Citi bond traders snap rev­enue slump on rates Trump blasted

Gulf Times Business - - BUSINESS -

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.

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