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Citigroup (C) Beats on Q1 Earnings, Trading Revenues Climb

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Citigroup Inc. (C - Free Report) delivered a positive earnings surprise of 8.9% in first-quarter 2017, riding on higher revenues. The company’s earnings per share of $1.35 outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10. Notably, results reflect one-time adjustments of 1 cent.

Income from continuing operations was $4.12 billion, up 17% from the prior-year quarter.

The quarter witnessed rise in overall revenues, driven by higher market revenues, supported by an improved trading environment. Both rates and currencies, along with spread products, improved. Moreover, results reflected prudent expense management.

Further, Citigroup’s costs of credit for the first quarter were down 19% year over year to $1.67 billion. The decline largely reflects loan loss reserve release of $77 million. In addition, reduced provision for benefits and claims, and slight decline in net credit losses were also favorable.

Higher Market Revenues & Continued Cost Control

Revenues increased 3% year over year to $18.12 billion in first-quarter 2017. The rise reflected higher revenues in institutional clients group and global consumer banking, partially offset by decline in corporate/other revenues. The revenue figure also surpassed the Zacks Consensus Estimate of $17.81 billion.

At Institutional Clients Group (ICG), revenues came in at $9.13 billion in the quarter, up 16% year over year. Notably, revenues from total banking, and total markets & securities services climbed 14% and 18% on a year-over-year basis, respectively.

Global Consumer Banking (GCB) revenues inched up 1% year over year, mainly driven by higher revenues in North America and Asia GCB. The rise was partially offset by a decline in Latin America GCB revenues.

Corporate/Other revenues were $1.18 million, plunging 40% from the prior-year quarter. The decline mainly reflected legacy asset runoff and divestiture activity, along with reduced revenue from treasury-related hedging activity.

Operating expenses at Citigroup were slightly down year over year to $10.48 billion. However, expenses increased 1% (in constant dollars).

Strong Balance Sheet

At quarter end, Citigroup’s end of period assets was $1.82 trillion, up 1% year over year. The company’s loans grew 2% year over year at $629 billion. Deposits increased 2% year over year to $950 billion.

Credit Quality Improved

Total non-accrual assets decreased 11% year over year to $5.5 billion. The company reported a decline of 18% in consumer non-accrual loans to $3.0 billion. However, corporate non-accrual loans of $2.3 billion went up 1% from the prior-year period.

Citigroup’s total allowance for loan losses was $12.0 billion at quarter end, or 1.93% of total loans, down from $12.7 billion, or 2.07%, in the year-ago period.

Strong Capital Position

At the end of the reported quarter, Citigroup’s Common Equity Tier 1 Capital ratio was 12.8%, increasing from 12.3% in the prior-year quarter. The company’s supplementary leverage ratio for the reported quarter was 7.3%, down from 7.4% in the prior-year quarter.

As of Mar 31, 2017, book value per share was $75.86 and tangible book value per share was $65.94, up 6% and 5%, respectively, from the prior-year period.

Our Viewpoint

Results reflected an impressive quarter for Citigroup. Furthermore, restructuring efforts, including streamlining moves, should continue to ease its burden on the expense base. The company exhibits capital strength that continues to support its dividend and a share buyback program.

One can consider a strong brand like Citigroup to be a sound investment option over the long term, given its global footprint and attractive core business. Further, the company’s growth looks encouraging amid the rising rate environment as well as potential ease of regulations under Donald Trump’s administration.

However, several legal hassles remain concerns for the company.

Currently, Citigroup carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Citigroup Inc. Price, Consensus and EPS Surprise

Citigroup Inc. Price, Consensus and EPS Surprise | Citigroup Inc. Quote

Performance of other Stocks

Driven by net interest income, Wells Fargo & Company’s (WFC - Free Report) first-quarter 2017 earnings recorded a positive surprise of about 3.1%. Earnings of $1.00 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, it compared favorably with the prior-year quarter’s earnings of 99 cents per share.

Among other Wall Street giants, U.S. Bancorp (USB - Free Report) is scheduled to report first-quarter 2017 earnings on Apr 19, while Comerica Incorporated (CMA - Free Report) will report on Apr 18.

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