Citigroup's Results Climb, Buoyed by Consumer Bank -- 3rd Update
October 12 2017 - 12:57PM
Dow Jones News
By Telis Demos
Citigroup Inc. boosted third-quarter profit by slashing
expenses, even as it grappled with challenges in its credit-card
business.
The bank reported net income of $4.13 billion, up 7.6% from a
year ago, while earnings per share rose to $1.42. The per-share
figure was up handily from $1.24 a year ago and topped analyst
expectations for $1.32 a share. The result beat forecasts even
excluding a one-time gain of 13 cents a share from the sale of a
business.
Citigroup also said quarterly revenue increased 2.3% from a year
ago to $18.17 billion. That surpassed analysts' forecasts for
$17.89 billion.
Citigroup has been the best-performing stock among the biggest
U.S. banks so far in 2017, thanks in large part to its commitment
earlier this year to a plan to return some $60 billion to
shareholders by 2020.
But the bank continues to lag behind rivals on some measures,
such as return on equity, and its share price remains well below
where it once traded before the financial crisis. On Thursday,
Citigroup shares fell 2.3% to $73.25 in midday trading.
Citigroup's return on equity was 7.3% in the third quarter,
aided by a buyback of more than 200 million shares over the past
year.
While up from 6.8% in the prior quarter and a year ago, that
return is still far below the 10% level that marks a bank's
theoretical cost of capital. Citigroup hasn't topped that hurdle
consistently in years.
Revenue climbed most sharply in Citigroup's Wall Street and
corporate banking unit, where a jump in investment banking offset a
decline in trading revenue.
Institutional banking revenue increased 9% from a year ago to
$9.231 billion, offsetting an 11% decline in trading revenue, to
$3.63 billion. Trading was hurt by a 16% drop in fixed-income
markets, which banks had expected because of low volatility.
The bank also cut costs across the board, posting a 2% decline
in expenses from last year to $10.17 billion. When coupled with
Citigroup's revenue gain, the bank's efficiency ratio -- a measure
of expenses versus total revenue -- fell to 56% from 59% in the
prior quarter and a year earlier.
Lower expenses were helped in part by a further decline in the
number of branches to 2,474 globally from 2,648 a year ago. The
size of the bank's staff also shrank by 3% from a year ago to
213,000.
Citigroup's consumer banking business delivered a mixed
performance. Global consumer banking revenue grew 3% from a year
ago to $8.43 billion, led by a 10% gain in Mexico and 6% growth
across Asia.
North American retail banking revenue, excluding legacy
mortgages, rose 12% from a year ago to $1.178 billion. Even as it
cuts branches, Citigroup has added more wealth-management services
for its upscale customer base.
However, credit cards held the unit back. Revenue from branded
cards, which Citigroup markets directly to consumers, declined 1%
from a year ago.
Previously, the bank had been suggesting that the second half of
2017 would deliver growth in cards after years of investments, such
as paying to take on the card business of Costco Wholesale
Corp.
"As late as June, we believed that we'd be able to deliver some
year-over-year revenue growth," Chief Financial Officer John
Gerspach told analysts on Thursday. But he added that the bank was
seeing tough competition in cards, where banks have been offering
increasingly generous inducements.
Mr. Gerspach said he still expected the bank's newest products,
such as the Costco cards, to eventually deliver healthy growth. "In
trying to build this balance portfolio, we're going to need to make
adjustments as we go along," he added.
Citigroup also said it added $50 million in reserves for
card-loan losses related to recent hurricanes and $300 million for
what it described as a sooner-than-expected uptick in loan losses
next year.
Those moves helped dampen profit in consumer banking overall,
which was down by 6% from a year ago.
The bank's overall portfolio of loans grew 2% from a year ago,
including a strong 6% gain in corporate loans. And the
interest-rate environment is still a challenge. Citigroup's net
interest margin, or a measure of how much it makes from borrowing
and lending money, fell to 2.72% from 2.86% a year ago.
Write to Telis Demos at telis.demos@wsj.com
(END) Dow Jones Newswires
October 12, 2017 12:42 ET (16:42 GMT)
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