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Citigroup (C) Q2 Earnings Top on High Revenues, Stable Costs


Driven by top-line strength, Citigroup C delivered a positive earnings surprise of 5.2% in second-quarter 2018. Earnings from continuing operations per share of $1.62 for the quarter easily outpaced the Zacks Consensus Estimate of $1.54. Also, earnings were up 28% year over year.

Net income came in at $4.5 billion or $1.63 per share, compared with $3.9 billion or $1.28 reported in the prior-year quarter.

Overall high revenues were reflected, driven by elevated banking, equity markets and consumer banking revenues, along with loan growth. Moreover, expenses remained stable. However, fixed income market revenues disappointed.

Citigroup’s costs of credit for the second quarter were up 6% year over year to $1.8 billion. This rise largely reflects net credit losses of $1.7 billion and a credit reserve build of $87 million.

Top-Line Strength Recorded, Expenses Stable

Revenues were up 2% year over year to $18.5 billion in the reported quarter. This upswing highlights elevated revenues in the global consumer banking and institutional clients group, partly offset by decline in corporate/other revenues. The revenue figure surpassed the Zacks Consensus Estimate of $18.4 billion.

In the Institutional Clients Group (ICG), revenues came in at $9.7 billion in the quarter, up 3% year over year. Though fixed income revenues decreased 6%, higher equity markets (up 19%) and securities services revenues (up 12%) offset this fall on a year-over-year basis. Notably, revenues from total banking climbed 6%.

Global Consumer Banking (GCB) revenues increased 2% year over year to $8.3 billion, mainly driven by higher revenues in North America, Latin America and Asia GCB.

Corporate/Other revenues came in at $528 million, tanking 20% from the prior-year quarter. The decline mainly underlined legacy assets runoff.

Operating expenses at Citigroup were almost in line year over year at $10.7 billion. Increased volume-related expenses and ongoing investments were offset by efficiency savings and the winding-down of legacy assets.

Strong Balance Sheet

At quarter end, Citigroup’s end of period assets was $1.91 trillion, up 3% year over year. The company’s loans grew 4% year over year to $671 billion. Deposits increased 4% year over year to $997 billion.

Credit Quality Improves

Total non-accrual assets decreased 20% year over year to $4.1 billion. The company reported a dip of 16% in consumer non-accrual loans to $2.4 billion. In addition, corporate non-accrual loans of $1.6 billion plunged 23% from the year-earlier period.

Citigroup’s total allowance for loan losses was $12.1 billion at quarter end, or 1.81% of total loans, compared with $12 billion, or 1.88%, recorded in the year-ago period.

Solid Capital Position

At the end of the second quarter, Citigroup’s Common Equity Tier 1 Capital ratio was 12.1%, down from 13.1% in the year-ago quarter. The company’s supplementary leverage ratio for the quarter came in at 6.6%, down from 7.2% in the year-earlier quarter.

As of Jun 30, 2018, book value per share was $71.95, down 7% year over year and tangible book value per share was $61.29, down 9% from the prior-year period.

Capital Deployment

During second-quarter 2018, Citigroup repurchased about 33 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 lower fixed income market revenues. The company exhibits capital strength which continues to support its dividend and share buyback program. Also, overall rise in revenues is commendable. Moreover, stable expenses reflect prudent expense management.

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 ease of regulations.

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

Impacted by lower mortgage banking revenues,Wells Fargo (WFC) recorded a negative earnings surprise of 3.6% in second-quarter 2018. Adjusted earnings of $1.08 per share missed the Zacks Consensus Estimate of $1.12. Results were in line with the prior-year quarter earnings.

Notably, results exclude net discrete income-tax expense of 10 cents per share. Including non-recurring items, net income came in at $5.2 billion or 98 cents per share compared with $5.9 billion or $1.08 per share reported in the prior-year quarter.

Lower provisions and higher net interest income aided results. However, reduced fee income was an undermining factor. Moreover, expenses soared. Further, reduction in loans and deposits acted as headwinds for the quarter.

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

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