By Tatiana Bautzer and Manya Saini
(Reuters) -Citigroup posted a smaller-than-expected drop in profit for the third quarter thanks to gains in investment banking, sending its shares more than 2% higher in premarket trading on Tuesday.
The third-largest U.S. lender’s dealmakers joined rivals at JPMorgan Chase and Wells Fargo in benefiting from a rebound in capital markets as corporate clients issued more debt and equity.
Investment banking was a bright spot for the second straight quarter, as revenue jumped 31% to $934 million. Wall Street executives are optimistic that the Federal Reserve’s interest-rate cut last month will pave the way for more deals and initial public offerings.
“In a pivotal year, this quarter contains multiple proof points that we are moving in the right direction and that our strategy is gaining traction,” CEO Jane Fraser said in a statement.
Total operating expenses declined 2% in the third quarter.
Citi’s total allowance for credit losses rose to about $22.1 billion at the end of the quarter, compared with $20.2 billion a year earlier.
That led to its net income dropping to $3.2 billion, or $1.51 per share, compared with $3.5 billion, or $1.63 per share, a year earlier.
It still handily beat analysts’ average expectations of $1.31 per share, according to estimates compiled by LSEG.
Services revenue climbed 8% to $5 billion, fueled by a 24% surge in revenue for securities services to $1.4 billion.
A stock-market rally at the end of the quarter propelled equities trading revenue up 32% to $1.2 billion, lifting overall markets revenue 1%.
But bond trading revenue lagged, falling 6% to $3.6 billion.
In the U.S. retail banking division, revenue climbed 3% to $5 billion, buoyed by 8% growth in credit card revenue to $2.7 billion.
Meanwhile, retail banking revenues fell 8%, and in the retail services arm handling credit card partnerships, revenue slipped 1%.
Its wealth management division, a key part of Fraser’s growth strategy, posted revenue growth of 9% in the quarter to $2 billion.
Fraser has sought to grow profits, simplify the company and fix its longstanding regulatory problems.
On Friday, Bank of America’s profit in the third quarter fell on the back of lower interest income. Earnings at rival JPMorgan Chase and Wells Fargo beat estimates last week, underpinned by strong consumer finances.
REGULATORY EFFORTS
In 2020, the Office of the Comptroller of the Currency and the Federal Reserve fined Citi $400 million and ordered the bank to fix persistent risk management and data governance failures.
Earlier on Tuesday, Reuters reported that Citi has struggled to adequately train employees in risk, compliance and data roles, citing the bank’s own assessment, shedding light on why it was taking years to fix regulatory issues even as billions are spent on an overhaul.
The regulators again fined Citi in July for failing to make enough headway on those problems. It got some relief when the Federal Reserve terminated a 2013 enforcement action on the bank’s anti-money laundering programs earlier this month.
Citi is giving special attention to data, an area “where we got the feedback that we weren’t moving fast enough”, Chief Financial Officer Mark Mason told investors in September.
It has tasked technology head Tim Ryan to work alongside Chief Operating Officer Anand Selva in fixing the bank’s longstanding data management issues. The bank has also added a section to quarterly filings to address its work on the multiple regulatory penalties, known as consent orders.
Citi shares have gained 28% so far this year, while an index tracking large-cap banks is up 25% and the S&P 500 index has climbed 23% over the same period.
(Reporting by Tatiana Bautzer in New York and Manya Saini in Bengaluru, editing by Lananh Nguyen and Devika Syamnath)
