Citi beats estimates as trading windfall offsets higher credit costs

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Citigroup’s revenue from fixed-income trading surged 68%, beating the most optimistic analyst estimates and keeping the bank solidly profitable in the second quarter as it set aside $7.9 billion for souring loans.

The $5.6 billion windfall from trading bonds, currencies and commodities was even greater than what the firm generated in the year’s first three months, when the pandemic set off a flood of client transactions. Combined with cost cuts, it helped the bank salvage a $1.3 billion profit, albeit one that was 73% lower than a year earlier, as the lender braced for a wave of potential defaults amid lockdowns on commerce.

“While credit costs weighed down our net income, our overall business performance was strong,” CEO Michael Corbat said Tuesday in a news release announcing results. “We have been able to navigate the COVID-19 pandemic reasonably well.”

It’s another snapshot of how Wall Street giants such as Citigroup are leaning on volatile businesses to offset mounting signs of distress from lending operations, where the virus has left consumers and corporate customers struggling. The question is whether the hot streak in trading will last through the economic pain to come.

Earlier Tuesday, JPMorgan Chase posted record trading revenue for the second straight quarter, bolstering results at the biggest U.S. bank, whose consumer lending division is grappling with business closures and swelling unemployment. Wells Fargo, meanwhile, posted its first quarterly loss since 2008 and slashed its dividend. The San Francisco-based bank doesn’t have the kind of Wall Street trading operations that can help mitigate declines elsewhere.

Citigroup said it has already provided relief — such as waiving fees or extending deadlines — for 2 million accounts in its massive credit card portfolio, representing about 6% of balances. Spending on the firm’s cards slumped almost 25% as consumers worldwide were forced to stay inside for much of the quarter to stem the spread of the deadly virus. Card balances declined 7.4%.

Meanwhile, corporate clients drew an additional $15 billion from existing credit facilities at the bank, even as others repaid $26 billion taken out earlier.

Citigroup’s total cost of credit more than tripled during the quarter. The figure includes the addition of $5.6 billion to the bank’s allowance for loan losses and a 12% jump in net write-offs to $2.2 billion.

Overall, earnings per share fell 74% to 50 cents, topping the 49-cent average estimate of analysts tracked by Bloomberg.

The company also said that osts fell 1% to $10.4 billion and equities trading revenue fell 2.5% to $770 million, short of analysts’ estimates. Advisory revenue dropped 1.3% to $229 million, beating projections. Capital markets teams also topped expectations, bringing in revenue of $1.5 billion.

The firm’s treasury and trade solutions unit, which helps large corporations move money and pay suppliers, saw revenue drop 11% to $2.3 billion.

Bloomberg News
Earnings Credit quality Citigroup Michael Corbat Coronavirus