Citi Earnings: Beat, Buybacks, or Bust?

Citigroup (NYSE: C) reports Q3 tomorrow before the bell, and as ever with the most global of the U.S. megabanks, the story is a blend of restructuring progress, capital return, and whether a healthier market tape is finally flowing through to fee income. The key watch items are straightforward: delivery versus guidance on revenue and expenses; resilience in net interest income (NII) as rates drift lower; the durability of Markets and investment-banking momentum; card credit normalization; and the timeline/ economics around Banamex. Wrap those in management’s capital return stance and you have the near-term equity case.

Consensus pegs Q3 EPS at $1.90 (range $1.80–$2.10) on revenue of about $21.1B. Full-year EPS sits near $7.58 with FY revenue at $84.95B. Options price an implied move of roughly ±4.5% into the print. The sell-side leans constructive (consensus BUY, average price target $110), and the call is slated for 11:00 a.m. ET on 10/14/25. Directionally, investors are primed for modest top-line growth, cleaner operating leverage, and stable credit—good enough to keep the multi-year transformation thesis intact, if not quite victory laps.

What could drive upside (or not)? At September’s Barclays Financial Services Conference, Citi’s CFO flagged Q3 investment-banking fees and Markets revenue up mid-single digits YoY, “good fee momentum,” and no abnormal card delinquency signals. He also indicated FY25 revenue should be higher than prior guidance (~$84B), while expenses would land above the $54.3B guide but with a neutral-to-positive earnings impact—translation: spending to grow, but with productivity and revenue support. Management also reiterated an active buyback stance; later, the CFO said Citi expects to repurchase at least $4B in the current quarter. In short, the setup asks whether Q3 execution matches the early-Q3 tone: modestly better fees, steady credit, and discipline on costs even as transformation spend persists.

Banamex remains the strategic wild card. Citi has rejected a bid from Grupo México and is pursuing a stake sale (including to Fernando Chico Pardo) alongside an IPO to complete the divestiture “responsibly.” Management has said it is on track for an IPO by year-end, subject to markets and approvals; practically, investors should allow for 2026 slippage if conditions wobble. The market will care less about the exact date than about capital relief, stranded-cost runoff, and residual earnings drag.

Against that backdrop, Q2 offers a useful baseline. Citi delivered EPS $1.96 on $21.7B of revenue, with ROTCE 8.7% and CET1 13.5%. Performance was broad-based: Markets revenue +16% to $5.9B (FICC $4.27B), Banking +18% with IB fees +13% to $1.9B (ECM +25%, Advisory +52%), Wealth +20% revenue with a 29% pretax margin, U.S. Personal Banking +6% on higher interest-earning card balances, and Services again the “crown jewel” with a 23% ROTCE. Expenses were $13.6B (+2%), cost of credit $2.9B (card NCOs in range; June card DQ 1.38%, charge-offs 2.12%). Management nudged the outlook to the high end of the ~$84B FY revenue range, guided NII ex-Markets up ~4% in 2025, and framed FY25 expenses around $53.4B (flexing with revenue). The medium-term target remains 10–11% ROTCE in 2026 as transformation costs decline.

For Q3 specifically, investors will home in on four levers. First, NII: deposit betas, earning-asset mix, and the pace of Fed cuts will dictate margin durability. Citi’s global footprint offers diversified NII drivers, but lower short rates and competitive deposit pricing are real headwinds. Second, fee engines: Does the Markets/IB lift that began in Q2 persist? The Barclays color suggests it does, albeit at mid-single digits rather than fireworks. Third, credit: Management continues to guide to branded-cards net losses in the 3.5–4.0% range (retail services 5.75–6.25%), with no unusual stress; August/September monitors broadly corroborate normalization, not deterioration. Fourth, expenses and transformation: the path of stranded-cost removal, the timing of regulatory milestones, and when transformation dollars bend the efficiency ratio lower are all central to 2026 ROTCE math.

Valuation keeps a cushion under the stock. By several measures, Citi screens cheaper than peers: a forward P/B around ~0.9x and a below-peer forward P/E, with a competitive dividend yield augmented by ongoing buybacks. That’s why you see arguments that Citi offers the best risk/reward among GSIBs—the path to double-digit ROTCE is not free, but at sub-book, investors are paid to wait. Recent target hikes (e.g., Piper to $104, shifting to ~11x 2026E EPS) reflect incremental faith that revenue momentum and expense discipline are finally rowing in the same direction.

One more plotline: policy and capital. Management welcomed greater regulatory transparency and continues to position for steady capital return within buffers. If macro remains benign and Banamex progresses, the combination of buybacks, improving fee mix, and declining transformation spend can take ROTCE up the stairs—slowly, then suddenly.

Bottom line, heading into Q3, Citi doesn’t need perfection. It needs confirmation: revenues near plan, fees modestly better, credit boring, expenses controlled, and Banamex moving. Do that, and the stock’s sub-book multiple has room to mean-revert, even if tomorrow’s reaction is as “tepid” as bank-tape tradition.