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IB to Aid Citigroup's (C) Q1 Earnings, High Costs to Hurt
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Citigroup Inc. (C - Free Report) is scheduled to report first-quarter 2024 results on Apr 12, before market open. The bank’s quarterly earnings and revenues are expected to have witnessed year-over-year declines.
In the last reported quarter, adjusted earnings per share surpassed the Zacks Consensus Estimate on growth in total loans and deposits. However, a decline in revenues and deteriorating credit quality were headwinds.
C’s earnings surpassed the consensus estimate in the trailing four quarters, delivering an average surprise of 13.08%.
Loans & NII: A stabilizing macroeconomic backdrop, along with the expectations of the Fed easing interest rates going forward, is likely to have offered some support to the lending scenario in the quarter. Notably, the demand for commercial and industrial loans, and real estate loans, specifically commercial real estate loans, improved from the fourth-quarter 2023 end, per the Fed’s latest data. Moreover, consumer lending showed signs of improvement.
This is likely to have driven Citigroup’s lending activities in the quarter, thereby improving average interest-earning assets. Notably, the Zacks Consensus Estimate for average interest-earning assets is pegged at $2.25 trillion, indicating a 1% increase from the prior quarter’s reported figure.
However, as the Federal Reserve kept the interest rates steady during the quarter (at a 22-year high of 5.25-5.5%), the company is less likely to have recorded significant improvement in net interest income (NII). Also, the inverted yield curve in the March-ended quarter and high funding costs are expected to have weighed on NII.
The Zacks Consensus Estimate for NII of $13.64 billion suggests a 1.4% decrease from the prior quarter’s reported figure. We project NII to be $13.71 billion for the quarter.
Fee Income: Global mergers and acquisitions bounced back in the first quarter of 2024, after discouraging performances in the past years. Deal value and volume witnessed remarkable increases, driven by solid financial performances, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions continue to act as headwinds.
Also, at an industry conference in March, C management noted an improvement in corporate client sentiments, merger activity and debt-underwriting business. However, the bank will have to wait for deal completions to boost its advisory fees.
With this, management expects investment banking ("IB") fees to sequentially improve in the low-teens range in first-quarter 2024.
Client activity was decent in the first quarter. The expectations of a soft landing of the U.S. economy, a gradual cool down of inflation and clarity on the Fed rate path drove the client activity.
Nonetheless, volatility was lower in the equity markets and other asset classes, including commodities, bonds and foreign exchange. Also, tougher comps from the prior year are expected to have weighed on its year-over-year performance.
Our estimates for equity markets’ revenues and fixed-income markets’ revenues are pegged at $1.09 billion and $3.96 billion, respectively, indicating 5.9% and 14.6% year-over-year declines.
Management expects markets’ revenues to reduce 8-12% in the first quarter from a strong comparable quarter in the prior year.
The consensus estimate for income from commissions and fees of $2.46 billion suggests an 11.35% increase from the prior quarter’s reported figure. We project the metric to be $2.49 billion for the quarter.
The Zacks Consensus Estimate for administration and other fiduciary fees of $958 million indicates a 3.5% increase on a sequential basis. We forecast the metric to be $974 million.
The consensus estimate for income from principal transactions of $2.39 billion suggests a 20.7% plunge from the prior quarter’s reported figure. We project the metric to be $3.05 billion for the quarter.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $6.67 billion, indicating a sequential rise of 85%. We estimate the metric to be $6.68 billion for the quarter.
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 Fed. Also, increased spending, specifically on severance costs related to its organizational overhaul and divestiture expenses, is likely to have inflated expenses and hampered bottom-line growth in first-quarter 2024.
Our estimate for non-interest expenses is pegged at $14.29 billion for the first quarter, implying a rise of 7.5% on a year-over-year basis.
Key Developments During the Quarter
In late March, Citigroup announced the completion of major actions to simplify its operating structure and improve performance, which were initially announced in September 2023.
According to management, “After having reset Citi’s strategy and undergone these consequential changes, we will continue to execute on our vision to be the preeminent banking partner for institutions with cross-border needs, a global leader in wealth and a valued personal bank in our home market and focus on our commitment to transform the company for the long term."
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 two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — that increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Citigroup is -18.71%.
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 $1.35 has been revised 4.9% lower over the past week. It suggests a 27.4% year-over-year decline.
Also, the Zacks Consensus Estimate for revenues of $20.3 billion implies a 5.4% decline from the year-ago reported level.
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:
Truist Financial (TFC - Free Report) is scheduled to release first-quarter 2024 earnings on Apr 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.83%.
TFC’s quarterly earnings estimates have been unchanged at 78 cents over the past week.
Image: Shutterstock
IB to Aid Citigroup's (C) Q1 Earnings, High Costs to Hurt
Citigroup Inc. (C - Free Report) is scheduled to report first-quarter 2024 results on Apr 12, before market open. The bank’s quarterly earnings and revenues are expected to have witnessed year-over-year declines.
In the last reported quarter, adjusted earnings per share surpassed the Zacks Consensus Estimate on growth in total loans and deposits. However, a decline in revenues and deteriorating credit quality were headwinds.
C’s earnings surpassed the consensus estimate in the trailing four quarters, delivering an average surprise of 13.08%.
Citigroup Inc. Price and EPS Surprise
Citigroup Inc. price-eps-surprise | Citigroup Inc. Quote
Major Factors to Influence Q1 Results
Loans & NII: A stabilizing macroeconomic backdrop, along with the expectations of the Fed easing interest rates going forward, is likely to have offered some support to the lending scenario in the quarter. Notably, the demand for commercial and industrial loans, and real estate loans, specifically commercial real estate loans, improved from the fourth-quarter 2023 end, per the Fed’s latest data. Moreover, consumer lending showed signs of improvement.
This is likely to have driven Citigroup’s lending activities in the quarter, thereby improving average interest-earning assets. Notably, the Zacks Consensus Estimate for average interest-earning assets is pegged at $2.25 trillion, indicating a 1% increase from the prior quarter’s reported figure.
However, as the Federal Reserve kept the interest rates steady during the quarter (at a 22-year high of 5.25-5.5%), the company is less likely to have recorded significant improvement in net interest income (NII). Also, the inverted yield curve in the March-ended quarter and high funding costs are expected to have weighed on NII.
The Zacks Consensus Estimate for NII of $13.64 billion suggests a 1.4% decrease from the prior quarter’s reported figure. We project NII to be $13.71 billion for the quarter.
Fee Income: Global mergers and acquisitions bounced back in the first quarter of 2024, after discouraging performances in the past years. Deal value and volume witnessed remarkable increases, driven by solid financial performances, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions continue to act as headwinds.
Also, at an industry conference in March, C management noted an improvement in corporate client sentiments, merger activity and debt-underwriting business. However, the bank will have to wait for deal completions to boost its advisory fees.
With this, management expects investment banking ("IB") fees to sequentially improve in the low-teens range in first-quarter 2024.
Client activity was decent in the first quarter. The expectations of a soft landing of the U.S. economy, a gradual cool down of inflation and clarity on the Fed rate path drove the client activity.
Nonetheless, volatility was lower in the equity markets and other asset classes, including commodities, bonds and foreign exchange. Also, tougher comps from the prior year are expected to have weighed on its year-over-year performance.
Our estimates for equity markets’ revenues and fixed-income markets’ revenues are pegged at $1.09 billion and $3.96 billion, respectively, indicating 5.9% and 14.6% year-over-year declines.
Management expects markets’ revenues to reduce 8-12% in the first quarter from a strong comparable quarter in the prior year.
The consensus estimate for income from commissions and fees of $2.46 billion suggests an 11.35% increase from the prior quarter’s reported figure. We project the metric to be $2.49 billion for the quarter.
The Zacks Consensus Estimate for administration and other fiduciary fees of $958 million indicates a 3.5% increase on a sequential basis. We forecast the metric to be $974 million.
The consensus estimate for income from principal transactions of $2.39 billion suggests a 20.7% plunge from the prior quarter’s reported figure. We project the metric to be $3.05 billion for the quarter.
Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $6.67 billion, indicating a sequential rise of 85%. We estimate the metric to be $6.68 billion for the quarter.
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 Fed. Also, increased spending, specifically on severance costs related to its organizational overhaul and divestiture expenses, is likely to have inflated expenses and hampered bottom-line growth in first-quarter 2024.
Our estimate for non-interest expenses is pegged at $14.29 billion for the first quarter, implying a rise of 7.5% on a year-over-year basis.
Key Developments During the Quarter
In late March, Citigroup announced the completion of major actions to simplify its operating structure and improve performance, which were initially announced in September 2023.
According to management, “After having reset Citi’s strategy and undergone these consequential changes, we will continue to execute on our vision to be the preeminent banking partner for institutions with cross-border needs, a global leader in wealth and a valued personal bank in our home market and focus on our commitment to transform the company for the long term."
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 two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — that increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Citigroup is -18.71%.
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 $1.35 has been revised 4.9% lower over the past week. It suggests a 27.4% year-over-year decline.
Also, the Zacks Consensus Estimate for revenues of $20.3 billion implies a 5.4% decline from the year-ago reported level.
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:
Truist Financial (TFC - Free Report) is scheduled to release first-quarter 2024 earnings on Apr 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.83%.
TFC’s quarterly earnings estimates have been unchanged at 78 cents over the past week.
Fifth Third Bancorp (FITB - Free Report) is scheduled to release first-quarter 2024 earnings on Apr 19. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.65%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FITB’s quarterly earnings estimates have been marginally revised upward over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.