Citigroup shares surge on profit beat, core business strength

Citigroup Inc shares surged more than 10 per cent on Friday after the third-largest US bank posted a smaller-than-expected 27 per cent drop in quarterly profit on unusual strength in its treasury services business and its trading desks cashed in on market volatility, cushioning a slump in investment banking, reports Reuters.
The Treasury and Trade Solutions (TTS) business, Citi's crown jewel, posted a 33 per cent jump in revenue to $3 billion on the back of higher net interest income and fee growth, the best performance in a decade, the bank said.
Markets revenue, meanwhile, jumped by 25 per cent to $5.3 billion, thanks to volatility in the commodities and foreign exchange markets -- a particularly strong segment for the bank.
Investors and analysts hailed the quarter as a long-awaited sign that Chief Executive Officer Jane Fraser's ambitious plan to restructure the bank and bring its share price and profitability in line with peers was paying off.
"The results we saw from Citi today show that the turnaround plan is on track. Trading and interest income offset the industry-wide weakness in investment banking," Thomas Hayes, chairman and managing member at Great Hill Capital LLC, wrote on Friday. "This is the cheapest large ... bank with the highest upside potential."
The bank's profit fell to $4.5 billion, or $2.19 a share, in the quarter ended June 30, from $6.2 billion, or $2.85 a share, a year earlier. Excluding items, Citi earned $2.30 per share, according to Refinitiv calculations, beating the average analyst estimate of $1.68 per share.
The profit decline also reflected a $375 million increase in reserves for potential loan losses as the economic outlook darkens. A year earlier exceptional government stimulus and the economy's recovery from the pandemic had allowed it to release $2.4 billion of reserves.
That increase in reserves pushed up Citi's overall credit costs to $1.3 billion, a sharp contrast to the $1.07 billion benefit it enjoyed a year earlier.
Putting aside the reserve build, the stronger-than-expected results suggest Citi's core operating businesses are performing well, said analysts and investors.
"Citigroup appears to be one of the highlights of the bank earnings season so far," said David Wagner, a portfolio manager at Aptus Capital Advisors, adding that the treasury and trade solutions business was "firing on all cylinders, insulating all of the losses from the investment banking segment."
Revenue at TTS, which handles international business payments and cash management, surged on a 42 per cent increase in net interest income from higher rates and deposits, as well as a 17 per cent rise in fees, Citi said.