Citigroup Profit Soars 48 Percent on Equity Underwriting
By Kathi on Oct 14, 2021 | 04:34 AM IST
Citigroup Inc
on Thursday reported a 48% jump in third-quarter profit that comfortably beat
market estimates, as the bank reaped a windfall of fees from equity
underwriting and investment banking advice and released loan loss reserves.
For the three months ended Sept. 30, net income jumped 48%
to $4.6 billion, or $2.15 per share, from $3.1 billion, or $1.36 per share, a
year earlier. Analysts on average had expected a profit of $1.65 per share,
according to Refinitiv IBES data.
The bank's profits were buoyed by its decision to take down
$1.16 billion of loss reserves built during the pandemic for potentially sour
loans that have not materialized. A year earlier Citigroup had added $436
million to its reserves.
Investment banking revenue increased 39% to $1.9 billion,
helping offset a 16% decline in fixed-income revenue from a year earlier when
there was unprecedented volatility in the markets.
Higher expenses and lower net interest revenue weighed on
results as did customers using their stimulus checks to pay down their credit
card loans.
"I am quite pleased with $4.6 billion in net income
given the environment we are operating in," Chief Executive Officer Jane
Fraser said in the results announcement.
Net interest revenue declined 1% from a year earlier, but
was 2% more than in the second quarter, suggesting an end to the downward trend
that started when the pandemic began and the Federal Reserve cut interest rates
to near zero and many borrowers paid down their loan balances.
Lower interest rates also hurt Citigroup's Treasury and
Trade Solutions business, which saw revenue decline 4% even as it collected
more fees and saw growth in trading.
Revenue from Citi-branded cards in North America declined
1% and revenue from cards issued for retailers fell 6%.
The results included the impact of a loss on the previously
announced sale of its Australia consumer banking business. Excluding the loss
on the sale, revenue increased 3%, driven by the institutional business.
Operating expenses increased 5% to $11.5 billion as the
company ramped up spending on technology and personnel to improve its control
systems to comply with demands made by regulators a year ago.
Investors have been particularly concerned about
Citigroup's expenses as the bank has not said how much money and time it will
take to meet requirements of regulators and fix its systems.
The bank is also spending more on its wealth management
business and its transaction services to companies.
Fraser expects the increased spending to bolster what she
has described as Citigroup's "transformation" into a more efficient
and focused company that will earn returns closer to its peers.
Citigroup has produced lower returns on equity than
competitors for more than a decade and the stock market values the company at
less than shown on its balance sheet.