C Citigroup Inc

Trading revenue falls but does better than rivals, and fixed-income rises from a year ago

By Telis Demos 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 16, 2019).

Citigroup Inc. said its first-quarter profit rose 2% from a year ago, boosted by growth in U.S. consumer banking and solid trading performance compared with rivals.

The bank posted a quarterly profit of $4.7 billion, or $1.87 a share. Analysts polled by Refinitiv had expected $1.80 a share.

Revenue was $18.6 billion, down 2% from $18.9 billion a year ago. Analysts expected $18.6 billion.

Citigroup, like its big-bank rivals, is aiming to bounce back from a tough fourth quarter. Its vast trading unit has been struggling in unfavorable market conditions, adding a fresh challenge to the bank's plan to meet a series of aggressive financial goals over the next two years.

First-quarter trading revenue at the bank fell 5% to $4.3 billion. Citigroup and other banks have warned that client activity in early 2019 still hasn't rebounded after evaporating at the end of last year.

But Citigroup did better than rivals in the first quarter. Trading revenue at Goldman Sachs Group Inc. and JPMorgan Chase & Co. was both down 17% or more from a year ago. Notably, Citigroup's huge fixed-income business rose 1% from a year ago to $3.5 billion.

Investment-banking revenue rose 20% from a year ago, to $1.4 billion, thanks to a 76% surge in mergers-and-acquisitions advisory revenue. Citigroup, whose core business is day-to-day global transaction banking for large global companies, has been trying to parlay those relationships into more big-deal assignments.

Citigroup is back in growth mode after spending much of the decade since the financial crisis regaining strength. Chief Executive Michael Corbat has been shuffling the bank's leadership team to put the emphasis on growth, after years of shrinking and restructuring.

Tougher markets and choppy global growth aren't making that any easier. To account up for revenue pressure and to stay on track to meet its return targets, Citigroup has been cutting expenses. Its expenses were $10.6 billion for the first quarter, down 3% from a year ago. The bank slashed its marketing and advertising budget by 6%.

"We're going to pull whatever levers we need to pull to get to the return targets that we've set," Chief Financial Officer Mark Mason told analysts Monday.

Citigroup said it still expects to produce a 12% return this year on its tangible common equity, a key measure of banking profitability. That figure was 11.9% in the first quarter. Citigroup trails rivals such as JPMorgan, whose return on common equity was 19% the first quarter.

Ultimately, however, Citigroup is counting on a major turnaround in its consumer business, particularly U.S. credit cards and retail banking, to boost its overall returns.

That effort bore fruit in the latest quarter. U.S. consumer-banking revenue of $5.2 billion was up 4% from a year earlier, after adjusting for the sale of a co-brand credit-card portfolio. The proprietary U.S. credit-card unit was up 5% from a year ago, to $2.2 billion.

The bank had given many consumers interest-free borrowing offers to build the business, but that cost it interest income. Now, many of those offers have rolled off, and the same balances are now making money.

Citigroup also said it was also seeing some success in its efforts to gin up consumer deposits outside of the big U.S. cities where it has branches, such as New York and San Francisco. The bank said it added $1 billion in deposits in digital accounts in the first quarter.

North American average deposits were 1% higher than a year ago. Still, that was lower than growth at JPMorgan, where average consumer deposits were up 3% from a year ago.

The picture is different outside of North America. Adjusting for currency rates, international consumer banking grew 3% from a year ago. In good times, Citigroup's stronger international presence gives it an edge over domestically focused U.S. rivals. But when global growth slows, it is more vulnerable.

In Mexico, Citigroup's largest market outside the U.S., "we have begun to see a slowdown" in growth and lending volume, Mr. Mason said.

Write to Telis Demos at telis.demos@wsj.com

(END) Dow Jones Newswires

April 16, 2019 02:47 ET (06:47 GMT)

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