Citigroup beats estimates as trading strength offsets drop in dealmaking

Citigroup reported higher-than-expected earnings on Friday as strength in the trading and cash management businesses helped offset rising credit costs and a drop off in deal activity caused by recession fears.

Net income fell to $4.5bn, or $2.19 per share, from $6.2bn, $2.85 per share, in the prior year when vaccine distribution gave banks enough confidence to release billions of dollars set aside to cover potential loan losses. But new concerns about high inflation and geopolitical uncertainty pushed Citigroup to add about $400mn to its loan loss reserves in the most recent quarter. Analysts had expected earnings of $1.67 per share.

The Federal Reserve has increased interest rates three times this year in an attempt to cool down the economy, but big banks have reported continued strength in consumer spending, while they have also benefited from improving margins from higher rates.

Revenue grew 11 per cent to $19.6bn, topping FactSet estimates of $18.4bn, driven by loan growth and better spreads in its treasury services business, where revenue jumped 33 per cent. Net interest income, or the difference between what a bank pays for deposits and earns on lending, increased 14 per cent to $12bn.

Consumer spending across Citigroup’s branded card portfolio jumped 18 per cent and loans increased 11 per cent. Revenue from loans to the bank’s corporate clients increased 13 per cent.

Fee revenue also grew as a 25 per cent jump in trading fees helped offset a 46 per cent decline in investment banking fees. Fixed-income fees increased 31 per cent to $4.1bn and equities rose 8 per cent to $1.2bn.