Citigroup profit jumps 40% with higher investment banking, services and wealth revenue

Citigroup’s C-N third-quarter profit rose 40 per cent compared to a year earlier, helped by stronger investment banking revenue and transactions with multinational companies as well as higher wealth management earnings.

Trading profits gained only 2 per cent over a year ago and fell 27 per cent 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, fuelling inflation concerns and prompting the U.S. Federal Reserve to raise interest rates and bond markets worldwide to sell off dramatically.

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Shares of the bank fell about 1.4 per cent in premarket trading after the results.

Citi’s investment banking revenue increased 9 per cent from a year ago to US$1.35-billion but fell 13 per cent over the previous quarter as equity and debt underwriting activity slowed.

Profit increased to US$5.25-billion, or US$2.85 per share, in the three months ended Sept. 30, the third-largest U.S. lender reported on Tuesday. This compares with US$3.8-billion, or US$1.86 per share, a year earlier. But the bank’s net income was 10-per-cent lower in the third quarter compared with the second.

Citigroup posted an 11.5-per-cent return on tangible common equity, or ROTCE, in the third quarter and a year-to-date return of 12.6 per cent, ahead of its 11-per-cent target.

“We expect to exceed this year’s return target, even as we pull forward investments toward our 11-13% near-term goal — the next waypoints on our path to sustainable returns of 14-15%,” CEO Jane 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’s shares have risen 13 per cent this year, outperforming the broader bank stock index.

The bank said it has returned US$4.1-billion to shareholders including buybacks and dividends in the third quarter, accumulating share repurchases of US$13.3-billion this year.

Bank stocks have come under pressure in recent weeks as a sharp rise in bond yields raised concerns that higher borrowing and funding costs could weigh on loan growth and deal making.

Investment banking, trading revenue slows from Q2

Global investment banking revenue exceeded US$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 per cent, at US$1.74-billion. But equity and debt issuance slowed late in the quarter.

U.S. 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.

Citigroup’s equity underwriting revenue fell 19 per cent from the second quarter, though still 77-per-cent higher compared to a year earlier.

Markets were volatile in the third quarter and trading revenue rose 6 per cent compared to a year ago to US$6.11-billion. Revenue with equities trading rose 14 per cent, while fixed-income trading revenue was up 4 per cent.

But the bank had 13-per-cent lower trading revenue compared with the second quarter.

Services had the highest growth in the third quarter among Citi’s five businesses, with 15-per-cent growth in revenue and 27-per-cent profit growth. Wealth management also grew revenue by 15 per cent and increased client assets by the same percentage.

Lower profits with credit cards

Citi’s profit with credit cards fell 8 per cent in the third quarter from a year earlier. Clients spent 13 per cent more and took 9-per-cent higher loan volumes as the U.S. economy has continued to expand at a solid pace, supported by resilient consumer spending and business investment.

But Citi’s profit with cards fell due to higher reward costs and payments to partners, as well as credit provisions.

Loss provisions in its U.S. consumer cards segment were US$1.9-billion in the quarter, 4-per-cent above a year ago, as borrowers deal with moderating wage growth, inflation and higher interest rates.

The New York-based bank is nearing the end of a multiyear restructuring in which it sold international businesses, simplified the organization and worked on fixing compliance, controls and data deficiencies.

Citi is seeking to rapidly resolve its efforts to address regulatory demands that have long dogged the bank, in order to fully refocus on growth.

The last divestment to be completed is from its Mexican unit Banamex. Citi now owns 51 per cent of Banamex and expects to take it out of its balance sheet and list it on the stock exchange next year.