Citigroup shrugged off a sharp decline in equity trading revenues to report a slight increase in first-quarter profits thanks to cost-cutting and a robust performance at its investment banking operations.
A 3 per cent decline in staff pay costs helped Citi to reduce expenses faster than revenues, allowing the bank to make progress toward its goal of improving its return on equity to match those of its main US rivals.
Citi has been the best performing of the big six US bank stocks this year, gaining almost 26 per cent, against 12 per cent at JPMorgan Chase and 21 per cent at both Goldman Sachs and Bank of America.
Shares in Citi fell almost 1 per cent early on Monday after the bank said net income had outstripped analysts’ expectations by rising 2 per cent year on year to $4.71bn in the first quarter, despite a 2 per cent decline in revenues.
Earnings per share, at $1.87, was up 11 per cent from a year ago, boosted by $4bn of share buybacks in the first quarter and ahead of the $1.80 analysts had expected.
“Our earnings reflect the progress we are making to improve our return on, and return of, capital,” chief executive Mike Corbat said. “Both our consumer and institutional businesses performed well.”
The group’s star performer was its investment banking operation, which advises companies on M&A and share sales, after it boosted quarterly revenues by 20 per cent. Corporate lending revenues rose 9 per cent.
Citi’s chief financial officer Mark Mason, discussing the strong uptick in investment banking, said that the bank was “outperforming and gaining share in M&A” in North America and Europe, despite the pressure on the M&A market as a whole.
Citi had prepared investors for a weak performance in its markets businesses last month, when Mr Mason said equities and fixed income trading revenues would decline, in aggregate, in the mid-single digits.
In the event, the decline in trading revenue was 5 per cent, with fixed-income trading up 1 per cent, well ahead of the 8 per cent underlying decline rival JPMorgan reported last week and the 11 per cent drop Goldman Sachs announced on Monday.
However, Citi’s equities trading revenue fell 24 per cent, in line with a similar drop at Goldman but worse than a 13 per cent decline at JPMorgan.
In Citigroup’s consumer business, revenue was flat compared with the year before. Investors have focused on the bank’s industry-leading card business, particularly its Citi-branded cards in the US, where growth stagnated in 2018. But the branded cards unit rebounded in the first quarter, with underlying revenues rising 5 per cent.
Jeff Harte, analyst at Sandler O’Neill, said he “liked the quarter a lot — most notably, the consumer business has come though. That’s what I was most concerned about.”
Mr Mason at Citi said margins at the branded card business were rising, adding: “We have been witnessing average interest bearing balances on the heels of making some [promotional] investments.”
Investors have also been worried about the achievability of Citi’s targets to achieve return on tangible common equity of 13.5 per cent to bring its operating expenses to at most 53 per cent of revenue by next year.
The bank gave investors some comfort on this front in the first quarter, saying its return on tangible common equity rose to 11.9 per cent, while operating expenses fell to 57 per cent of revenues.
The bank’s senior management has undergone a significant reshuffle during the past year. Just last week Jamie Forese, head of Citigroup’s institutional business who was widely considered a leading candidate to succeed Mr Corbat, retired and was replaced by Citi’s market chief Paco Ybarra.
In 2018, Citi announced the departure of its veteran chief financial officer John Gerspach, European chief Jim Cowles and its head of North America Bill Mills. Anand Selva was given sole control of the North American consumer business.