Citigroup surpassed Wall Street’s second-quarter profit expectations on Friday, fueled by a 60% surge in investment banking revenue and gains in its services division. This news sent the company’s shares up 3% in pre-market trading. The third-largest U.S. bank reported a profit of $1.52 per share for the three months ending June 30, exceeding analysts’ predictions of $1.39, according to LSEG data.
“Our results demonstrate the progress we are making in executing our strategy and the benefit of our diversified business model,” said Citi CEO Jane Fraser in a statement. These positive results come just two days after U.S. regulators fined Citi $136 million for “insufficient progress” in addressing data management issues identified in 2020. Regulators also mandated that Citi allocate sufficient resources to these efforts. Citi had already accounted for these penalties and additional investments in data management in the second quarter.
Fraser is implementing a comprehensive overhaul to enhance the bank’s performance, reduce costs, and simplify its complex operations. As part of this turnaround, Citi plans to cut 20,000 jobs over the next two years. Second-quarter revenue rose to $20.1 billion, up 4% from a year earlier, partly due to a $400 million gain from the conversion and partial sale of Visa stock in May.
Citi now reports earnings separately for its five business units: services, markets, banking, U.S. personal banking, and wealth, which were previously grouped into broader divisions. This new structure aims to reduce bureaucracy and boost profits, with segment leaders reporting directly to the CEO.
Investment banking fees jumped 60% in the second quarter to $853 million, reflecting a recovering market for deals. This increase contributed to a 38% rise in revenue for the banking division, which includes corporate lending, reaching $1.6 billion. Citi hired JPMorgan Chase veteran Viswas Raghavan as head of banking earlier this year. Fraser has high expectations for Raghavan, who is tasked with revitalizing the division that serves multinational corporations.
Services revenue grew 3% to $4.7 billion, driven by the treasury and trade solutions business, which saw flat revenue at $3.4 billion but processes $5 trillion in daily payments for multinational firms across 180 countries. Fraser and other leaders outlined their strategy for the services business at an investor day at the bank’s New York headquarters last month. Markets revenue rose 6% to $5.1 billion, boosted by a 37% increase in equities trading revenue. Operating expenses fell 2% to $13.4 billion in the reported quarter, thanks to cost savings from the reorganization. However, these savings were offset by fines for regulatory non-compliance and investments in remediation efforts.
Citi expects full-year expenses to be at the high end of its previously forecast range of $53.5 billion to $53.8 billion. Rival JPMorgan Chase reported a rise in second-quarter profit on Friday, while Wells Fargo’s net income declined and it missed estimates for interest income. The wealth management division, a key part of Fraser’s growth strategy, saw modest growth, with revenue up 2% to $1.8 billion this quarter. Citi’s U.S. personal banking revenue increased 6% to $4.9 billion, mainly due to growth in branded cards.
TURNAROUND IN FOCUS
Analysts view 2024 as a transitional year for Citi as it streamlines operations under Fraser’s turnaround plan. Investors have responded positively to these efforts, with Citi’s stock rising 28% this year, outperforming close rivals JPMorgan and Bank of America, as well as the broader equity markets.
However, Citi still faces regulatory challenges related to its “living will,” which outlines how it would be resolved in case of bankruptcy. Citi is also addressing two 2020 consent orders from the U.S. Federal Reserve and the Office of the Comptroller of the Currency, which directed the bank to rectify longstanding deficiencies in risk management, data governance, and internal controls.
