Citigroup (C) Bucks The Banking Trending And Reports Surprisingly Big Upside
2:06 pm Friday, July 15th, 2022
Citigroup (C) is up nicely today after reporting surprisingly strong Q2 results this morning. After misses from JPM and MS yesterday and WFC this morning, we had some trepidation heading into Citi’s earnings report.
Citi saw EPS decline 23% yr/yr to $2.19, but that was still well ahead of analyst expectations. Revenue rose 10.6% yr/yr to $19.64 bln, which also was well ahead of expectations. Revenue was driven by increased rates, client activity in Markets and continued momentum in the US cards businesses, partially offset by a slowdown in Investment Banking activity as well as investment fee headwinds in Global Wealth Management.
Citi’s best performing segment was also its largest segment: Institutional Clients Group (ICG). Revenue rose 20% yr/yr to $11.42 bln. Markets revenues jumped 25% yr/yr to $5.3 bln as trading volatility created strong corporate client activity. Much of that was fueled by robust Fixed Income Markets growth at 31% to $4.08 bln.
It was not all good news as concerns about the economy, and lapping a robust year last year, led to a big 46% yr/yr drop in Investment Banking revenue. While that percentage raises eyebrows, IB is not a huge segment with revenue at $805 mln.
There was also a net ACL release of $245 mln in Q2 after a $948 mln build in Q1, so that was good to see. The release was largely driven by a reduction in Russia-related risk, partially offset by a build due to increased macro uncertainty. Net credit losses were just $18 mln, down from $30 mln in Q1 and $68 mln a year ago. That was another positive in the quarter, it seems concerns over loan losses are maybe a bit overblown.
Overall, this was a good solid quarter with surprisingly strong upside on EPS and revs. Citigroup has by far been the best Q2 earnings performer among the major banks thus far, whereas JPM, MS and WFC all reported earnings misses. Bank stocks have been under pressure in 2022, mostly on concerns about a weakening economy and inflation. In turn, that would likely reduce consumer spending and chill investment banking activity. However, that is not really materializing at this point.
