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Citigroup (C - Free Report) is scheduled to report second-quarter 2023 results on Jul 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 earnings beat the Zacks Consensus Estimate on higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.
Over the trailing four quarters, C’s earnings surpassed the consensus estimate thrice and missed once, the surprise being 12.43%, on average.
Loans & Net Interest Income (NII): As the economy cooled down in the quarter,lending activity also slowed. Per the Fed’s latest data, real estate loans, consumer loans, and commercial and industrial loans witnessed muted demand in April and May relative to first-quarter 2023.
The Federal Reserve raised the interest rates by another 25 basis points in the quarter under review. Thus, the policy rate reached 5-5.25% in June 2023. While high interest rates typically drive NII for banks, asset-liability mismatches have caused notable damage to the industry.
Moreover, Citigroup is expected to have seen rising funding costs due to an unfavorable deposit mix. This, along with waning loan demand, is expected to have taken a toll on its net interest margin (NIM) and NII in the quarter. We project the NII to decline 10.8% sequentially to $11.9 billion for the quarter.
Fee Income: Global dealmaking declined year over year in the second quarter, with lower deal volume and total deal value numbers. Stand-off over the U.S. debt ceiling Inflation, rising interest rates and fears of a global recession likely acted as headwinds for merger and acquisition deals in the quarter.
Notably, at an industry conference in mid-June, Mark Mason, the chief financial officer of Citigroup, said that trading revenues and investment banking (IB) revenues had been down 20% and 25%, respectively, from the start of the quarter under review.
A year ago, the company’s trading desk benefited from heightening volatility due to interest rate hikes and the Ukraine war. However, the Congressional debate over the debt ceiling affected client activities in the second quarter, dampening the market activity levels.
Also, with a more challenging economic environment and a gloomy dealmaking volume, the company’s IB revenues have declined in second-quarter 2023. We anticipate IB income of $726.6 million for the quarter.
Our estimate for total non-interest income is pegged at $7.87 billion, indicating a sequential decline of 2.7%.
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.
Also, a slowdown in business activities compelled the bank to reduce headcounts primarily in the banking, markets and functions divisions, and manage expenses.
Management expected the recent job cuts to cause expenses to climb as much as $400 million in second-quarter 2023 from the first quarter. Mason expects the bank's expenses in the second quarter of 2023 to be $300-$400 million higher sequentially, primarily attributed to severance costs tied to the leaving of 1,600 employees.
Hence, expenses are expected to have increased at Citigroup. Our estimate for non-interest expenses stands at $13.73 billion.
Asset Quality: With the expectations of an economic slowdown due to macroeconomic headwinds, commercial bankruptcies and card delinquencies are expected to have affected Citigroup’s asset quality in the quarter. With this, C is expected to have built reserves in the second quarter. Our estimate for provision for credit losses is pegged at $1.84 billion, whereas it reported a provision of $1.27 billion a year ago.
Share Repurchases:The bank suspended common share repurchases from third-quarter 2022 through first-quarter 2023 in anticipation of any temporary negative capital impacts related to the potential sale of Banamex in Mexico. But in the quarter under review, management announced that it expected to repurchase $1 billion in shares for the quarter. Share repurchases during the quarter are expected to have aided bottom-line growth for the company.
Key Quarterly Developments
More than a year after announcing plans to exit Banamex in Mexico, Citigroup decided to pursue an IPO of the business. The bank has been pursuing a carve-out of the ICG business since announcing the plan to exit the business through a sale or a public market alternative. The company expects the separation of the businesses to be completed in the second half of 2024 and the IPO to take place in 2025.
Banamex will continue to be reported as part of the bank’s continuing operations until the ownership falls below a 50% voting interest, at which point it will be deconsolidated.
What Our Model Predicts
According to our quantitative model, the chances of Citigroup beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have 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 -7.72%.
Prior to the second-quarter earnings release, the company’s earnings estimates have been revised downward, indicating bearish analyst sentiment. The Zacks Consensus Estimate for second-quarter earnings of $1.67 has been revised marginally downward over the past week. It suggests a 37% year-over-year decline. Our estimate for earnings is pinned at $1.44.
The Zacks Consensus Estimate for revenues of $19.67 billion implies a marginal rise from the prior-year quarter’s reported number. Our estimate for total revenues is pegged at $19.78 billion.
Stocks That Warrant a Look
M&T Bank Corporation (MTB - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) are a couple of bank stocks that you may 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 M&T Bank is +1.84% and the company carries a Zacks Rank #3 at present. MTB is slated to report second-quarter 2022 results on Jul 19.
The Zacks Consensus Estimate for MTB’s second-quarter earnings has moved 1.8% south over the past month.
PNC Financialis scheduled to release second-quarter results on Jul 18. PNC currently has an Earnings ESP of +2.20% and a Zacks Rank #3.
The Zacks Consensus Estimate for PNC’s second-quarter earnings has moved marginally south over the past month.
Image: Bigstock
Muted Trading & IB, Cost Hike to Hurt Citigroup (C) Q2 Earnings
Citigroup (C - Free Report) is scheduled to report second-quarter 2023 results on Jul 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 earnings beat the Zacks Consensus Estimate on higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.
Over the trailing four quarters, C’s earnings surpassed the consensus estimate thrice and missed once, the surprise being 12.43%, on average.
Citigroup Inc. Price and EPS Surprise
Citigroup Inc. price-eps-surprise | Citigroup Inc. Quote
Major Factors to Influence Q2 Results
Loans & Net Interest Income (NII): As the economy cooled down in the quarter,lending activity also slowed. Per the Fed’s latest data, real estate loans, consumer loans, and commercial and industrial loans witnessed muted demand in April and May relative to first-quarter 2023.
The Federal Reserve raised the interest rates by another 25 basis points in the quarter under review. Thus, the policy rate reached 5-5.25% in June 2023. While high interest rates typically drive NII for banks, asset-liability mismatches have caused notable damage to the industry.
Moreover, Citigroup is expected to have seen rising funding costs due to an unfavorable deposit mix. This, along with waning loan demand, is expected to have taken a toll on its net interest margin (NIM) and NII in the quarter. We project the NII to decline 10.8% sequentially to $11.9 billion for the quarter.
Fee Income: Global dealmaking declined year over year in the second quarter, with lower deal volume and total deal value numbers. Stand-off over the U.S. debt ceiling Inflation, rising interest rates and fears of a global recession likely acted as headwinds for merger and acquisition deals in the quarter.
Notably, at an industry conference in mid-June, Mark Mason, the chief financial officer of Citigroup, said that trading revenues and investment banking (IB) revenues had been down 20% and 25%, respectively, from the start of the quarter under review.
A year ago, the company’s trading desk benefited from heightening volatility due to interest rate hikes and the Ukraine war. However, the Congressional debate over the debt ceiling affected client activities in the second quarter, dampening the market activity levels.
Also, with a more challenging economic environment and a gloomy dealmaking volume, the company’s IB revenues have declined in second-quarter 2023. We anticipate IB income of $726.6 million for the quarter.
Our estimate for total non-interest income is pegged at $7.87 billion, indicating a sequential decline of 2.7%.
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.
Also, a slowdown in business activities compelled the bank to reduce headcounts primarily in the banking, markets and functions divisions, and manage expenses.
Management expected the recent job cuts to cause expenses to climb as much as $400 million in second-quarter 2023 from the first quarter. Mason expects the bank's expenses in the second quarter of 2023 to be $300-$400 million higher sequentially, primarily attributed to severance costs tied to the leaving of 1,600 employees.
Hence, expenses are expected to have increased at Citigroup. Our estimate for non-interest expenses stands at $13.73 billion.
Asset Quality: With the expectations of an economic slowdown due to macroeconomic headwinds, commercial bankruptcies and card delinquencies are expected to have affected Citigroup’s asset quality in the quarter. With this, C is expected to have built reserves in the second quarter. Our estimate for provision for credit losses is pegged at $1.84 billion, whereas it reported a provision of $1.27 billion a year ago.
Share Repurchases:The bank suspended common share repurchases from third-quarter 2022 through first-quarter 2023 in anticipation of any temporary negative capital impacts related to the potential sale of Banamex in Mexico. But in the quarter under review, management announced that it expected to repurchase $1 billion in shares for the quarter. Share repurchases during the quarter are expected to have aided bottom-line growth for the company.
Key Quarterly Developments
More than a year after announcing plans to exit Banamex in Mexico, Citigroup decided to pursue an IPO of the business. The bank has been pursuing a carve-out of the ICG business since announcing the plan to exit the business through a sale or a public market alternative. The company expects the separation of the businesses to be completed in the second half of 2024 and the IPO to take place in 2025.
Banamex will continue to be reported as part of the bank’s continuing operations until the ownership falls below a 50% voting interest, at which point it will be deconsolidated.
What Our Model Predicts
According to our quantitative model, the chances of Citigroup beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have 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 -7.72%.
Zacks Rank: Citigroup currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Prior to the second-quarter earnings release, the company’s earnings estimates have been revised downward, indicating bearish analyst sentiment. The Zacks Consensus Estimate for second-quarter earnings of $1.67 has been revised marginally downward over the past week. It suggests a 37% year-over-year decline. Our estimate for earnings is pinned at $1.44.
The Zacks Consensus Estimate for revenues of $19.67 billion implies a marginal rise from the prior-year quarter’s reported number. Our estimate for total revenues is pegged at $19.78 billion.
Stocks That Warrant a Look
M&T Bank Corporation (MTB - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) are a couple of bank stocks that you may 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 M&T Bank is +1.84% and the company carries a Zacks Rank #3 at present. MTB is slated to report second-quarter 2022 results on Jul 19.
The Zacks Consensus Estimate for MTB’s second-quarter earnings has moved 1.8% south over the past month.
PNC Financialis scheduled to release second-quarter results on Jul 18. PNC currently has an Earnings ESP of +2.20% and a Zacks Rank #3.
The Zacks Consensus Estimate for PNC’s second-quarter earnings has moved marginally south over the past month.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.