Citigroup trims costs 3%, exceeding expectations

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Citigroup Inc. found some bond-trading success in a rough quarter for its rivals.

In a dramatic ending to what was widely seen on Wall Street as a tough quarter, the bank’s fixed-income traders managed to boost revenue 1% from a year earlier, withstanding a slump that ensnared rivals JPMorgan Chase & Co. and Goldman Sachs Group Inc.

Citigroup credited resilient demand for spread products, but said it also fared well with products tied to interest rates — a category JPMorgan said last week suffered from lower investor activity. That helped Citi’s fixed-income unit narrow the gap with JPMorgan’s franchise, which still ranks No. 1.

Just a month ago, firms including Citigroup took turns publicly warning that their traders were off to a bad start this year after market swoons in December left many clients clinging to the sidelines. JPMorgan said Friday that fixed-income trading revenue fell 8%, excluding accounting adjustments last year. Earlier Monday, Goldman said it fell 11%, albeit a bit better than analysts estimated.

“We don’t feel as though the market has fully recovered,” Citigroup Chief Financial Officer Mark Mason told investors March 12, warning that total trading revenue would drop by a percentage in the high single digits. But markets have “stabilized,” he said.

Traders handling fixed-income products, currencies and commodities generated $3.45 billion, countering disappointing results from their colleagues in equities, where revenue slumped 24% to $842 million. Combined, trading was down 5.2%.

Citigroup’s investment bankers boosted revenue 20%, joining JPMorgan and Goldman Sachs in surpassing expectations. But revenue growth stalled in the consumer division, an area where shareholders have been told to watch for acceleration this year.

After the lender spent years expanding credit card offerings and retail banking services, the division’s slowing revenue growth has been frustrating analysts. Citigroup President Jamie Forese said last week he was leaving the company after he struggled to have his voice heard on strategy for the sprawling division, a person familiar with the matter told Bloomberg at the time.

In a potentially foreboding sign for the division, the firm set aside $1.98 billion to cover souring consumer loans during the first quarter as the unit’s net credit losses climbed 10%. Card loans are “seasoning” in the U.S., the bank said, using an industry term signifying some increase was to be anticipated after a period in which the bank signed up more borrowers. Citigroup has said it plans to use its status as the world’s largest credit card issuer to sell customers other products and services, such as online checking accounts.

“Our strategy in North America consumer banking is showing good early results as we introduce new products and engage with a broader range of customers, through digital channels,” Chief Executive Michael Corbat said in a statement on Monday announcing earnings.

Here are other highlights from Citigroup’s results:

Net income climbed 2% to $4.71 billion, or $1.87 a share. That topped the $1.80 average of analyst estimates compiled by Bloomberg. Firmwide revenue during the first quarter slipped 2% to $18.58 billion, in line with analysts’ estimates.

Costs fell 3% to $10.58 billion, a bigger drop than analysts had expected. Total revenue from investment banking amounted to $1.35 billion. Debt underwriting brought in $804 million, a 15% increase that topped estimates and countered weakness from the equity capital markets division.

Advisory revenues surged 76% to $378 million, compared with the $307 million analysts projected. The firm’s efficiency ratio — a key measure of profitability that shows how much it costs to produce a dollar of revenue — improved to 57%. It was 57.8% in the final months of last year.

Bloomberg News