Citigroup surpassed Wall Street’s expectations for its second-quarter profit on Friday, driven by a significant 60% increase in investment banking revenue and robust performance in its services division.
As the third-largest U.S. lender, Citi reported a profit of $1.52 per share for the quarter ending June 30, outpacing analysts’ projections of $1.39, according to LSEG data.
This positive outcome follows closely on the heels of a $136 million fine imposed by U.S. regulators on Citi for “insufficient progress” in addressing data management issues identified in 2020. The penalties and the additional investments required for data improvements were accounted for in the second quarter.
Despite these challenges, Citi’s shares dipped 1.4%, reversing earlier premarket gains. The bank’s comprehensive resource review plan is still under regulatory scrutiny, and any agreements reached will remain confidential, according to Citi’s Chief Financial Officer Mark Mason.
Strategic Overhaul Underway
CEO Jane Fraser is executing a comprehensive overhaul aimed at streamlining operations, reducing costs, and simplifying the bank’s extensive business portfolio. As part of this strategy, Citi plans to reduce its workforce by 20,000 over the next two years.
Second-quarter revenue rose to $20.1 billion, a 4% increase from the previous year, bolstered by a $400 million gain from the conversion and partial sale of Visa stock in May. Citi now reports earnings across five distinct business segments—services, markets, banking, U.S. personal banking, and wealth management—under Fraser’s new organizational structure designed to enhance profitability and reduce bureaucracy.
Investment banking fees surged 60% to $853 million, indicating a potential recovery from a prolonged industry-wide slump in deals. This contributed to a 38% increase in broader revenue for the banking division, reaching $1.6 billion.
“We see continued strong debt issuance this quarter, good M&A activity, and a glimpse of revival in the IPO market,” Mason said. “We expect the rate environment and financing markets to be accommodative, with M&A playing a larger role in the latter half of the year.”
Growth in Services and Markets Divisions
Citi’s services revenue grew 3% to $4.7 billion, primarily driven by its treasury and trade solutions business, which processes $5 trillion in daily payments for multinational corporations. Markets revenue rose 6% to $5.1 billion, with a notable 37% jump in equities trading revenue.
Despite the overall positive performance, operating expenses fell 2% to $13.4 billion, reflecting savings from the bank’s reorganization efforts. However, these savings were offset by fines and investments necessary to comply with regulatory consent orders from 2020.
Citi anticipates its full-year expenses to be at the high end of its forecasted range of $53.5 billion to $53.8 billion.
Competitive Landscape and Future Outlook
Rival JPMorgan Chase reported an increase in second-quarter profit, while Wells Fargo’s net income declined, missing estimates for interest income.
Citi’s wealth management division, a critical component of Fraser’s growth strategy, saw modest revenue growth of 2% this quarter, totaling $1.8 billion. Meanwhile, U.S. personal banking revenue grew by 6%, reaching $4.9 billion, mainly due to growth in branded cards.
Analysts view 2024 as a transitional year for Citi as it continues to streamline operations under Fraser’s leadership. Despite recent regulatory challenges, Citi’s stock has risen 28% this year, outperforming its closest rivals JPMorgan and Bank of America.
Citi is also addressing two 2020 consent orders from the U.S. Federal Reserve and the Office of the Comptroller of the Currency, which mandate the bank to rectify widespread deficiencies in risk management, data governance, and internal controls.
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