Citigroup's Revenue Rises Despite Slowdown in Trading -- 2nd Update

By Telis Demos Features Dow Jones Newswires

Citigroup Inc. said its second-quarter revenue grew 2% from a year ago, topping Wall Street's expectations, as its trading desk saw a smaller-than-anticipated drop in activity.

Continue Reading Below

Revenue was $17.901 billion, defying forecasts of a decline from $17.548 billion a year ago, driven by upticks in credit cards and investment banking.

Still, quarterly profit at the New York-based bank was $3.872 billion, down 3% from $3.998 billion a year earlier, thanks in part to higher costs associated with credit cards. But per-share earnings rose to $1.28 from $1.24 a year ago as Citigroup continued to buy back shares at a fast pace. Analysts, on average, had expected $1.21 a share.

Like its rival J.P. Morgan Chase & Co., which also reported earnings Friday, Citigroup's trading desk this quarter suffered from continuing low volatility and a lack of new catalysts in the form of unexpected central-bank rate moves or a pickup in economic activity.

However, the drop-off wasn't nearly as sharp as anticipated, or as sharp as J.P. Morgan's. Citigroup's second-quarter trading revenue fell 7% to $3.906 billion from $4.208 billion a year ago. Last month, Chief Financial Officer John Gerspach predicted trading revenue would be down by 12% to 13% from a year ago.

Fixed-income trading was off by 6% from a year ago, while equities trading fell by 11%. The decline halted momentum in Citigroup's relatively undersized stock-trading business, in which the bank has been investing heavily to bring it more in-line with rivals.

Continue Reading Below

The quarter's trading result is a blip on what is otherwise shaping up into a turnaround year for the New York-based bank. Chief Executive Michael Corbat, who is seeking to convince investors that the bank is poised for sustained growth after years of treading water, has delivered on one major promise already -- substantially increase capital returns.

The bank received permission from the Federal Reserve, following its successful passage of the stress tests, to pay back $19 billion to shareholders over the next year. That was more than analysts were anticipating and a big boost from last year. The bank said Friday that it paid out 63% of its second-quarter income in the form of dividends and share buybacks.

This quarter's results, however, are only a table setter for the bank's investor day meeting later this month. The meeting will be the bank's first such gathering in nearly a decade, when it is expected to lay out a series of growth goals for its consumer and investment-banking businesses.

Citigroup's shares slid 0.9% to $66.45 in premarket trading.

The bank did see an uptick in its investment bank, as it gained share in businesses such as mergers and acquisitions advisory. It ranks second so far this year in M&A, according to Dealogic, up from sixth this time a year ago, and it has gained market share in equity and debt underwriting as well. Investment banking revenue was $1.486 billion, up 22% from $1.215 billion a year ago.

Citigroup also benefited from higher short-term interest rates, which are passed on to credit-card borrowers. The bank relies more heavily on card loans than rivals, and it has been expanding its lending with new partnerships, such as with Costco Wholesale Corp. Revenue at the consumer unit rose 5% to $8.035 billion from $7.674 billion a year ago.

But profit in consumer banking fell, as Citigroup continues to increase its credit costs to account for growth in its card portfolio. Net income from global consumer banking fell 12% to $1.125 billion from $1.284 billion a year ago. The bank has said its card investments may turn profitable in the second half of this year.

Lending across the bank grew 2% from a year ago, driven by a growth of 15% in card loans.

Quarterly expenses rose 1% to $10.506 billion from $10.369 billion a year earlier.

Write to Telis Demos at telis.demos@wsj.com

(END) Dow Jones Newswires

July 14, 2017 09:06 ET (13:06 GMT)