Citi's 12% Revenue Growth and $20 Billion Buyback Plan: A Winning Combination

Citigroup (C) reported a strong fourth-quarter fiscal 2024, with revenue growth of 12% to $19.58 billion, topping analyst estimates. The bank's earnings per share (EPS) of $1.34 also beat expectations, and the board approved a new, multi-year $20 billion share buyback program. Here's a closer look at Citi's impressive performance and what it means for investors.



Key Drivers of Citi's Revenue Growth

1. Net Interest Income (NII): Citi's NII increased significantly, with trading NII results being more substantial than expected. This contributed to the overall revenue growth (Source: Keefe, Bruyette & Woods analyst David Konrad).
2. Revenue Growth Across Main Business Lines: Citi reported revenue growth across all its main business lines, which helped drive the overall 12% increase. This growth was seen in Services, US Personal Banking (USPB), and Investment Banking, partially offset by lower revenues in Markets and Wealth (Source: Citigroup's Q4 2023 earnings report).
3. Expansion in Key Markets: Citi's expansion in key markets, such as Asia, contributed to the revenue growth. For instance, investment activity in Asia rebounded during the quarter, with revenues up 21% (Source: Citigroup's Q4 2023 earnings report).
4. Cost of Credit Reduction: Citi's cost of credit tumbled 27% in Q4 2023, which helped boost net income and contributed to the revenue growth (Source: Citigroup's Q4 2023 earnings report).
5. Share Gains and Client Wins: Citi's Services revenues were up 16% for the year, driven by share gains and client wins (Source: Citigroup's Q4 2023 earnings report).



Citi's $20 Billion Buyback Plan: A Win for Shareholders

Citi's board of directors approved a new, multi-year $20 billion share buyback program, which is expected to kick off in the first quarter of 2025. This plan is a significant move by the company to return capital to shareholders through dividends and share repurchases. The buyback program is expected to have a positive impact on shareholder value and earnings per share (EPS) growth for several reasons:

1. EPS Growth: By repurchasing shares, Citi reduces the number of outstanding shares, which in turn increases the earnings per share. This is because the same amount of earnings is now distributed over fewer shares. For example, if Citi's net income remains the same but the number of outstanding shares decreases by 10%, the EPS would increase by approximately 10%.
2. Shareholder Value: Share buybacks can increase shareholder value by reducing the number of shares outstanding, which can lead to an increase in the stock price. This is because the demand for shares increases while the supply decreases, driving up the price. Additionally, buybacks can signal to the market that the company's management believes the stock is undervalued, which can further boost investor confidence and the stock price.
3. Dividend Yield: While not directly related to the buyback plan, it's worth noting that Citi also returned $7 billion in capital to shareholders through dividends and buybacks in 2024. This indicates a commitment to returning value to shareholders, which can increase the dividend yield for existing shareholders.



Citi's Revised ROTCE Target: A Path to Long-Term Profitability

Citi revised its return on tangible common equity (ROTCE) target for 2026 to a range of 10% to 11%, down from the previous target of 11% to 12%. This revision indicates that the bank is now projecting a lower level of profitability for the year. However, it is important to note that this revised target is still better than some analysts' expectations, such as Saul Martinez of HSBC, who called for a ROTCE of 9.8% in a research note.

The implications of this revised target on Citi's long-term profitability are as follows:

1. Continuous improvement: CEO Jane Fraser stated that the revised ROTCE target is a "waypoint, not a destination," indicating that the bank intends to improve returns well above that level in the future. This suggests that Citi is committed to enhancing its profitability over the long term.
2. Investment in businesses: The bank is lowering its near-term ROTCE expectations as it continues to invest in its businesses and make improvements to its risk management, compliance, and internal controls systems. These investments are expected to drive stronger performance in the long run.
3. Positive operating leverage: Citi expects to achieve positive operating leverage companywide and within each of its five core businesses. This means that the bank's revenue growth is outpacing its expenses, which should lead to improved profitability over time.
4. Revenue growth: The bank expects revenue growth of roughly 4% in 2025 and 2026, even with expense initiatives. This steady revenue growth, combined with positive operating leverage, should contribute to Citi's long-term profitability.
5. Stock buybacks: Citi's board of directors approved a new, multi-year $20 billion share buyback program. Share buybacks can help increase earnings per share (EPS) by reducing the number of outstanding shares, which can positively impact the bank's long-term profitability.



In conclusion, Citi's 12% revenue growth in Q4 2024, driven by key factors such as net interest income, revenue growth across main business lines, and cost of credit reduction, is a testament to the bank's strong performance. The $20 billion buyback plan, approved by the board of directors, is expected to have a positive impact on shareholder value and EPS growth. While Citi's revised ROTCE target for 2026 indicates a lower level of profitability than previously expected, the bank's commitment to continuous improvement, investment in businesses, positive operating leverage, revenue growth, and stock buybacks should contribute to its long-term profitability.