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Muted Trading, High Costs to Hurt Citigroup's (C) Q3 Earnings
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Citigroup Inc. (C - Free Report) is scheduled to report third-quarter 2023 results on Oct 13, before market open. While the company’s quarterly earnings are expected to have witnessed a year-over-year decline, its revenues are likely to have increased.
In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate on higher revenues in the Personal Banking and Wealth Management segment. However, the higher cost of credit was a spoilsport.
Over the trailing four quarters, C’s earnings surpassed the consensus estimate thrice and missed once, the surprise being 3.15%, on average.
Loans & Net Interest Income (NII): Demand for commercial and industrial loans remained muted in July and August, per the Fed’s latest data. Moreover, commercial real estate loans declined in July and August from the second-quarter end. Nonetheless, the demand for consumer loans was decent during the same time.
The Federal Reserve raised the interest rates by another 25 basis points in the quarter under review. Thus, the policy rate reached 5-5.25% in July 2023, marking the 11th time that the central bank hiked interest rates in a tightening process that began in March 2022. In September, the rate hike was paused. With this, interest rates reached a target of 5.25-5.5% in the third quarter, marking the highest level in around 22 years. Such high interest rates are also expected to have kept borrowers on the sidelines, thereby affecting the company’s lending book.
This, along with a slowdown in deposit growth and rising funding costs, is expected to have taken a toll on its net interest margin (NIM) and NII in the quarter. We project the third-quarter NII to decline sequentially to $13.2 billion.
Fee Income: Global deal-making witnessed a slight rebound in the third quarter, but merger and acquisition activities remained subdued on a year-over-year basis, with the deal volume and total value numbers remaining weak. Headwinds like geopolitical tensions, government shutdown, inflation, rising interest rates and fears of a global economic slowdown continued to weigh on deal-making.
Moreover, in the to-be-reported quarter, the IPO market witnessed considerable activity, with 26 initial public offerings jointly raising $7.7 billion. The amount matches the total proceeds raised in 2022. The performance was still subdued and nowhere near normal.
Further, follow-up equity issuances were soft in the to-be-reported quarter, while bond issuance volume improved from the prior-year quarter. Hence, the company’s IB revenues are likely to have declined in third-quarter 2023. We anticipate an IB income of $699.1 million for the quarter.
Also, market volatility and client activity were subdued in the third quarter due to seasonality. Also, the risks of an economic downturn, central bank’s hawkish monetary policy stances to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors. Thus, these factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. This is likely to impede total market revenues for Citigroup in the third quarter. We estimate the metric to reach $4.65 billion in the quarter under review.
Our estimate for total non-interest income is pegged at $5.98 billion, indicating a marginal year-over-year rise.
Expenses: Management has been focused on revamping its underlying technology, risk management and internal controls as part of remediation highlighted by the Office of the Comptroller of the Currency and the Federal Reserve. The company’s ongoing restricting efforts and investments in businesses like wealth management, IB, and treasury and trade solutions are likely to have driven costs in third-quarter 2023.
Also, in the quarter under review, Citigroup was levied a $2.9-million civil penalty by the SEC for violating record-keeping requirements. Hence, Citigroup’s expenses are expected to have increased. Our estimate for non-interest expenses stands at $13.67 billion.
Asset Quality: With the expectations of an economic slowdown due to macroeconomic headwinds, commercial bankruptcies and card delinquencies are expected to have affected Citigroup’s asset quality in the quarter. With this, C is expected to have built moderate reserves in the third quarter. Our estimate for provision for credit losses is pegged at $1.62 billion, whereas it reported a provision of $1.36 billion a year ago.
Share Repurchases: The bank suspended common share repurchases from third-quarter 2022 through first-quarter 2023 in anticipation of any temporary negative capital impacts related to the potential sale of Banamex in Mexico. But Citigroup expected to do a modest level of buybacks in the third quarter. Share repurchases during the quarter are expected to have aided bottom-line growth for the company.
Key Quarterly Developments
In September, Citigroup announced an organizational restructuring to simplify and eliminate extra management layers. The new model removes management layers in Personal Banking & Wealth Management, and the Institutional Clients Group. The bank also reduces existing regional layers in the Asia Pacific, Europe, Middle East and Africa, and Latin America.
In August,Citigroupcompleted the sale and migration of its Taiwan consumer business to DBS, which was announced in January 2022. The sale included the transfer of retail banking, credit card, mortgage and unsecured lending businesses. As a result of this sale, C is expected to attain a regulatory capital benefit of $1.2 billion.
What Our Model Predicts
According to our model, the chances of Citigroup beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Citigroup is -0.64%.
Prior to the third-quarter earnings release, the company’s earnings estimates have been revised downward to $1.24, indicating bearish analyst sentiment. It suggests a 17.3% year-over-year decline.
The Zacks Consensus Estimate for revenues of $19.29 billion implies a 4.2% rise from the prior-year quarter’s reported number.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and M&T Bank Corporation (MTB - Free Report) are a couple of stocks that you may want to consider, as these have the right combination of elements to post an earnings beat this season.
The Earnings ESP for FCNCA is +3.95% and it currently sports a Zacks Rank #1 (Strong Buy). It is slated to report third-quarter 2023 results on Oct 26.
The Zacks Consensus Estimate for FCNCA’s third-quarter earnings has moved marginally north over the past week.
MTB is scheduled to release third-quarter 2023 results on Oct 18. It currently has an Earnings ESP of +2.61% and a Zacks Rank #3.
The Zacks Consensus Estimate for MTB’s third-quarter earnings has moved marginally north over the past week.
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Muted Trading, High Costs to Hurt Citigroup's (C) Q3 Earnings
Citigroup Inc. (C - Free Report) is scheduled to report third-quarter 2023 results on Oct 13, before market open. While the company’s quarterly earnings are expected to have witnessed a year-over-year decline, its revenues are likely to have increased.
In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate on higher revenues in the Personal Banking and Wealth Management segment. However, the higher cost of credit was a spoilsport.
Over the trailing four quarters, C’s earnings surpassed the consensus estimate thrice and missed once, the surprise being 3.15%, on average.
Citigroup Inc. Price and EPS Surprise
Citigroup Inc. price-eps-surprise | Citigroup Inc. Quote
Major Factors to Influence Q3 Results
Loans & Net Interest Income (NII): Demand for commercial and industrial loans remained muted in July and August, per the Fed’s latest data. Moreover, commercial real estate loans declined in July and August from the second-quarter end. Nonetheless, the demand for consumer loans was decent during the same time.
The Federal Reserve raised the interest rates by another 25 basis points in the quarter under review. Thus, the policy rate reached 5-5.25% in July 2023, marking the 11th time that the central bank hiked interest rates in a tightening process that began in March 2022. In September, the rate hike was paused. With this, interest rates reached a target of 5.25-5.5% in the third quarter, marking the highest level in around 22 years. Such high interest rates are also expected to have kept borrowers on the sidelines, thereby affecting the company’s lending book.
This, along with a slowdown in deposit growth and rising funding costs, is expected to have taken a toll on its net interest margin (NIM) and NII in the quarter. We project the third-quarter NII to decline sequentially to $13.2 billion.
Fee Income: Global deal-making witnessed a slight rebound in the third quarter, but merger and acquisition activities remained subdued on a year-over-year basis, with the deal volume and total value numbers remaining weak. Headwinds like geopolitical tensions, government shutdown, inflation, rising interest rates and fears of a global economic slowdown continued to weigh on deal-making.
Moreover, in the to-be-reported quarter, the IPO market witnessed considerable activity, with 26 initial public offerings jointly raising $7.7 billion. The amount matches the total proceeds raised in 2022. The performance was still subdued and nowhere near normal.
Further, follow-up equity issuances were soft in the to-be-reported quarter, while bond issuance volume improved from the prior-year quarter. Hence, the company’s IB revenues are likely to have declined in third-quarter 2023. We anticipate an IB income of $699.1 million for the quarter.
Also, market volatility and client activity were subdued in the third quarter due to seasonality. Also, the risks of an economic downturn, central bank’s hawkish monetary policy stances to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors. Thus, these factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. This is likely to impede total market revenues for Citigroup in the third quarter. We estimate the metric to reach $4.65 billion in the quarter under review.
Our estimate for total non-interest income is pegged at $5.98 billion, indicating a marginal year-over-year rise.
Expenses: Management has been focused on revamping its underlying technology, risk management and internal controls as part of remediation highlighted by the Office of the Comptroller of the Currency and the Federal Reserve. The company’s ongoing restricting efforts and investments in businesses like wealth management, IB, and treasury and trade solutions are likely to have driven costs in third-quarter 2023.
Also, in the quarter under review, Citigroup was levied a $2.9-million civil penalty by the SEC for violating record-keeping requirements. Hence, Citigroup’s expenses are expected to have increased. Our estimate for non-interest expenses stands at $13.67 billion.
Asset Quality: With the expectations of an economic slowdown due to macroeconomic headwinds, commercial bankruptcies and card delinquencies are expected to have affected Citigroup’s asset quality in the quarter. With this, C is expected to have built moderate reserves in the third quarter. Our estimate for provision for credit losses is pegged at $1.62 billion, whereas it reported a provision of $1.36 billion a year ago.
Share Repurchases: The bank suspended common share repurchases from third-quarter 2022 through first-quarter 2023 in anticipation of any temporary negative capital impacts related to the potential sale of Banamex in Mexico. But Citigroup expected to do a modest level of buybacks in the third quarter. Share repurchases during the quarter are expected to have aided bottom-line growth for the company.
Key Quarterly Developments
In September, Citigroup announced an organizational restructuring to simplify and eliminate extra management layers. The new model removes management layers in Personal Banking & Wealth Management, and the Institutional Clients Group. The bank also reduces existing regional layers in the Asia Pacific, Europe, Middle East and Africa, and Latin America.
In August,Citigroupcompleted the sale and migration of its Taiwan consumer business to DBS, which was announced in January 2022. The sale included the transfer of retail banking, credit card, mortgage and unsecured lending businesses. As a result of this sale, C is expected to attain a regulatory capital benefit of $1.2 billion.
What Our Model Predicts
According to our model, the chances of Citigroup beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Citigroup is -0.64%.
Zacks Rank: Citigroup currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Prior to the third-quarter earnings release, the company’s earnings estimates have been revised downward to $1.24, indicating bearish analyst sentiment. It suggests a 17.3% year-over-year decline.
The Zacks Consensus Estimate for revenues of $19.29 billion implies a 4.2% rise from the prior-year quarter’s reported number.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and M&T Bank Corporation (MTB - Free Report) are a couple of stocks that you may want to consider, as these have the right combination of elements to post an earnings beat this season.
The Earnings ESP for FCNCA is +3.95% and it currently sports a Zacks Rank #1 (Strong Buy). It is slated to report third-quarter 2023 results on Oct 26.
The Zacks Consensus Estimate for FCNCA’s third-quarter earnings has moved marginally north over the past week.
MTB is scheduled to release third-quarter 2023 results on Oct 18. It currently has an Earnings ESP of +2.61% and a Zacks Rank #3.
The Zacks Consensus Estimate for MTB’s third-quarter earnings has moved marginally north over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.