Citi leans on cost cuts and consumers as trading sputters

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At Citigroup, bean counting and consumer banking are in ascendance. Trading, not so much.

The lender cut costs deeper than analysts expected while its consumer division posted its strongest second-quarter since 2013. Together, that outshined the firm’s Wall Street operations, where dealmakers eked out a surprise increase in revenue from underwriting debt while traders struggled.

“We have good momentum and solid growth across our consumer franchise, particularly in the U.S.,” Chief Executive Michael Corbat said Monday in a news release. “We navigated an uncertain environment successfully by executing our strategy.”

Citigroup shares climbed 0.8% at 8:15 a.m. in early New York trading.

The results from Citigroup, the first giant U.S. bank to report earnings for the quarter, underscore how rough it is getting for traders even with stocks reaching record highs. Markets keep getting jolted by President Trump’s unpredictable threats to ratchet up tariffs on countries such as China and Mexico, as well as the Federal Reserve’s shifting stance on interest rates. That has sent investing clients to the sidelines, taking a toll on banks matching buyers and sellers.

At Citigroup, revenue from trading has dropped for three straight quarters compared with year-earlier periods. This time, it slipped roughly 5%, excluding a one-time gain on a stake in Tradeweb Markets, which held an initial public offering. The decline was worse than analysts projected.

Citigroup’s struggle to improve efficiency and earnings from consumers was a sore spot for shareholders as the year began. Investors are paying particular attention to costs after companywide revenue climbed less than % in 2018. Unable to rein in expenses fast enough, executives missed their own cost target, hurting their credibility with analysts.

Corbat has projected the firm can save as much as $600 million annually after investing in technologies to run operations. The second quarter marked progress, with expenses down 2% to $10.5 billion — almost $100 million lower than the average estimate from analysts.

Investment banking revenue dropped 10% to $1.28 billion. That was slightly better than analysts estimated, helped by a surprise 2% gain in fees from underwriting debt. Revenue from advising on mergers and acquisitions slumped 36%.

The situation in the consumer business improved in the second quarter as it added $3 billion in deposits and as cardholder spending jumped 6%. Altogether, revenue from consumer banking climbed 3% to $8.51 billion, surpassing analysts’ projections. Revenue in those operations had stagnated in this year’s first three months.

Competitors JPMorgan Chase, Wells Fargo and Goldman Sachs Group are set to report results Tuesday, with Bank of America and Morgan Stanley following later in the week.

Here are other key numbers from the quarter:

  • Citigroup set aside $2.09 billion to cover the cost of souring loans, a 16% increase that was in line with analysts’ estimates. Citigroup attributed the increase to additional spending on cards as well as “normalization” in credit quality within the institutional business.
  • Total revenue climbed 2% to $18.8 billion including the $350 million gain tied to Tradeweb, an electronic trading platform. Analysts had projected $18.5 billion.
  • Net income rose 7% to $4.8 billion. Earnings per share excluding the gain on Tradeweb were $1.83. Analysts had estimated adjusted per-share earnings of $1.80.
Bloomberg News
Earnings Consumer banking Credit cards Revenue and expenses Michael Corbat Citigroup