A number of financial companies are reporting Q2 earnings today.
We wanted to take a closer look at Citigroup (C 66.325, -2.185, -3.19%). We all know Citi, but maybe
not some of the details.
Citigroup is a global diversified financial services company whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management. Citi has approximately 200 mln customer accounts and does business in more than 160 countries and jurisdictions.
Citigroup has two primary business segments: Global Consumer Banking (GCB) and Institutional Clients Group (ICG), with the remaining operations in Corporate/Other. Its GCB segment consists of retail banking and wealth management, including small business and commercial banking, residential real estate, asset management in Latin America. It also includes Citi-branded credit cards and Citi retail services. Its ICG segment includes Banking (Investment Banking, Treasury and Trade Solutions, Corporate Lending and Private Bank) and Markets and Securities (Fixed Income, Equity Markets, Securities Services). Its Corporate/Other segment has Treasury, Operations, and Technology as well as some legacy non-core assets (consumer loans, some consumer portfolios etc.)
Turning to the Q2 results, EPS rose 27% Year/year to $1.63 which was better than market expectations. This was driven by higher net income as well as an 8% reduction in shares outstanding. Revenue rose 1.7% year/year to $18.47 bln, which was slightly lower than expected. Revenue growth was driven by growth in both the ICG and GCB segments, partially offset by lower revenue in Corporate / Other due to the continued wind-down of legacy assets.
Citi ended the quarter with a book value per share of $71.95 and a tangible book value per share of $61.29, representing Year/year decreases of 7% and 9%, respectively. Book value and tangible book value were largely unchanged sequentially, as the benefit of a lower share count was offset by the aggregate impact to common equity of net income, share repurchases and dividends, as well as currency translation.
GCB revenues of $8.3 bln increased 2%, driven by growth across all regions. North America GCB revenue of $5.0 bln increased 1%, driven by higher revenue in Retail Banking and Citi Retail Services, partially offset by lower revenues in Citi-Branded Cards. Excluding mortgage, Retail Banking revenue increased 9%, driven by continued growth in deposit margins and investments, as well as increased commercial banking activity. ICG revenue of $9.7 bln increased 3%, as 6% growth in Banking more than offset a 1% decline in Markets and Securities Services.
Citigroup says the Q2 results demonstrate good momentum across its franchise and that it's firmly on track to achieve the financial targets introduced last year at Investor Day. During the quarter, Citigroup drove strong Year/year revenue growth in many of its businesses, including its International Consumer franchise, Treasury, and Trade Solutions, Equities, and the Private Bank. Citi also saw solid loan growth that was balanced across businesses and geographies. Its focus on expenses has given Citi the ability to self-fund many of its investments and resulted in an improvement in its efficiency ratio for both Q2 and 1H18.
In sum, with the stock trading lower in the premarket, it seems that investors are a bit disappointed with Citigroup's Q2 earnings report. The EPS upside in Q2 was good, but it was smaller than each of the three prior quarters. Citi tends to be pretty consistent in terms of reporting EPS upside with no misses since 4Q14, so that is a good track record. The stock had moved up this week ahead of the Q2 report. While the report was not bad, investors are selling the stock modestly today.
- OUR VIEW
- LEARNING CENTER