Citigroup misses on bottom line as higher credit costs weigh on results

Citigroup (C) reported Q3 2024 EPS of $1.51, slightly below the $1.63 EPS from the prior year, and revenue of $20.32 billion, up from $20.1 billion a year ago, beating analyst expectations of $1.51 EPS and $20.1 billion in revenue. Net income for the quarter was $3.2 billion, down from $3.5 billion, driven by higher credit costs, although the revenue increase across key business segments offset some of this pressure.

Shares of C are pressing higher despite the bottom line miss. The under peformance was due to the high credit costs associated with Citigroup's credit make up which involved some lower rated customers in terms of credit. The news has not shaken investor confidence as the bank continues to turn around its business under new CEO Jane Fraiser and is viewed as cheap compared to peers. Still, the results highlight the income disparity in the U.S. economy.

In capital markets, Citigroup's markets revenue reached $4.82 billion, surpassing the estimate of $4.6 billion. Equities sales and trading delivered $1.24 billion, up 32% year-over-year, beating expectations of $1.03 billion, while Fixed Income, Currencies, and Commodities (FICC) trading revenue came in at $3.58 billion, slightly ahead of the $3.54 billion estimate. This strong performance reflected momentum in equity markets, particularly in derivatives and cash products, though FICC faced some pressure from lower rates and currency revenues.

Citigroup's investment banking revenue surged 31% to $934 million, driven by strength in Debt Capital Markets and advisory fees. The 44% increase in investment banking fees, exceeding the $874.5 million estimate, was largely attributed to robust investment-grade debt issuance and follow-on activity in the equity markets, although IPO activity remained subdued due to mid-quarter market volatility.

On the credit front, Citigroup’s total cost of credit rose to $2.68 billion, in line with estimates of $2.66 billion, as higher credit losses in the card portfolio weighed on results. Net charge-offs were $2.17 billion, slightly lower than the expected $2.35 billion, and the total allowance for credit losses (ACL) increased to $22.1 billion from $20.2 billion last year. However, non-accrual loans decreased by 34% year-over-year, signaling some improvement in credit quality.

Citigroup's net interest income was $13.36 billion, reflecting the resilience of its core banking operations, while U.S. Personal Banking revenue grew by 3% to $5.05 billion, just below the expected $5.09 billion. Wealth management revenues saw strong growth, increasing by 9% to $2 billion, above the $1.8 billion estimate, as the bank continues to see benefits from investments in client assets and fee revenues.

Operating expenses were $13.25 billion, down 2% from the prior year, reflecting the company's cost-cutting efforts, including organizational simplification and stranded cost reductions. Citigroup’s efficiency ratio was 65.2%, indicating improved operational efficiency and a positive trajectory toward meeting its expense and revenue targets for the year.

Citigroup’s capital position remained strong, with a common equity Tier 1 ratio of 13.7%, in line with expectations. Total loans were $688.9 billion, slightly below the estimate of $690.56 billion, while total deposits were steady at $1.31 trillion, demonstrating stable funding and liquidity conditions.

Overall, Citigroup's Q3 earnings highlighted strength in capital markets and investment banking, which outperformed expectations, offsetting some credit headwinds. The bank's positive momentum heading into 2025 reflects its ability to navigate the current macroeconomic environment while maintaining strong cost controls and improving credit quality.