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Citigroup (C) Q1 Earnings Beat Estimates, Revenues Disappoint

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Citigroup C delivered a positive earnings surprise of 5.1% in first-quarter 2019, backed by expense control. Earnings per share of $1.87 for the quarter handily outpaced the Zacks Consensus Estimate of $1.78. Also, earnings climbed 11% year over year.

The stock rose nearly 1% in pre-market trading, indicating that investors have taken the results in their stride. Notably, the full-day trading session will depict a better picture.

Adjusted net income was $4.7 billion, up 2% year over year.

Citigroup displayed prudent expense management during the reported quarter. Moreover, higher fixed income revenues, along with loan growth, were positives. Further, investment banking revenues escalated on strong advisory business and higher debt underwriting, partly offset by lower equity underwriting fees.

In addition, lower equity market revenues amid challenging trading environment reflect reduced volumes and client activity levels.

Citigroup’s costs of credit for the Mar-end quarter were up 7% year over year to $1.98 billion. This upside largely underlines elevated net credit losses of $1.9 billion and a credit reserve build of $20 million, and provision for benefits and claims of $12 million.

Expenses Drop, Revenues Disappoint

Revenues were down 2% year over year to $18.6 billion in the first quarter. The reported figure also missed the Zacks Consensus Estimate of $18.8 billion. Lower revenues from Institutional Clients Group (ICG) and the wind-down of legacy assets in Corporate/Other segment were responsible for the downside.

In the ICG segment, revenues came in at $9.7 billion in the quarter, down 2% year over year. Equity market revenues decreased 24% year over year, contributing to lower total markets and securities services revenues (down 6%). However, fixed income market revenues were up 1% and total banking revenues rose 8%, aided by strong advisory business.

Global Consumer Banking (GCB) revenues increased slightly year over year to $8.5 billion. Higher revenues in North and Latin America were offset by lower revenues in Asia GCB.

Corporate/Other revenues came in at $431 million, slipping 27% from the prior-year quarter. The decline mainly underscores wind-down of legacy assets.

Operating expenses at Citigroup dipped 3% year over year to $10.6 billion. Efficiency savings and the winding-down of legacy assets muted the ongoing investments.

Strong Balance Sheet

At the end of the quarter, Citigroup’s end of period assets was $1.96 trillion, up 2% sequentially. The company’s loans inched up 1% sequentially to $682 billion. Deposits increased 3% sequentially to $1.03 trillion.

Credit Quality Improves

Total non-accrual assets decreased 13% year over year to $3.8 billion. The company reported a dip of 14% in consumer non-accrual loans to $2.2 billion. In addition, corporate non-accrual loans of $1.5 billion slipped 11% from the year-earlier period.

Citigroup’s total allowance for loan losses was $12.3 billion at the end of the quarter, or 1.82% of total loans, compared with $12.4 billion, or 1.85%, recorded in the year-ago period.

Solid Capital Position

At the end of the Jan-Mar period, Citigroup’s Common Equity Tier 1 Capital ratio was 11.9%, down from 12.1% in the prior-year quarter. The company’s supplementary leverage ratio for the quarter came in at 6.4%, down from 6.7% in the year-earlier quarter.

As of Mar 31, 2019, book value per share was $77.09, up 8% year over year, and tangible book value per share was $65.55, up 7% from the comparable period last year.

Capital Deployment

During first-quarter 2019, the company bought back about 66 million of common stock and returned around $5.1 billion to common shareholders as common stock repurchases and dividends.

Our Viewpoint

Citigroup reported impressive results even this time around, though the bank was unfavorably impacted by lower equity market revenues and a challenging trading environment. The company exhibits capital strength which continues to support its dividend and share-buyback program. In addition, decline in 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 rising rate environment, as well as anticipated ease of regulations.

Nevertheless, several legal hassles remain concerns for the company. Furthermore, higher credit costs remain a concern.
 

Citigroup Inc. Price, Consensus and EPS Surprise

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

At present, Citigroup carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Driven by prudent expense management, Wells Fargo WFC recorded a positive earnings surprise of 11.1% in first-quarter 2019. Earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $1.08. Results also came in above the prior-year quarter adjusted earnings of $1.12. Higher net interest income and fall in expenses aided the company’s performance. However, reduced fee income was an undermining factor. Moreover, provisions soared. Further, reduction in loans and deposits acted as headwinds.

PNC Financial PNC reported positive earnings surprise of 0.8% in first-quarter 2019. Earnings per share of $2.61 surpassed the Zacks Consensus Estimate of $2.59. Further, the bottom line reflected a 7.4% jump from the prior-year quarter. Higher revenues, driven by easing margin pressure and escalating fee income, aided the results. However, rise in costs and provisions were headwinds.

Higher rates and improved investment banking performance drove JPMorgan’s JPM first-quarter 2019 earnings of $2.65 per share, which outpaced the Zacks Consensus Estimate of $2.32. Also, the figure was up 12% from the prior-year quarter. Investment banking fees recorded 9% growth with 12% rise in advisory fees and 21% increase in debt underwriting income, partially offset by 23% decline in equity underwriting fees. Decent loan growth (driven largely by rise in wholesale and credit card loans) and higher interest rates supported net interest income.

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