end of the reported quarter, or 2.69% of total loans compared with $26.4 billion, or 4%, recorded in the year-ago period.

Capital Position Solid

At the end of the July-September period, Citigroup’s Common Equity Tier 1 Capital ratio was flat at 11.7%. The company’s supplementary leverage ratio in the reported quarter was at 5.8%, down from 6.8%.

As of Sep 30, 2021, book value per share was $92.6, up 9% year over year and tangible book value per share was $79.07, up 10%.

Capital Deployment

In the reported quarter, Citigroup repurchased 4 million common shares and returned $4 billion to shareholders in forms of common stock repurchases and dividends.

Our Viewpoint

The company delivered decent results this time around on reduced costs of credit. Solid equity market revenues and investment banking business aided the bank despite being unfavourably impacted by lower fixed income revenues. The company displays capital strength, reflecting decent liquidity.

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, rising operating expenses are a concern 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.

Earnings Date of Other Banks

KeyCorp (KEY - Free Report) and BankUnited, Inc.  (BKU - Free Report) are scheduled to release quarterly numbers on Oct 21, while Fifth Third Bancorp (FITB - Free Report) will report on Oct 19.

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