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Citigroup (C) Beats on Q1 Earnings, Records High Revenues


Driven by top-line strength, Citigroup C delivered a positive earnings surprise of 4.3% in first-quarter 2018. Earnings per share of $1.68 for the quarter easily outpaced the Zacks Consensus Estimate of $1.61. Also, earnings compared favorably with the year-ago figure of $1.35 per share.

Net income came in at $4.6 billion, up 12.2% year over year.

Overall high revenues were reflected, driven by elevated banking, equity markets and consumer banking revenues, along with loan growth. However, fixed income markets revenue disappointed. Moreover, expenses escalated on ongoing investments.

Citigroup’s costs of credit for the first quarter were up 12% year over year to $1.9 billion. This rise largely reflects net credit losses of $1.9 billion and a net loan loss reserve release of $36 million.

Top-Line Strength Partly Offset by Higher Expenses

Revenues were up 3% year over year to $18.9 billion in the reported quarter. The rise highlights elevated revenues in the global consumer banking and institutional clients group, partly offset by decline in corporate/other revenues. The revenue figure came in line with the Zacks Consensus Estimate.

At Institutional Clients Group (ICG), revenues came in at $9.8 billion in the quarter, up 6% year over year. Though fixed income revenues decreased 7%, higher equity markets (up 38%) and securities services revenues (up 16%) offset the fall on a year-over-year basis. Notably, revenues from total banking climbed 6%.

Global Consumer Banking (GCB) revenues increased 7% year over year to $8.4 billion, mainly driven by higher revenues in North America, Latin America and Asia GCB.

Corporate/Other revenues were $591 million, tanking 51% from the prior-year quarter. The decline mainly underlined legacy assets runoff.

Operating expenses at Citigroup were up 2% year over year to $10.9 billion. Increased volume-related expenses and ongoing investments were partially offset by efficiency savings and the winding-down of legacy assets.

Strong Balance Sheet

At quarter end, Citigroup’s end of period assets was $1.92 trillion, up 6% year over year. The company’s loans grew 7% year over year to $673 billion. Deposits increased 5% year over year to $1 trillion.

Credit Quality Improved

Total non-accrual assets decreased 20% year over year to $4.4 billion. The company reported a dip of 13% in consumer non-accrual loans to $2.6 billion. In addition, corporate non-accrual loans of $1.7 billion plunged 29% from the year-earlier period.

Citigroup’s total allowance for loan losses was $12.4 billion at quarter end, or 1.85% of total loans, compared with $12 billion, or 1.93%, recorded in the year-ago period.

Solid Capital Position

At the end of the reported quarter, Citigroup’s Common Equity Tier 1 Capital ratio was 12.1%, decreasing from 12.8% in the year-ago quarter. The company’s supplementary leverage ratio for the quarter came in at 6.7%, down from 7.3% in the year-earlier quarter.

As of Mar 31, 2018, book value per share was $71.67, down 5% year over year and tangible book value per share was $61.02, down 7% from the prior-year period.

Capital Deployment

During first-quarter 2018, Citigroup repurchased about 30 million of common stock. Notably, the company returned around $3.1 billion to common shareholders as common stock repurchases and dividends.

Our Viewpoint

Citigroup reported impressive results this time around also, though the bank was impacted by higher expenses and lower fixed income markets revenue. The company exhibits capital strength which continues to support its dividend and a share buyback program. Also, overall rise in revenues is commendable.

One can consider a strong brand like Citigroup to be a sound investment option over the long term, given its global footprint and attractive core business. Additionally, the company’s growth looks encouraging amid the rising rate environment, as well as anticipated potential ease of regulations under President Trump’s administration.

Nevertheless, several legal hassles and escalating costs of credit remain concerns for the company.

Citigroup Inc. Price, Consensus and EPS Surprise

Citigroup Inc. Price, Consensus and EPS Surprise | Citigroup Inc. Quote

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

Competitive Landscape

Wells Fargo WFC recorded positive earnings surprise of 4.7% in first-quarter 2018. Earnings of $1.12 per share surpassed the Zacks Consensus Estimate of $1.07. Moreover, results improved from the prior-year quarter earnings of $1.03.

Notably, results are preliminary which might be impacted on resolution of matters with Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC) related to the bank’s compliance risk-management program with a charge of $1 billion in civil money penalties.

Lower provisions and higher interest income aided results. However, elevated interest expense and reduced non-interest income with lower mortgage revenues were the undermining factors. Moreover, expenses soared. Further, reduction in loans and deposits acted as headwinds for the quarter.

Among other major banks, Bank of America Corporation BAC is scheduled to report first-quarter results on Apr 16, while U.S. Bancorp USB will report on Apr 18.

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