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Citigroup's (C) Q3 Earnings Beat Estimates, Expenses Rise

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Citigroup (C - Free Report) delivered a positive earnings surprise of 1% in third-quarter 2019, backed by improved investment banking performance. Adjusted earnings per share of $1.98 outpaced the Zacks Consensus Estimate of $1.96. Also, earnings climbed 20% year over year.

The stock declined 1.4% in pre-market trading, reflecting investors’ disappointment with the results. Notably, the full-day trading session will depict a better picture.

Including one-time gain, net income was $4.9 billion or $2.07 per share compared with $4.6 billion or $1.73 per share recorded in the prior-year quarter.

Citigroup displayed revenue strength, riding on consumer banking during the reported quarter. Further, loan and deposit growth was a positive. Also, investment banking revenues jumped on strong advisory business and higher debt underwriting, partly offset by lower equity underwriting fees.

However, lower equity market revenues amid a challenging trading environment reflect reduced volumes and client activity levels.

Citigroup’s costs of credit for the September-ended quarter were up 6% year over year to $2.09 billion. This upswing largely underlines elevated net credit losses of $1.9 billion and a credit reserve build of $158 million, and provision for benefits and claims of $17 million.

Revenues Increase, Expenses Escalate

Revenues were up 1% year over year to $18.6 billion in the third quarter. The reported figure matched with the Zacks Consensus Estimate. Higher revenues from Institutional Clients Group (“ICG”) mainly led to the upside.

Global Consumer Banking (“GCB”) revenues increased marginally year over year to $8.7 billion. Higher revenues in North and Asia GCB led to this upsurge. Notably, rise in card revenues was partially offset by lower Retail Banking revenues.

In the ICG segment, revenues came in at $9.5 billion in the quarter, up 3% year over year. Investment banking and treasury & trade solutions supported the upsurge, whereas corporate lending, equity market revenues and fixed income market revenues fell.

Corporate/Other revenues came in at $402 million, down 18% from the prior-year quarter. This fall stemmed from the winding down of legacy assets.

Operating expenses at Citigroup rose 1% year over year to $10.5 billion. Volume-driven growth and continued investments were partially offset by efficiency savings and the winding down of legacy assets.

Strong Balance Sheet

At the end of the quarter, Citigroup’s end of period assets were $2.02 trillion, up 1% sequentially. The company’s loans were almost flat sequentially at $692 billion. Deposits were up 4% from the prior quarter to $1.09 trillion.

Credit Quality Improves

Total non-accrual assets decreased 6% year over year to $3.8 billion. The company’s consumer non-accrual loans declined 8% to $2.2 billion. Furthermore, corporate non-accrual loans of $1.5 billion slipped 1%.

Citigroup’s total allowance for loan losses was $12.5 billion at the end of the quarter, or 1.82% of total loans compared with $12.3 billion or 1.84% recorded a year ago.

Solid Capital Position

At the end of the July-September quarter, Citigroup’s Common Equity Tier 1 Capital ratio was 11.6%, down from the prior-year quarter’s 11.7%. The company’s supplementary leverage ratio for the quarter came in at 6.3%, down from 6.5%.

As of Sep 30, 2019, book value per share was $81.02, up 11% year over year, and tangible book value per share was $69.03, up 12%.

Capital Deployment

During the third quarter, the company bought back about 76 million of common stock and returned around $6.3 billion to common shareholders as common stock repurchases and dividends.

Our Viewpoint

Citigroup reported impressive results despite being unfavorably impacted by lower equity market revenues and a challenging trading environment. The company exhibits capital strength, which continues to support its dividend and share buyback program.

One can consider Citigroup to be a sound investment option over the long term, given its global footprint and attractive core business. Additionally, the company’s prospects look encouraging amid rising revenues, and anticipated ease of regulations.

Nevertheless, several legal hassles weigh on the company. Furthermore, higher credit costs and expenses are concerns.

Citigroup Inc. Price, Consensus and EPS Surprise

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

Performance of Other Banks

Goldman Sachs (GS - Free Report) reported third-quarter 2019 negative earnings surprise of 4.8%. The company reported earnings per share of $4.79, missing the Zacks Consensus Estimate of $5.03. Further, the bottom-line figure compares unfavorably with earnings of $6.28 per share recorded in the year-earlier quarter.

Better-than-expected underwriting business performance, rise in mortgage banking fees and higher bond trading income drove JPMorgan’s (JPM - Free Report) third-quarter 2019 earnings of $2.68 per share, which outpaced the Zacks Consensus Estimate of $2.44.

First Republic Bank’s (FRC - Free Report) third-quarter 2019 earnings per share of $1.31 surpassed the Zacks Consensus Estimate of $1.21. Also, the bottom line improved 10.1% from the year-ago quarter.

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