Citigroup's Revenue Rises Despite Slowdown in Trading -- 3rd Update

A softer than expected decline in trading revenue helped Citigroup Inc. defy Wall Street expectations and grow quarterly revenue by 2% from a year ago.

After a late-June uptick in trading activity around global interest rates, revenue was $17.901 billion, defying forecasts of a decline from the $17.548 billion posted a year ago. Analysts had anticipated a drop to $17.4 billion.

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 the overall trading decline during the quarter and higher costs associated with credit cards.

Shares fell about 0.8% Friday as part of a broader bank-stock selloff driven by fears of slower loan growth and a less favorable interest rate outlook.

Citigroup's per-share earnings rose to $1.28 from $1.24 a year ago as the bank 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.

Late June saw a jump in trading in G-10 countries' interest rates after the Federal Reserve's increase, and after discussions of possible additional stimulus by the U.K. and European central banks, Citigroup said.

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.

Citigroup, meanwhile, reported a surge in investment-banking revenue as it stole share from rivals in the business of advising companies on mergers and underwriting stock and bond offerings. The unit was up 22% from a year ago to $1.486 billion, the biggest quarterly haul in seven years.

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. That is set to jump to about 130% of income over the next year.

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.

Despite the better-than-expected trading result, investors are still closely watching to see whether banks benefit over the longer term from higher interest rates.

J.P. Morgan Chase on Friday warned that gains from lending may be lighter than expected this year, in part because such long-term rates as the 10-year U.S. Treasury yield remain historically low.

Citigroup didn't change its forecast, saying it still expects about $2 billion more interest revenue over the course of the year in its core business. Lending across the bank grew 2% from 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.

"We're not looking at interest rates suddenly increasing across the board," said CFO John Gerspach. "Our outlook is not rate-dependent."

The bank did report a small decline in net interest margin, or the difference between the rates it pays to borrow money and what it earns lending it out.

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.

It also raised its forecast for credit losses on cards it manages on behalf of retailers such as Macy's Inc. and Sears Holding Corp. The bank said net credit losses may reach 4.6% this year, up from a prior outlook of 4.35%, blaming tougher-than-expected collections of delinquent debts.

Quarterly expenses rose 1% to $10.506 billion.

In midafternoon trading, Citigroup's shares slid 0.8% to $66.47, smaller than declines at Wells Fargo & Co. and J.P. Morgan Chase, which were both off by more than 1%.

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

(END) Dow Jones Newswires

July 14, 2017 15:22 ET (19:22 GMT)