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Citi Aims to Gain From Higher M&A Deals & Low Costs in 2019

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Recently, at an industry conference, Citigroup’s (C - Free Report) CFO Mark Mason said that he was bullish about achieving the cost control targets in 2019. Also, he stressed the importance of technology in the business. However, Mason remained pessimistic about the market’s impact on Equities and Fixed Income business in the first quarter of 2019.

He noted that expenses are expected to be lower in first quarter compared with the year-ago quarter. However, the costs incurred in the first half of 2019 are expected to be higher due to rise in compensation-related expenses.

Notably, the company is likely to deliver additional productivity benefits and savings of $500-$600 million in 2019 and 2020. Also, significant improvement in operating efficiency is expected in 2019.

Mason said that even though the market is stable at the moment, it has not fully recovered. Thus, when comparing the current quarter’s fixed income and equity trading performance with the last year’s quarter, revenues are expected to be down in “high single digits”.

Moreover, a pickup in Investment Banking revenues is expected in the first quarter on a year-over-year basis as M&As and debt issuance activities are gaining strength.

With regard to technology, Mason stated, “We are aggressively investing in going after technology one, to improve our capabilities; two, to kind of deepen our relationship with our clients; three, to enhance some of our processes and improve our productivity and strengthen our controls.”

The company considers technology to be an important part of its future growth, and thus it is expected to continue spending 20% of its total expense base on it.

Citigroup’s restructuring, streamlining efforts and strategic investments in core business will likely support profitability. Further, we believe that the company is well poised to address its internal inefficiencies and setbacks. However, muted fee income growth and persistent legal hassles remain concerns.

Over the past three months, the stock has gained 14.1% compared with 9.6% growth recorded by the industry.

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

Stocks to Consider 

Fifth Third Bancorp (FITB - Free Report) has witnessed slight upward estimate revisions for current-year earnings over the past 30 days. Over the past three months, the company’s share price has been up more than 17%. It currently carries a Zacks Rank of 2 (Buy).

Webster Financial Corporation’s (WBS - Free Report) current-year earnings estimates have been revised slightly upward for the past 30 days. In addition, the stock has jumped more than 10% over the past three months. It currently carries a Zacks Rank of 2.

Bank of Hawaii Corporation (BOH - Free Report) has witnessed nearly 1% upward estimate revision for current-year earnings over the past 60 days. Also, the company’s shares have risen nearly 15% over the past three months. It currently carries a Zacks Rank #2.

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