April 14 (Reuters) – Citigroup’s first-quarter profit beat Wall Street expectations as it won more borrowers who paid higher interest on loans.
While net interest income rose 23% to $13.3 billion, Citi also set aside $241 million to cover potential loan losses, up from $138 million a year earlier, according to its results announced Friday. Citi earned $1.86 per share in the first quarter, beating analysts’ average estimate of $1.67, according to Refinitiv data. Shares rose 4.2% in afternoon trading.
Citigroup has joined other banking giants, JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N) in preparing for a potential recession later this year.
Chief Executive Jane Fraser told analysts the bank is preparing for a shallow recession later this year, which could spiral into a more severe credit crunch.
The bank expects more customers to default on payments in the coming quarters as a mild recession looms during the second half of the year, said the chief financial officer.
Credit card delays are on the rise, Mason added, but still below pre-pandemic levels. He added, “I expect that by the time we get to the first part of 2024, we will likely be at normal levels” of non-conforming loans on credit cards.
The CFO said Citigroup had already tightened consumer lending standards and monitored risks in the banking sector, especially regional banks, enhanced lending and commercial real estate.
The banking sector was rattled by the collapse of Silicon Valley Bank and Signature Bank last month, wiping billions of dollars off market value and triggering large outflows of deposits from mid-sized banks to larger competitors.
Citi’s deposits were roughly flat at $1.33 trillion from last year as investors shifted their money to money market funds in pursuit of greater returns. But Fraser & Mason told analysts that the bank saw an increase in deposits in March coming mainly from businesses. The CEO said that the majority of institutions’ deposits are integrated into operating accounts to run their day-to-day operations, and this will make them very stable.
The bank’s investment in corporate services resulted in a 31% growth in revenue in treasury and trading solutions.
Thomas Hayes, chairman and managing director at Great Hill Capital, said Citi reported the weakest growth of the big three banks that reported results on Friday, but still beat expectations and managed to buy back $1 billion worth of shares.
“Today’s bank earnings put a dagger in the heart of the bears,” Hayes said. Citi also got a windfall from asset sales, with revenue from its legacy franchise unit up 48% to $2.9 billion as the bank made a gain from selling its Indian consumer business to Access.
The return of investment banking?
Mason expressed cautious optimism about the recovery in investment banking. Revenue in the division was down 25% year-over-year, hurt by the weakest deal market in more than a decade.
However, the bank saw a rebound in investment grade bond issuance in the first quarter and expects investment banking activity to recover in the latter part of the year. Citi fell four notches to ninth in the 2023 list of financial advisors based on transaction value, according to data from Dealogic.
Under the direction of CEO Gene Fraser, the bank streamlined its business in an effort to increase revenue and increase competition with competitors.
“The banking crisis may take attention away from efforts for a short period of time, but in the long run, this crisis will demonstrate where Citigroup’s strength lies by serving as a major stress test and will help streamline operations in the long term,” said Mona Dajani, partner at the law firm. Shearman & Sterling LLP, headquartered in New York.
Reporting by Mahnaz Yasmin in Bengaluru. Edited by Lananh Nguyen
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