ii view: Trading helps Citigroup beat forecasts

Despite a 53% rise in the share price over 2019, the valuation remains discounted. 

Fourth-quarter results to the end of December 2019

• Revenue up 7% to $18.4 billion
• Net Income of $5 billion up 15% 
• Earnings per share up 31% to $2.15

Chief executive Michael Corbat said:

“Our earnings of $5 billion for the fourth quarter marked a strong finish to 2019. Our full year Return on Tangible Common Equity of over 12% exceeded our target. Due to good client engagement, we drove balanced growth across our products and geographies, closing the year with 16 consecutive quarters of loan and deposit growth.

“We are on track to deliver our commitment of returning over $60 billion of capital to our shareholders over a three-year period. We enter 2020 in a strong competitive position, from capital and liquidity to talent and technology.”

ii round-up:

Citigroup Inc (NYSE:C), which operates across the two divisions of Global Consumer Banking and Institutional Clients, reported fourth-quarter results which beat analysts’ forecasts. 

The Institutional Clients business, like rival JPMorgan Chase & Co (NYSE:JPM), benefited from a 49% revenue rebound at its bond or fixed income operations, given tough prior year trading conditions. Investment Banking revenues improved by 6% to $1.4 billion, primarily reflecting strong equity and debt underwriting fees, with overall divisional net income or profit up 10% to $2.9 billion. The division provides cash management and trade solutions to 90% of Global Fortune 500 companies. 

At Global Consumer Banking, card revenue growth of 6% outpaced a 3% rise for retail banking. The business, which serves more than 110 million clients in 19 countries, reported revenue growth of 10% in Latin America, with both North America – the largest by sales – and Asia generating 4% gains. 

Citigroup, which previously committed to returning over $60 billion of capital to shareholders over a three-year period, posted earnings per share of $1.90 excluding a tax benefit, up from $1.64 in the fourth quarter of 2018, comfortably exceeding the analyst consensus estimate of $1.84 per share (source: Refinitiv). 

ii view:

A more global bank than rival JP Morgan, 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 daily. 

For investors, while the strength of the US economy going forward remains significant, its operations elsewhere offer opportunity. A prospective dividend yield of over 2% (not guaranteed) provides some attraction in the current ultra-low interest rate environment, while a price to net asset value of one is only marginally above the 3-year average and could offer more scope for upside than US rivals.  

Positives: 

• A focus on shareholder returns
• Geographical diversity
• Citi passed the US Federal Reserve’s latest stress test

Negatives:

• Trading operations at its institutional business can be volatile
• Equity Markets revenues fell by 23%
• Currency movements can impact 

The average rating of stock market analysts:

Strong buy