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Citigroup, the third-largest U.S. lender, exceeded Wall Street expectations for its second-quarter profit, reporting a profit of $1.52 per share for the three months ended June 30.
According to LSEG data, this performance surpassed analysts’ expectations of $1.39 per share. A significant increase in investment banking, markets, and services revenue drove the stronger results.
Mixed Investor Reactions:
Despite the strong earnings report, Citigroup’s shares fell by 2%, reflecting investor concerns about the bank’s expenses, dividends, and market share.
Warren Kornfeld, a senior vice president in Moody’s Ratings’ financial institutions group, noted that while the results highlighted the strength of the services sector, Citigroup still faces challenges in broadening its market share and reducing expenses in other segments.
Regulatory Challenges and Fines:
The positive earnings report came just two days after U.S. regulators fined Citigroup $136 million for making “insufficient progress” in addressing data management problems identified in 2020. Regulators also required the bank to demonstrate it was allocating sufficient resources to these efforts.
Conference Call Highlights:
During a conference call with analysts, Citigroup CEO Jane Fraser and Chief Financial Officer Mark Mason addressed numerous questions regarding the bank’s share buyback and dividend plans in light of its regulatory issues.
The bank announced potential acquisitions of up to $1 billion in stock over the next quarter and clarified that regulators had not capped dividend payments to shareholders.
Fraser and Mason also discussed the bank’s ongoing efforts to address regulatory issues, particularly data quality-related issues. They emphasized the need to ensure that regulatory reports, which rely on thousands of data points, are accurate and do not require manual employee checks.
Strategic Overhaul and Cost-Cutting:
Jane Fraser is leading a comprehensive overhaul to improve Citigroup’s performance, cut costs, and simplify its sprawling operations. As part of this turnaround, the bank plans to decrease its workforce by 20,000 over the next two years.
Revenue Breakdown:
Citigroup’s revenue for the second quarter was $20.1 billion, a 4% increase from the previous year. This growth was partially driven by a $400 million gain from the conversion and partial sale of Visa stock in May.
The bank has started reporting earnings individually for its five business segments: services, markets, banking, U.S. personal banking, and wealth.
Investment banking fees surged 60% to $853 million, indicating a recovery in the deal-making sector. This increase contributed to a 38% rise in revenue for the banking division, including corporate lending.
Services revenue grew by 3% to $4.7 billion, with the treasury and trade solutions business highlighted as a key strength. Markets revenue increased by 6% to $5.1 billion, bolstered by a 37% rise in equities trading revenue.
Future Outlook:
Citigroup anticipates continued strong performance in debt issuance, mergers and acquisitions, and the initial public offering market. Mason noted that the M&A pipeline is particularly strong and could play a more significant role in the latter half of the year.
In a strategic move, Citigroup hired Viswas Raghavan, a veteran from JPMorgan Chase, as head of banking earlier this year to rejuvenate the division catering to multinational corporations.
While Citigroup has demonstrated robust performance in the second quarter, it faces ongoing challenges in regulatory compliance, market share expansion, and cost management. The bank’s strategic initiatives and leadership changes are expected to drive further improvements in the coming quarters.
