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Citigroup's (C) Streamlining Effort Aids Amid Cost Woes
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Citigroup Inc.’s (C - Free Report) efforts to streamline its core business internationally and diversifying its sources of fee revenues are likely to support its financials. Also, decent liquidity and capital deployment activities are tailwinds. However, escalating costs, muted non-interest income and legal hassles are concerning for the company.
The wall street biggie has been downsizing its consumer banking business internationally to pursue investments in wealth management operations in UK, Singapore, Hong Kong, UAE and London. In April 2021, it announced its strategic action to exit from 13 markets across Asia as well as Europe, Middle East and Africa. Currently, the company has divested businesses in nine markets while completing sales in seven markets. In addition to the above, the company will also exit its consumer banking business in UK, Russia and Mexico. These efforts will free up capital and likely augment its profitability and efficiency over the long term.
Citigroup’s net interest income and net yield on interest-earning assets are expected to be benefited from the projections of high interest rates in the near term. We estimate NII to increase to $1.65 billion in the current year. These factors would aid revenue growth in the upcoming period.
Citigroup has been focusing on diversifying its sources of fee revenues across the institutional clients group segment. Hence, the company has been investing in growth opportunities across wealth and commercial banking, treasury and trade solutions and securities service businesses. These efforts are likely to bolster its position in the digital industry.
As of Mar 31, 2023, Citigroup had long-term debt of $279.7 billion, lower than its cash and due from banks as well as deposits with banks, net of allowance of $328.9 billion. With sufficient cash levels and the company’s senior debt enjoying investment-grade credit ratings, the company has a decent liquidity position. This along with a strong capital base will support its capital deployment activities, thus, enhancing shareholder value and stoking investors’ confidence in the stock.
However, Citigroup’s top-line growth has been affected by the declining non-interest income over the years, primarily due to lower commissions and fees. The continued normalization in investment banking activity and lower market valuations on assets under custody and administration are other headwinds.
C’s expenses have been rising over the years as it has been revamping its underlying technology, risk management and internal controls. Apart from these, inflated expenses on compensation, technology and Asia divestitures keep the bottom-line growth under pressure. We estimate expenses to grow 14.7% in the current year.
The company is also affected by the legal hassles as it continues to encounter many investigations and lawsuits from investors and regulators. As it continues to work through its legal issues, we believe that the company might witness elevated regulatory expenses and litigation provisions, which will hurt its financials in the near term.
Shares of this Zacks Rank #3 (Hold) company have gained 3.5% against a decline of 6.4% recorded by its industry over the past six months.
The Zacks Consensus Estimate for OFG’s 2023 earnings has been revised 3.3% upward over the past 60 days. The stock has declined 5% over the past six months.
The consensus estimate for CASH’s fiscal 2023 earnings has been revised 1.8% upward over the past 30 days. The company’s share price has increased 11% over the past six months.
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Citigroup's (C) Streamlining Effort Aids Amid Cost Woes
Citigroup Inc.’s (C - Free Report) efforts to streamline its core business internationally and diversifying its sources of fee revenues are likely to support its financials. Also, decent liquidity and capital deployment activities are tailwinds. However, escalating costs, muted non-interest income and legal hassles are concerning for the company.
The wall street biggie has been downsizing its consumer banking business internationally to pursue investments in wealth management operations in UK, Singapore, Hong Kong, UAE and London. In April 2021, it announced its strategic action to exit from 13 markets across Asia as well as Europe, Middle East and Africa. Currently, the company has divested businesses in nine markets while completing sales in seven markets. In addition to the above, the company will also exit its consumer banking business in UK, Russia and Mexico. These efforts will free up capital and likely augment its profitability and efficiency over the long term.
Citigroup’s net interest income and net yield on interest-earning assets are expected to be benefited from the projections of high interest rates in the near term. We estimate NII to increase to $1.65 billion in the current year. These factors would aid revenue growth in the upcoming period.
Citigroup has been focusing on diversifying its sources of fee revenues across the institutional clients group segment. Hence, the company has been investing in growth opportunities across wealth and commercial banking, treasury and trade solutions and securities service businesses. These efforts are likely to bolster its position in the digital industry.
As of Mar 31, 2023, Citigroup had long-term debt of $279.7 billion, lower than its cash and due from banks as well as deposits with banks, net of allowance of $328.9 billion. With sufficient cash levels and the company’s senior debt enjoying investment-grade credit ratings, the company has a decent liquidity position. This along with a strong capital base will support its capital deployment activities, thus, enhancing shareholder value and stoking investors’ confidence in the stock.
However, Citigroup’s top-line growth has been affected by the declining non-interest income over the years, primarily due to lower commissions and fees. The continued normalization in investment banking activity and lower market valuations on assets under custody and administration are other headwinds.
C’s expenses have been rising over the years as it has been revamping its underlying technology, risk management and internal controls. Apart from these, inflated expenses on compensation, technology and Asia divestitures keep the bottom-line growth under pressure. We estimate expenses to grow 14.7% in the current year.
The company is also affected by the legal hassles as it continues to encounter many investigations and lawsuits from investors and regulators. As it continues to work through its legal issues, we believe that the company might witness elevated regulatory expenses and litigation provisions, which will hurt its financials in the near term.
Shares of this Zacks Rank #3 (Hold) company have gained 3.5% against a decline of 6.4% recorded by its industry over the past six months.
Image Source: Zacks Investment Research
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance sector are OFG Bancorp (OFG - Free Report) and Pathward Financial Inc. (CASH - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for OFG’s 2023 earnings has been revised 3.3% upward over the past 60 days. The stock has declined 5% over the past six months.
The consensus estimate for CASH’s fiscal 2023 earnings has been revised 1.8% upward over the past 30 days. The company’s share price has increased 11% over the past six months.