Citigroup profit drops 36% on trading slump, rising expenses

New York, July 14 (BNA): Citigroup beat analysts’ expectations for second-quarter earnings on Friday as higher interest payments from borrowers partially offset a blow to its Wall Street business from sluggish trading.

According to Reuters, the bank’s net income fell 36% to $2.92 billion, or $1.33 per share, in the three months ended June 30. The bank said profits fell due to higher costs of layoffs and higher provisions for credit losses.

“Customers stood on the sidelines in April while the debt ceiling expired,” CEO Jane Fraser said in a statement to Markets. Meanwhile, “the long-awaited recovery in investment banking has yet to materialize, making for a disappointing quarter.”

Markets revenue fell 13% to $4.6 billion, while investment banking fees fell 24% to $612 million.

The decline in Citi’s net income contrasts with higher earnings at JPMorgan Chase (JPM.N), which earned more from interest payments and benefited from the First Republic Bank purchase, and at Wells Fargo (WFC.N).

Citi’s (NII) net interest income jumped 18% at the most global US lender, mirroring gains from JPMorgan and Wells Fargo. NII measures the difference between what banks earn on loans and what they pay on deposits.

The results come amid growing expectations that the Federal Reserve’s massive interest rate hikes that have boosted profits for major US banks in the past few quarters may be coming to an end. Citigroup raised its guidance on the National Insurance Institute for the full year by $1 billion.

“The US economy has proven to be very resilient, with strong balance sheets on both the consumer and corporate side,” Mark Mason, CFO, told reporters on a conference call.

He said delinquency rates in credit cards and other retail lines were on the rise and were expected to reach “normal levels” by the end of the year.

Citi reported double-digit revenue growth for both its services unit as well as Treasury and Commerce Solutions (TTS), which business executives called the company’s crown jewel.

Excluding one-time items, Citi earned $1.37 per share, beating the $1.30 that analysts had expected, according to Refinitiv IBES data.

Mason said the bank has not yet made a decision on potential share buybacks in the third quarter in light of the Fed’s increased capital requirements.

Citigroup is in talks with the Fed to better understand the changes that led to the reserve capital increase after it passed its annual health check. He added that Citi is not contesting the Fed, but is trying to understand the systemic changes.

Shares of the New York-based bank fell 2.5 percent. JPMorgan and Wells Fargo are up a bit.

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