Citigroup Profit Rises 40% to $5.25 Billion on Its Best Third-Quarter Revenue in a Decade

Citigroup reported third-quarter revenues of $23.85 billion and earnings of $2.85 a share on Tuesday, ahead of Wall Street expectations, as its Services business grew 15% and a year-ago Banamex charge dropped out of the comparison.

The streak held. Citigroup earned $2.85 a share in the third quarter, up 53% from $1.86 a year earlier on a reported basis and ahead of the $2.65 FactSet consensus compiled by Barron's, on revenues of $23.85 billion, up 8%. Net income was $5.25 billion, up 40% from a year earlier. It was Citi's third straight bottom-line beat and its tenth in eleven quarters, by MarketWatch's count.

Services did the heavy lifting

Services revenues were $6.6 billion, up 15% from a year earlier, on growth in both Treasury and Trade Solutions and Securities Services, with net interest income up 17% on higher deposit balances and spreads. Wealth revenues were $3.3 billion, up 15%, with growth across all of its businesses and Citigold and Retail Banking revenues up 16% on higher deposit spreads.

Markets and Banking grew more modestly. Total Markets revenues were $6.11 billion, up 6%, and Banking revenues including loan-hedge gains were $1.74 billion, up 6%, as investment banking revenues rose 9% on stronger equity capital markets activity.

Trading was steady, not spectacular

Inside Markets, fixed income revenues were $4.39 billion, up 4%: rates and currencies revenue was essentially flat at $2.97 billion, while spread products and other fixed income rose 13% to $1.42 billion. Equity markets revenues were $1.73 billion, up 14%, which the company attributed to strength in Asia and in its prime business. The mix matters: unlike Goldman's 72% equities surge the same morning, Citi's trading gain was broad and single-digit at the total level.

The year-ago comparison flatters the headline

The 53% reported EPS jump overstates the underlying improvement, and Citi says so itself. The year-ago quarter absorbed a $726 million goodwill impairment, recorded in operating expenses, tied to the agreement to sell a 25% stake in Banamex. Excluding that charge, year-ago earnings were $2.24 a share and net income was $4.5 billion, which puts this quarter's underlying EPS growth at 27%.

Expenses tell the same two-sided story. Operating expenses were $13.95 billion, down 2% as reported because the charge did not repeat, but up 3% once the charge is excluded, as higher transactional and servicing costs and deposit insurance outweighed lower professional-services spending. The efficiency ratio still improved to 58.5% from 64.7% a year earlier, because revenue grew faster than underlying costs.

Credit stayed contained

The provision for credit losses was $2.59 billion, up 6% from a year earlier, reflecting $2.22 billion of net credit losses — unchanged from a year earlier — and a net reserve build of $369 million that the company tied to the macroeconomic outlook and portfolio growth. In U.S. Consumer Cards, revenues were flat at $4.7 billion: net interest income rose 6% on higher interest-earning balances, but non-interest revenue fell sharply on higher partner payment accruals and rewards costs, and segment net income fell 8% to $851 million.

Returns are the scoreboard now

Return on tangible common equity was 11.5%, up from 8.0% a year earlier but down from 13.0% in the second quarter, and management framed it against a near-term goal of 11% to 13% before a longer-term aim of 14% to 15%. Citi returned $4.1 billion to common shareholders in the quarter, an 85% payout ratio, and said it expects to exceed this year's return target. The Common Equity Tier 1 ratio ended the quarter at 12.8%, book value per share was $115.61, loans grew 12% to $820 billion and deposits rose 9% to $1.51 trillion.

What to watch next

The questions from here are what management says about expenses and the Banamex exit on the 11:00 a.m. ET call, whether Services can sustain mid-teens growth, and how Wednesday's Bank of America and Morgan Stanley results — and September CPI the same morning — frame Citi's steady quarter against the sector. Citi also said it participated in the quarter's six largest transactions, a claim investors will weigh against a banking backlog that, at Goldman, shrank in the quarter.

A note on sourcing: the revenue, earnings, segment, expense, credit, capital and shareholder-return figures are Citigroup's own figures in its October 13 release, read in full. The consensus estimates are FactSet figures compiled by Barron's before the release, and the earnings-beat streak count is MarketWatch's.