Markets
Citigroup Had Its Best Third-Quarter Revenue in a Decade. The Stock Fell 5.6%
Citi beat estimates on October 13 with $23.85 billion of revenue and earnings of $2.85 a share, then closed at $124.53, down 5.60% and at its lowest level since May 19. Investors focused on weaker fee income and higher credit costs.
On paper, Citigroup's third quarter was its strongest in years. Revenue rose 8% from a year earlier to $23.85 billion, the best third-quarter figure in a decade, against roughly $23.7 billion expected. Earnings came in at $2.85 a share, comfortably above the $2.65-$2.66 analysts had pencilled in. The bank bought back $3.0 billion of its own stock during the quarter and raised its full-year target for return on tangible common equity to above 11%.
The share price told a different story. Citi opened at $131.35, just below Monday's close of $131.92, briefly traded up to $133.50, and then sold off for most of the session. It closed at $124.53, down 5.60%, a few cents above the day's low of $124.44. That is its lowest close since May 19.
The details that worried investors were in the mix of revenue rather than the total. Coverage of the results pointed to a 4% decline in non-interest revenue — the fees and trading income that do not depend on interest rates — and to markets revenue down 13% from the second quarter. Analysts also flagged higher provisions for credit losses and the bank's exposure to Mexican consumer credit. When a beat comes mostly from lending income, while fee businesses soften and loan-loss reserves rise, the market tends to discount the headline numbers.
Citi was not alone. Wells Fargo fell 3.10% to $80.74 after revenue of $21.9 billion came in below expectations, and JPMorgan and Goldman Sachs both gave up early gains to close lower. The sector as a whole slipped: the Financial Select Sector SPDR (XLF) slipped 0.42% and the regional bank ETF (KRE) 0.72%.
Bank of America and Morgan Stanley report before the US open on October 14, on the same morning as the September CPI report. After a session in which beating estimates was not enough, the bar for both is clearly higher than the consensus figures alone suggest.