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Citigroup (C) Projects Weak Q3 Trading Revenues on Y/Y Basis


At the Barclays Plc Investors Conference in New York on Monday, Citigroup Inc.’s C chief financial officer, John Gerspach, announced the company’s latest outlook for the third quarter. The bank expects third-quarter 2017 trading revenues to fall 15% year over year, affected by low volatility in markets.

Volatility remains “somewhat subdued,” noted Gerspach at the conference. “For the whole third quarter you really don’t know what happens until you figure out what the operating environment is in September,” he further added.

In the second quarter also, trading revenues suffered due to low volatility (down 5% year over year). Last year’s trading results had improved on higher client activity levels, as investors bet on prospects of the U.S. election and the Brexit vote. However, the last three weeks of the current quarter are expected to report a turnaround.

Further, in August, The Goldman Sachs Group, Inc. GS CFO Martin Chavez and in July, JPMorgan Chase & Co. JPM hinted the same view.

Other Expectations

Citigroup expects net credit-card losses to worsen in 2017 from its prior expectations. Rate in the branded-cards business is likely to be 285 basis points (bps), up from the previous projection of 280 bps. Also, in the retail-services business, rate is expected to rise to 470 bps from the prior projection of 460 bps. “Very, very small increases in the NCL rates, but obviously even small increases in the NCL rate do have an impact on our reserving actions,” Gerspach said.

Our Viewpoint

An improving economic backdrop and optimism surrounding the interest-rate hike are supporting banks’ financials. Though banks are expected to remain under pressure due to lackluster fixed-income trading activities in the near term, cost containment efforts are noticeable.

Currently, Citigroup carries a Zack Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SShares of Citigroup gained around 10% over the past six months compared with the decline of 5.9% recorded by the industry it belongs to.

A better-ranked finance company — State Street Corporation STT — with a Zacks Rank #2 (Buy) is worth considering. In the past 60 days, the bank’s 2017 earnings estimates moved 3.6% upward. Also, its share price jumped 18.6% in six months’ time.

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