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NII, Trading to Aid Citi (C) Q4 Earnings, Provisions to Hurt
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Citigroup (C - Free Report) is scheduled to report fourth-quarter and full-year 2022 results on Jan 13, before market open. While the company’s quarterly earnings are expected to have witnessed a year-over-year decline, its revenues are likely to have increased.
In the last reported quarter, the company’s adjusted earnings surpassed the Zacks Consensus Estimate on solid net interest income (NII) growth. However, declines in investment banking (IB) revenues, loans and deposits were the headwinds.
Over the trailing four quarters, C’s earnings surpassed the consensus estimate in each of the trailing four quarters, the surprise being 15.4%, on average.
Loans & NII: Per the Fed’s latest data, there was a slight moderation in wholesale and consumer lending in October and November, with real estate loans holding ground. These are likely to have driven decent loan growth for Citigroup.
The Zacks Consensus Estimate for average interest-earning assets is pegged at $2.19 trillion, suggesting a nearly 1% increase from the prior quarter’s reported figure.
In the fourth quarter, the Fed continued to hike interest rates. Hence, decent loan growth and interest rate hikes are likely to have modestly aided the bank’s NII and net interest margin (NIM) in the quarter.
For the fourth quarter, management anticipates NII (excluding markets) to be up in the range of $1.5-$1.8 billion year over year.
The Zacks Consensus Estimate for NII of $12.54 billion suggests a slight decrease from the prior quarter’s reported figure. We project NII to be $12.62 billion for the quarter.
Fee Income: The IB business continued to be under immense pressure in the fourth quarter due to a contraction in capital markets activities, heightened market volatility and ambiguity. With companies veering away from M&As, as well as debt and equity issuances, revenues from Citigroup’s IB business are expected to have remained muted.
In early December 2022, the company CEO, Jane Fraser, at the Goldman Sachs financial conference stated that because of the weak IB performance, IB fees will likely plunge 60% year over year in the fourth quarter. We anticipate IB income to be $982.3 million.
Additionally, Citigroup completely terminated overdraft fees, returned item fees and overdraft protection fees last summer, which is expected to have hindered fee income in the fourth quarter.
On the other hand, trading revenues are likely to have improved in the to-be-reported quarter, driven by surprisingly robust trading activities. The bank expects quarterly markets revenues to increase 10% year over year.
The Zacks Consensus Estimate for total non-interest income is pegged at $5.35 billion, indicating a sequential decline of 10%. Our estimate for the same stands at $5.09 billion.
Expenses: Management has been focused on revamping 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. The company has been investing in businesses like wealth management, IB, and treasury and trade solutions as well.
Hence, expenses are expected to have increased as Citigroup continued to ramp up its transformation efforts and modernization in the fourth quarter.
Our estimate for non-interest expenses stands at $12.93 billion.
Asset Quality: With the moderate rise in loan balance and expectations of economic slowdown due to geopolitical and macroeconomic headwinds, C is expected to have built reserves in the fourth quarter. Our estimate for provision for credit losses is pegged at $1.14 billion against a provision benefit of $465 million a year ago.
The Zacks Consensus Estimate for total non-accrual loans of $2.48 billion implies a 13.9% decrease from the prior quarter.
Key Developments During the Quarter
Progressing with its global consumer banking exits, Citigroup's Russia subsidiary, AO Citibank, sold a portfolio of ruble-denominated personal installment loans to Uralsib, a local commercial bank. With this, Citigroup also transferred a portfolio of ruble-denominated credit card balances to Uralsib.
Additionally, C completed the sale of its Malaysia and Thailand retail banking and consumer credit card businesses to United Overseas Bank Limited’s subsidiaries. The sale is expected to result in a regulatory capital benefit of $1 billion.
Further, Citigroup wrapped up the sale of its Bahrain consumer business to Ahli United Bank B.S.C. The transaction is anticipated to result in a regulatory capital benefit of $40 million
During the fourth quarter, Citigroup announced plans to wind down its consumer banking business in China. Around 1,200 employees will be affected by the move. While the company intends to pursue the sale of portfolios within its Chinese retail banking business, it has plans to exit the institutional business in the country.
What Our Model Predicts
Our proven model does not predict an earnings beat for C this time around. This is because it does not have the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase 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 -5.10%.
Zacks Rank: Citigroup currently carries a Zacks Rank of 3.
Prior to the fourth-quarter earnings release, the company’s earnings estimates have been revised downward, indicating bearish analyst sentiment. The Zacks Consensus Estimate for fourth-quarter earnings of $1.18 has been revised 4.8% lower over the past week. It suggests a 19.2% year-over-year decline. Our estimate for earnings stands at $1.29, reflecting a 12% decrease.
The Zacks Consensus Estimate for revenues of $17.90 billion implies a 5.2% rise from the prior-year quarter’s reported number. Our estimate for total revenues is $17.72 billion, up 4.1%.
Management expects 2022 revenues to rise in the low-single-digit range (excluding 2022 divestiture related impacts). Further, expenses are projected to increase 7-8%, excluding the 2021 and 2022 divestiture impacts.
Stocks That Warrant a Look
Here are a couple of 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 The Bank of New York Mellon Corporation (BK - Free Report) is +6.31% and it carries a Zacks Rank #3, at present. The company is slated to report fourth-quarter and full-year 2022 results on Jan 13.
Over the past seven days, BK’s Zacks Consensus Estimate for quarterly earnings has moved 3.5% north.
Image: Bigstock
NII, Trading to Aid Citi (C) Q4 Earnings, Provisions to Hurt
Citigroup (C - Free Report) is scheduled to report fourth-quarter and full-year 2022 results on Jan 13, before market open. While the company’s quarterly earnings are expected to have witnessed a year-over-year decline, its revenues are likely to have increased.
In the last reported quarter, the company’s adjusted earnings surpassed the Zacks Consensus Estimate on solid net interest income (NII) growth. However, declines in investment banking (IB) revenues, loans and deposits were the headwinds.
Over the trailing four quarters, C’s earnings surpassed the consensus estimate in each of the trailing four quarters, the surprise being 15.4%, on average.
Citigroup Inc. Price and EPS Surprise
Citigroup Inc. price-eps-surprise | Citigroup Inc. Quote
Major Factors to Influence Q4 Results
Loans & NII: Per the Fed’s latest data, there was a slight moderation in wholesale and consumer lending in October and November, with real estate loans holding ground. These are likely to have driven decent loan growth for Citigroup.
The Zacks Consensus Estimate for average interest-earning assets is pegged at $2.19 trillion, suggesting a nearly 1% increase from the prior quarter’s reported figure.
In the fourth quarter, the Fed continued to hike interest rates. Hence, decent loan growth and interest rate hikes are likely to have modestly aided the bank’s NII and net interest margin (NIM) in the quarter.
For the fourth quarter, management anticipates NII (excluding markets) to be up in the range of $1.5-$1.8 billion year over year.
The Zacks Consensus Estimate for NII of $12.54 billion suggests a slight decrease from the prior quarter’s reported figure. We project NII to be $12.62 billion for the quarter.
Fee Income: The IB business continued to be under immense pressure in the fourth quarter due to a contraction in capital markets activities, heightened market volatility and ambiguity. With companies veering away from M&As, as well as debt and equity issuances, revenues from Citigroup’s IB business are expected to have remained muted.
In early December 2022, the company CEO, Jane Fraser, at the Goldman Sachs financial conference stated that because of the weak IB performance, IB fees will likely plunge 60% year over year in the fourth quarter. We anticipate IB income to be $982.3 million.
Additionally, Citigroup completely terminated overdraft fees, returned item fees and overdraft protection fees last summer, which is expected to have hindered fee income in the fourth quarter.
On the other hand, trading revenues are likely to have improved in the to-be-reported quarter, driven by surprisingly robust trading activities. The bank expects quarterly markets revenues to increase 10% year over year.
The Zacks Consensus Estimate for total non-interest income is pegged at $5.35 billion, indicating a sequential decline of 10%. Our estimate for the same stands at $5.09 billion.
Expenses: Management has been focused on revamping 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. The company has been investing in businesses like wealth management, IB, and treasury and trade solutions as well.
Hence, expenses are expected to have increased as Citigroup continued to ramp up its transformation efforts and modernization in the fourth quarter.
Our estimate for non-interest expenses stands at $12.93 billion.
Asset Quality: With the moderate rise in loan balance and expectations of economic slowdown due to geopolitical and macroeconomic headwinds, C is expected to have built reserves in the fourth quarter. Our estimate for provision for credit losses is pegged at $1.14 billion against a provision benefit of $465 million a year ago.
The Zacks Consensus Estimate for total non-accrual loans of $2.48 billion implies a 13.9% decrease from the prior quarter.
Key Developments During the Quarter
Progressing with its global consumer banking exits, Citigroup's Russia subsidiary, AO Citibank, sold a portfolio of ruble-denominated personal installment loans to Uralsib, a local commercial bank. With this, Citigroup also transferred a portfolio of ruble-denominated credit card balances to Uralsib.
Additionally, C completed the sale of its Malaysia and Thailand retail banking and consumer credit card businesses to United Overseas Bank Limited’s subsidiaries. The sale is expected to result in a regulatory capital benefit of $1 billion.
Further, Citigroup wrapped up the sale of its Bahrain consumer business to Ahli United Bank B.S.C. The transaction is anticipated to result in a regulatory capital benefit of $40 million
During the fourth quarter, Citigroup announced plans to wind down its consumer banking business in China. Around 1,200 employees will be affected by the move. While the company intends to pursue the sale of portfolios within its Chinese retail banking business, it has plans to exit the institutional business in the country.
What Our Model Predicts
Our proven model does not predict an earnings beat for C this time around. This is because it does not have the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase 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 -5.10%.
Zacks Rank: Citigroup currently carries a Zacks Rank of 3.
Prior to the fourth-quarter earnings release, the company’s earnings estimates have been revised downward, indicating bearish analyst sentiment. The Zacks Consensus Estimate for fourth-quarter earnings of $1.18 has been revised 4.8% lower over the past week. It suggests a 19.2% year-over-year decline. Our estimate for earnings stands at $1.29, reflecting a 12% decrease.
The Zacks Consensus Estimate for revenues of $17.90 billion implies a 5.2% rise from the prior-year quarter’s reported number. Our estimate for total revenues is $17.72 billion, up 4.1%.
Management expects 2022 revenues to rise in the low-single-digit range (excluding 2022 divestiture related impacts). Further, expenses are projected to increase 7-8%, excluding the 2021 and 2022 divestiture impacts.
Stocks That Warrant a Look
Here are a couple of 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 The Bank of New York Mellon Corporation (BK - Free Report) is +6.31% and it carries a Zacks Rank #3, at present. The company is slated to report fourth-quarter and full-year 2022 results on Jan 13.
Over the past seven days, BK’s Zacks Consensus Estimate for quarterly earnings has moved 3.5% north.
Citizens Financial Group (CFG - Free Report) is scheduled to release fourth-quarter and full-year 2022 earnings on Jan 17. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.37%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CFG’s quarterly earnings estimates have moved almost 1% lower over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.