Saturday, October 20, 2018

Citigroup reported better-than-expected earnings for the third quarter on Friday as the company’s bottom line received a boost from lower corporate taxes.

The company’s stock rose more than 2 percent on the results.

Citigroup said its effective tax rate fell to 24 percent in the third quarter from 31 percent a year earlier. This helped its third-quarter profit grow by 21.8 percent on a year-over-year basis.

Net interest margin, a widely followed measure of bank profitability, clocked in at 2.7 percent, in line with expectations.

CEO Michael Corbat said the results also got a boost from 3 percent growth in loans and a 4 percent climb in deposits. Loans totaled $675 billion at the end of the quarter, while deposits tallied $1.005 trillion.

These gains, along with cost cuts across the board, helped Citigroup offset lackluster revenue for the company. Citigroup’s overall sales totaled $18.389 billion in the third quarter, slightly below estimates and roughly flat on a year-over-year basis.

Revenue growth was kept in check as sales in Citigroup’s Institutional Clients Group business fell 2 percent to $9.2 billion. The decrease was largely driven by a 5 percent decline markets and securities revenue, which totaled $4.5 billion. Investment banking revenue also declined more than 16 percent to $1.18 billion, offsetting strong growth in fixed income trading revenue. Sales in fixed income trading increased 9 percent to $3.2 billion.

Corporate revenue also fell 5 percent to $494 million as the company wound down legacy assets.

Despite the weak overall revenue, “the bank has been able to adjust its expense structure to foster an increase of its net income,” said Axel Pierron, managing director of capital markets management consultancy Opimas. “With this release, Citi is setting the pace of future banking group announcements with this quarter, with the market expecting significant overall growth. However, the question remains: Are these third-quarter results the swan song before a major market readjustment?”

Citigroup’s stock is down more than 6 percent year to date, lagging that of rival J.P. Morgan Chase, which is up around 2 percent in 2018. J.P. Morgan reported better-than-expected earnings earlier on Friday, sending the stock up 1 percent. Wells Fargo also traded higher on the back of strong quarterly results.

The report comes after Citigroup merged its corporate and investment bank with its capital markets business. According to a memo obtained by CNBC in September, the move’s objective is helping Citigroup compete for lucrative advisory and capital market deals.

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