CITIGROUP beat Wall Street estimates for third-quarter profit on Tuesday, helped by stronger investment banking revenue and transactions with multinational companies as well as higher earnings from wealth management.
Trading profits gained only 2 percent over a year ago but fell 27 percent against the previous quarter, mainly due to a drop in equity trading revenue.
Wall Street banks are navigating a volatile market backdrop as the conflict in Iran pushed oil prices higher, fueling inflation and prompting the US Federal Reserve to raise interest rates and bond markets worldwide to sell off dramatically.
“There is no doubt that high interest rates and the threat of continued Fed hikes are weighing on trading and IB activity in a measurably negative vector,” said Brian Mulberry, chief market strategist at Zacks Investment Management.
But he noted Citi was able to drive positive growth from multiple business units, such as services and wealth management.
Shares of the bank were down 3.2 percent in midday trading after the results, reversing gains in early trading. Citi’s shares have risen 9 percent this year, outperforming the broader bank stock index.
Citi’s investment banking revenue increased 9 percent from a year ago to $1.35 billion but fell 13 percent over the previous quarter as equity and debt underwriting activity slowed.
Although activity decelerated from the record volume in previous quarters, Citigroup CEO Jane Fraser said the pipeline for the following months is still strong in M&A, debt refinancing and equity issuance.
Citigroup posted an 11.5 percent return on tangible common equity, or Rotce, in the third quarter and a year-to-date return of 12.6 percent, ahead of its 11 percent target.
“We expect to exceed this year’s return target, even as we pull forward investments toward our 11-13 percent near-term goal — the next waypoints on our path to sustainable returns of 14-15 percent,” Fraser said in a statement.
Rival JPMorgan Chase’s third-quarter profit increased on Tuesday, while Wells Fargo’s profit rose, helped by growth in its loan book and higher interest income.
Citi reported a profit of $2.85 per share in the third quarter, beating analysts’ estimate of $2.66 per share, according to data compiled by LSEG.
The bank said it has returned $4.1 billion to shareholders, including buybacks and dividends in the third quarter, accumulating share repurchases of $13.3 billion this year.
The bank is now waiting for the final capital rules to be able to predict volumes of future stock repurchases.
Investment banking, trading revenue
slows from Q2
Global investment banking revenue exceeded $90 billion in the first nine months of the year, and Citi was placed fifth among global banks by fees during the period, according to Dealogic.
Citi’s banking revenue, which includes corporate lending, was up 6 percent, at $1.74 billion. But equity and debt issuance slowed late in the quarter.
US government bond yields rose to multi-decade highs in September, affecting capital markets. Companies such as Oura Ring, Holtec Nuclear and SB Energy postponed planned IPOs.
Fraser told analysts the equity market activity is concentrated on issues by public companies, known as follow-ons.
“The IPO market continues to be a bit more selective,” the CEO added.
Citigroup’s equity underwriting revenue fell 19 percent from the second quarter, though still 77 percent higher compared to a year earlier.
Fraser also expects debt markets to be active, with large refinancing transactions by corporations.
Markets were volatile in the third quarter and trading revenue rose 6 percent compared to a year ago to $6.11 billion. Revenue with equities trading rose 14 percent, while fixed-income trading revenue was up 4 percent.
But the bank had 13 percent lower trading revenue compared with the second quarter. Those trading revenues were off this quarter as fixed income and commodities revenues were down,” Mulberry said.
Services had the highest growth in the third quarter among Citi’s five businesses, with 15 percent higher revenue and 27 percent profit growth. Wealth management also grew revenue by 15 percent and increased client assets by the same percentage.
