Citigroup Profit Beats Estimates on Reserve Release

For the quarter ended June 30, net income jumped to $6.19 billion, or $2.85 per share, from $1.06 billion, or 38 cents per share, a year earlier. Analysts on average had expected a profit of $1.96 per share, according to Refinitiv IBES data.

The bank’s profits were buoyed by its decision to take down $2.4 billion of loss reserves it had built during the pandemic for expected losses that have not materialized. A year ago, it had added $5.9 billion to its loss reserves.

“The pace of the global recovery is exceeding earlier expectations and with it, consumer and corporate confidence is rising,” Chief Executive Officer Jane Fraser said in a statement.

An economic recovery fueled by vaccine rollouts across the country and a $1.9 trillion stimulus package pushed through by the Biden administration earlier this year is expected to drive banking profits in 2021.

However, unlike larger and more diversified rivals JPMorgan Chase and Bank of America, Citigroup has been unable to offset as much of the drag from the credit card businesses where customers cut back on spending and paid off their loans during the pandemic.

Revenue plunged 12%, while loans were down 3%.

Citi’s consumer bank shrank during the quarter, as fewer consumers took loans on their cards, while deposits also took a hit across all regions. Overall consumer banking revenue fell 7% to $6.8 billion.

Revenue from fixed income trading, a strong suit for the bank, slumped 43% from a year earlier when trading in global financial markets soared to record levels on volatility in the first months of the COVID-19 pandemic.

On Tuesday, both JPMorgan Chase and Goldman Sachs reported big declines in bond trading revenue.

Expenses at Citigroup jumped by 7% during the quarter, led by spending to improve its risk and control systems to comply with demands from regulators. The size of the increase suggested that the bank might miss its estimate from April that expenses for the full-year would increase only 2% to 3%.

Investors are particularly concerned about the expenses as the bank has been unable to say how much money and time it will take to meet the requirements of regulators and fix its systems.

The expenses are part of what Fraser has called the “transformation” of Citigroup and include technology improvements that she expects will ultimately bring down costs.

TURNAROUND PERIOD

Fraser, who became CEO earlier this year, is trying to turn around Citigroup, which has been crippled for years by poor risk and control systems.

Since Fraser took over, she has focused on shedding unprofitable businesses across Citi’s sprawling global operations as she focuses on fashioning a competitively profitable organization that will shed its reputation of being a banking industry laggard.

Fraser announced in April that the bank would exit consumer businesses in 13 markets, mostly in Asia, where it has not had enough scale to earn satisfactory profits.

The market retreats entail some one-time costs but over time are expected to reduce costs and support its capital ratios.

Fraser aims to build out Citi’s global offerings to multi-national corporations, strengthen its big U.S. credit card business and develop private wealth management services around the world.