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Higher Rates & Trading to Aid Citi's (C) Q1 Earnings, IB to Hurt
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Citigroup (C - Free Report) is scheduled to report first-quarter 2023 results on Apr 14, 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 missed the Zacks Consensus Estimate on higher cost of credit. Nonetheless, the bank witnessed growth in revenues in the quarter, backed by higher revenues in the Institutional Clients Group, as well as the Personal Banking and Wealth Management segments.
Over the trailing four quarters, C’s earnings surpassed the consensus estimate in three of the trailing four quarters and missed in the other, the surprise being 12.44%, on average.
Major Factors to Influence Q1 Results
Loans & Net Interest Income (NII): Lending activities decelerated in the to-be-reported quarter. Per the Fed’s latest data, real estate loans, consumer loans, and commercial and industrial loans witnessed muted demand. This likely resulted from the bank runs and recessionary fears in the first week of March.
The Federal Reserve has continued tightening its monetary policy (though the pace has slowed), raising the interest rates by another 50 basis points in the quarter under review. Thus, the policy rate reached 4.75-5% in March 2023, the highest since 2008. This is likely to have had a favorable impact on C’s net interest margin (NIM) and NII. Nonetheless, the inversion of the yield curve in the March-ended quarter is expected to have weighed on NIM to some extent.
We project a NII of $10.9 billion for the quarter.
Fee Income: Global deal-making continued to shrink in the first quarter, with deal volume and total deal value numbers crashing in the first quarter. Geopolitical tensions, inflation, rising interest rates and fears of a global recession likely acted as headwinds for merger and acquisition deals.
Similarly, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline, too, as investors turned pessimistic. These are expected to have affected Citigroup’s investment banking (IB) income. We anticipate IB income of $773.4 million for the quarter.
Market volatility and client activity were robust in the first quarter. Several factors, including continued supply-chain disruptions, bank runs, fears of an economic downturn and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation led to ambiguity among investors. These factors led to heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange, thereby supporting the company’s markets revenues.
The Zacks Consensus Estimate for total non-interest income is pegged at $7.3 billion, indicating a sequential rise of 54.5%. Our estimate for the same stands at $7.9 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.
Hence, expenses are expected to have increased as Citigroup has continued to ramp up its transformation and modernization efforts in the first quarter. Our estimate for non-interest expenses stands at $13.82 billion.
Asset Quality: With the expectations of economic slowdown due to geopolitical and macroeconomic headwinds, C is expected to have built reserves in the first quarter. Our estimate for provision for credit losses is pegged at $1.32 billion, whereas it reported a provision of $755 million a year ago.
Key Developments During the Quarter
Progressing with its global consumer banking exits, Citigroup announced the completion of the sale of its Vietnam retail banking and consumer credit card businesses to United Overseas Bank Limited or UOB.
Citigroup also closed the sale of its India consumer business to Axis Bank Limited. The deal was announced in March 2022. The sale includes retail banking, credit cards, wealth management and consumer loans, as well as the transfer of around 3,200 Citi employees.
The transaction is anticipated to result in a regulatory capital release of $1.4 billion.
What Our Model Predicts
According to our quantitative model, the chances of Citigroup beating the Zacks Consensus Estimate for earnings this time are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
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 +0.12%.
Zacks Rank: Citigroup currently carries a Zacks Rank of 3.
Prior to the first-quarter earnings release, the company’s earnings estimates have been revised downward, indicating bearish analyst sentiment. The Zacks Consensus Estimate for first-quarter earnings of $1.67 has been revised 1.7% lower over the past week. It suggests a 17.3% year-over-year decline. Our estimate for earnings stands at $1.40.
The Zacks Consensus Estimate for revenues of $19.96 billion implies a 4.1% rise from the prior-year quarter’s reported number. Our estimate for total revenues is pegged at $18.91 billion.
Management expects first-quarter 2023 revenues (excluding 2022 and 2023 divestiture-related impacts) to be up in the mid-single-digit range. For first-quarter 2023, expenses (excluding 2022 and 2023 divestiture-related impacts) are expected to be up in the mid-single-digit range.
Stocks That Warrant a Look
Comerica (CMA - Free Report) and Wells Fargo & Company (WFC - Free Report) are a couple of bank stocks that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for Comerica is +0.16% and the company carries a Zacks Rank #3 at present. CMA is slated to report first-quarter 2022 results on Apr 20.
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Higher Rates & Trading to Aid Citi's (C) Q1 Earnings, IB to Hurt
Citigroup (C - Free Report) is scheduled to report first-quarter 2023 results on Apr 14, 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 missed the Zacks Consensus Estimate on higher cost of credit. Nonetheless, the bank witnessed growth in revenues in the quarter, backed by higher revenues in the Institutional Clients Group, as well as the Personal Banking and Wealth Management segments.
Over the trailing four quarters, C’s earnings surpassed the consensus estimate in three of the trailing four quarters and missed in the other, the surprise being 12.44%, on average.
Major Factors to Influence Q1 Results
Loans & Net Interest Income (NII): Lending activities decelerated in the to-be-reported quarter. Per the Fed’s latest data, real estate loans, consumer loans, and commercial and industrial loans witnessed muted demand. This likely resulted from the bank runs and recessionary fears in the first week of March.
The Federal Reserve has continued tightening its monetary policy (though the pace has slowed), raising the interest rates by another 50 basis points in the quarter under review. Thus, the policy rate reached 4.75-5% in March 2023, the highest since 2008. This is likely to have had a favorable impact on C’s net interest margin (NIM) and NII. Nonetheless, the inversion of the yield curve in the March-ended quarter is expected to have weighed on NIM to some extent.
We project a NII of $10.9 billion for the quarter.
Fee Income: Global deal-making continued to shrink in the first quarter, with deal volume and total deal value numbers crashing in the first quarter. Geopolitical tensions, inflation, rising interest rates and fears of a global recession likely acted as headwinds for merger and acquisition deals.
Similarly, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline, too, as investors turned pessimistic. These are expected to have affected Citigroup’s investment banking (IB) income. We anticipate IB income of $773.4 million for the quarter.
Market volatility and client activity were robust in the first quarter. Several factors, including continued supply-chain disruptions, bank runs, fears of an economic downturn and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation led to ambiguity among investors. These factors led to heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange, thereby supporting the company’s markets revenues.
The Zacks Consensus Estimate for total non-interest income is pegged at $7.3 billion, indicating a sequential rise of 54.5%. Our estimate for the same stands at $7.9 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.
Hence, expenses are expected to have increased as Citigroup has continued to ramp up its transformation and modernization efforts in the first quarter. Our estimate for non-interest expenses stands at $13.82 billion.
Asset Quality: With the expectations of economic slowdown due to geopolitical and macroeconomic headwinds, C is expected to have built reserves in the first quarter. Our estimate for provision for credit losses is pegged at $1.32 billion, whereas it reported a provision of $755 million a year ago.
Key Developments During the Quarter
Progressing with its global consumer banking exits, Citigroup announced the completion of the sale of its Vietnam retail banking and consumer credit card businesses to United Overseas Bank Limited or UOB.
Citigroup also closed the sale of its India consumer business to Axis Bank Limited. The deal was announced in March 2022. The sale includes retail banking, credit cards, wealth management and consumer loans, as well as the transfer of around 3,200 Citi employees.
The transaction is anticipated to result in a regulatory capital release of $1.4 billion.
What Our Model Predicts
According to our quantitative model, the chances of Citigroup beating the Zacks Consensus Estimate for earnings this time are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
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 +0.12%.
Zacks Rank: Citigroup currently carries a Zacks Rank of 3.
Prior to the first-quarter earnings release, the company’s earnings estimates have been revised downward, indicating bearish analyst sentiment. The Zacks Consensus Estimate for first-quarter earnings of $1.67 has been revised 1.7% lower over the past week. It suggests a 17.3% year-over-year decline. Our estimate for earnings stands at $1.40.
The Zacks Consensus Estimate for revenues of $19.96 billion implies a 4.1% rise from the prior-year quarter’s reported number. Our estimate for total revenues is pegged at $18.91 billion.
Management expects first-quarter 2023 revenues (excluding 2022 and 2023 divestiture-related impacts) to be up in the mid-single-digit range. For first-quarter 2023, expenses (excluding 2022 and 2023 divestiture-related impacts) are expected to be up in the mid-single-digit range.
Stocks That Warrant a Look
Comerica (CMA - Free Report) and Wells Fargo & Company (WFC - Free Report) are a couple of bank stocks that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for Comerica is +0.16% and the company carries a Zacks Rank #3 at present. CMA is slated to report first-quarter 2022 results on Apr 20.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for CMA’s first-quarter earnings has moved marginally south over the past week.
Wells Fargo is scheduled to release first-quarter results on Apr 14. WFC currently has an Earnings ESP of +6.32% and a Zacks Rank #3.
The Zacks Consensus Estimate for WFC’s first-quarter earnings has moved south over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.