Citigroup (C.N) surpassed Wall Street’s expectations for its second-quarter earnings on Friday, reporting a significant 60% rise in investment banking revenue alongside gains in its services division. The bank recorded a profit of $1.52 per share for the quarter ending June 30, exceeding the anticipated $1.39 per share based on LSEG data.
Despite the strong performance, Citi faced a $136 million fine from U.S. regulators just two days prior for inadequate progress in addressing data management issues identified back in 2020. The bank had already accounted for these penalties and additional investments for data improvements in its second-quarter financials.
During a press call, Citi’s Chief Financial Officer Mark Mason detailed that while the bank’s plan to address these regulatory concerns is pending approval, it remains confidential. He indicated that potential delays in regulatory areas might lead to increased technology spending, further platform adjustments, or additional hires.
Following these announcements, Citigroup’s stock fell by 1.4%, reversing earlier gains in the premarket.
CEO Jane Fraser is spearheading a comprehensive overhaul aimed at enhancing performance, reducing costs, and streamlining operations. This includes a plan to reduce the workforce by 20,000 positions over the next two years. This quarter, Citigroup saw a 4% increase in revenue, reaching $20.1 billion, bolstered by a $400 million gain from the partial sale of Visa stock in May.
Citi has restructured its earnings reports to detail the performance of its five divisions individually: services, markets, banking, U.S. personal banking, and wealth management. This change is part of Fraser’s strategy to decrease bureaucracy and boost profitability, allowing division leaders to report directly to her.
The banking division, in particular, benefited from a robust increase in investment banking fees, which soared by 60% to $853 million, signaling a potential turnaround in the prolonged slump in industry deals. This contributed to a 38% rise in the division’s broader revenue, which totaled $1.6 billion and included corporate lending.
Mason expressed optimism about the financial markets on the call, citing strong debt issuance, a recovering IPO market, and a strong pipeline suggesting that mergers and acquisitions could play a significant role in the latter half of the year.
Recently, Citi recruited JPMorgan Chase veteran Viswas Raghavan to rejuvenate its banking division, focusing on multinational corporations.
In the services division, revenue rose by 3% to $4.7 billion. This division includes Citi’s treasury and trade solutions business, which processes $5 trillion of payments daily across 180 countries and is considered the company’s flagship service.
Market revenue also saw a positive uptick of 6%, reaching $5.1 billion, with equities trading revenue jumping 37%.
Despite these gains, the bank’s operating expenses decreased by 2% to $13.4 billion due to cost savings from the organizational restructuring. However, these savings were partially offset by fines and investments related to the regulatory compliance issues.
Citi now anticipates its full-year expenses to be at the upper end of its forecast range, between $53.5 billion and $53.8 billion.
On the same day, competitors such as JPMorgan Chase reported an increase in profit, while Wells Fargo saw a decline in net income and missed estimates for interest income.
Citi’s wealth management division, crucial to Fraser’s growth plan, saw a modest revenue increase of 2% to $1.8 billion. U.S. personal banking also grew by 6%, largely driven by its branded cards business.
As Citi undergoes a transformative year under Fraser’s leadership, the bank’s stock has seen a notable 28% increase, outperforming its major competitors and the broader market.
Despite these positive trends, Citi continues to navigate regulatory hurdles related to its risk management, data governance, and internal controls as mandated by the 2020 consent orders from the U.S. Federal Reserve and the Office of the Comptroller of the Currency.
