ii view: Trading is better than banking at Citigroup

Recession fears overhang Citigroup, but the business is more than just a bank. 

Third-quarter results to the end of September 2019

• Revenue up 1% to $18.6 billion
• Net Income of $4.9 Billion up 6% 
• Earnings per share up 19% to $2.07

Chief executive Michael Corbat said:

"Despite an unpredictable environment throughout the quarter, we continue to deliver on our strategy of improving shareholder returns through consistent, client-led growth while also executing against our capital plan. 

"Consistent with the commitment we made in 2017, we remain on track to return more than $60 billion of capital to our shareholders over a three-year period which ends next year."

ii round-up:

US bank Citigroup (NYSE:C) posted mixed third-quarter results, with revenues virtually flat year over year compared to an 8% gain at rival JPMorgan Chase (NYSE:JPM). 

Like its rival, the bank's institutional client facing businesses reported solid progress. Revenue and profit for its institutional business rose by 3% and 1% respectively, aided by its Treasury and Trade Solutions business, with Investment Banking revenue up 4%, largely reflecting continued strength in debt underwriting and advisory services. 

Unlike JP Morgan, progress for Citi's Global Consumer Banking business, which serves around 110 million clients in 19 countries, proved more disappointing. Both revenue and profitability came in virtually flat, with the benefit of stronger deposit volumes more than offset by lower deposit margins. 

Nonetheless, overall group revenue and profit marginally exceeded analyst expectations. Earnings per share of $1.97, and stripped of one-off items, beat the consensus estimate of $1.95 (source: Refinitiv). Citigroup's share price rose by around 2% in early US stock market trading. 

ii view:

A more global bank than rival JPMorgan, with less than half of its revenue generated in the US and over 30% coming from Asia and Latin America, Citigroup offers investors a smaller and structurally simpler alternative to its Dow Jones constituent rival. With operations divided between two broad segments, consumer and institutional, approximately $4 trillion of client monies pass through its infrastructures and facilitates daily. 

For investors, while the strength of the US economy going forward remains significant, its operations elsewhere offer opportunity. For instance, Citi is looking to take full control of its securities business in China. A prospective dividend yield of over 2.5% is not unattractive in the current ultra-low interest rate environment, while a 4%-plus underperformance versus the S&P 500 index over the last year could see the shares playing catch up. 

Positives: 

• A focus on shareholder returns
• Could be the first foreign bank to take full ownership of its Chinese securities business
• Passed the US Federal Reserve's latest stress test

Negatives:

• Rate cuts reduce margins between deposits and lending
• Flat performance for its Consumer Banking division
• Currency movements can impact 

The average rating of stock market analysts:

Buy