Will Lower Trading Revenues Hurt Citigroup (C) Earnings? - Analyst Blog

Citigroup Inc. C is scheduled to report its first-quarter 2015 results before the opening bell on Thursday, Apr 16, 2015.

First-quarter 2015 primarily witnessed Citigroup’s continuation of streamlining global operations as it inked deals to shed operations including the Nicaraguan business, Japanese credit-card unit and OneMain Financial. Also, one of the major achievements of the New York based company was obtaining Federal Reserve’s approval to the company’s capital plan, following the clearance of Annual Dodd-Frank Company-Run Stress Test.

Will Citigroup be able to sustain its profitability this quarter? Let’s see how things have shaped up.

What to Expect in Q1?

At an investor conference in Florida, Citigroup’s Chief Financial Officer – John Gerspach mentioned that the first-quarter 2015 will exhibit a revenue drop in fixed-income and equities trading, impacted by the subdued start in spread products and loss incurred in January from price fluctuations in the Swiss franc.

Broadly, Citigroup anticipates total fixed-income and equities trading revenue to be down in the mid- to high-single digits year over year. Notably, Citigroup incurred more than $200 million losses in January following the Swiss central bank’s decision to allow the Franc to trade freely against the Euro.

Gerspach noted that client activity across rates and currencies remained strong in the quarter and therefore anticipates rates and currencies revenue to rise on a year-over-year basis.

The first quarter’s top line might get some support as moderate year-over-year revenue growth in constant dollars is expected across the corporate and consumer banking businesses.

Regarding expenses, we believe Citigroup continued efficiency savings will ease some pressure on its expense base. Notably, owing to several initiatives including actions announced in Dec 2012, management expects annual savings of $3.4 billion this year, out of which savings of $700 million are yet to be realized by the end of 2015. The company expects that such savings will continue to accrete in every quarter of 2015.

Further, as repositioning charges are expected to decline gradually, we believe overall expenses may trend downwards.

Activities of Citigroup during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined slightly to $1.40 per share over the last seven days.

Earnings Whispers

Our proven model does not conclusively show that Citigroup is likely to beat the Zacks Consensus Estimate in the first quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Citigroup is 0.00%. This is because both the Most Accurate Estimate and Zacks Consensus Estimate stand at $1.40.

Zacks Rank: Citigroup’s Zacks Rank #2 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The earnings ESP for The Goldman Sachs Group, Inc. GS is +3.16% and it carries a Zacks Rank #3. The company is scheduled to release its first-quarter results on Apr 16.

The Blackstone Group L.P. BX has an earnings ESP of +4.17% and carries a Zacks Rank #2. It is expected to report its first-quarter results on Apr 16.

The earnings ESP for Popular, Inc. BPOP is +9.86% and it carries a Zacks Rank #1. The company is scheduled to release its first-quarter results on Apr 27.
 

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