Citi bond traders snap revenue slump on rates Trump blasted
The interest-rate moves stoking President Donald Trump’s ire are also fuelling Citigroup Inc’s profits. Client activity around the Federal Reserve’s hike in late September helped the bank post a surprise 9% jump in revenue from fixed-income trading in the third quarter. It marked the first increase since the start of 2017, offsetting weaker results from US consumer banking. Cost cuts inched the bank closer to a key efficiency target.
Shares of Citigroup rose 3.5% to $70.76 in New York. The stock had declined 8.1% this year through Thursday, trailing the 5.4% decline of the S&P 500 Financials Index.
Chief financial officer John Gerspach wasn’t so optimistic just four weeks ago, when he told investors that total trading would be flat to “slightly higher.” But a growing pile of evidence, such as stronger US payrolls, encouraged customers to prepare for higher interest rates - despite Trump’s repeated laments. Citigroup said yesterday that trading was boosted by rates and currencies, as well as spread products.
“Our results this quarter showed solid year- over-year revenue growth across many of our businesses, including fixed income,” Chief Executive Officer Michael Corbat said in a statement, pointing to that business before others.
Citigroup outshone its larger rival in the fixed-income business, JPMorgan, which posted fixed-income trading revenue that dropped more than analysts’ estimated. Still, JPMorgan said net interest income jumped to a record $13.9bn in the period, helped by rising interest rates and growth in loans.
Citigroup’s fixed- income traders had been on a losing streak. Revenue from handling bonds, currencies and commodities had dropped for five straight quarters, when compared with year- earlier periods. This time those desks generated $ 3.2bn, beating analysts’ predictions for revenue to be little changed at $ 2.95bn.
Revenue from rates and currencies gained 7% to $2.2bn, while trading of spread and other fixed-income products climbed 14% to $747mn.
An opposite picture emerged in the North American consumer business, which suffered a rare drop, with revenue down 1% to $5.1bn. The bank blamed trends including a decline in mortgage business, as well as the sale of its Hilton Worldwide Holdings Inc credit-card portfolio.
Other key units disappointed. Equities trading rose just 1%, falling short of the 5% increase predicted by analysts. Investment banking revenue slid 8%, more than analysts projected, hurt by a decline in underwriting fees.
To improve earnings, Corbat has been focusing on costs, whittling the bank’s workforce even as the company benefits from the US tax cuts Republicans pushed through in December. Last month, the bank defied skeptics by raising its forecasts for expense reductions and profitability.
The firm’s efficiency ratio – a measure of how much it costs to produce $1 of revenue – declined to 56.1% during the quarter. It was the first time this year that it didn’t spill over the bank’s 57% target for all of 2018.
Citigroup has said it will cut nearly $2bn in costs by 2020 through initiatives such as a 10% reduction in paper statements and payments and reducing headcount by 3,000. The firm also expects to reduce its real estate footprint by 6% and ditch 37,000 physical desktops during that time.
Revenue was flat compared with a year ago at $18.4bn, shy of the $18.5bn average of analyst estimates. Net income rose 12% to $4.62bn, or $1.73 a share.
Analysts estimated adjusted pershare earnings of $1.68. Expenses fell 1% to $10.3bn, below the $10.4bn average estimate.