Citigroup reports Strong drop in profit
2023.01.13 10:37
Citigroup reports Strong drop in profit
By Ray Johnson
Budrigannews.com – As the bank increased provisions to prepare for a worsening economy and investment banking revenue declined as a result of a sharp drop in dealmaking activity, Citigroup Inc. reported a 21% fall in quarterly profit on Friday, missing forecasts.
Citi increased its reserves by $640 million in the fourth quarter due to concerns about a possible recession. In contrast, Citi released $1.37 billion from its reserves in 2021 when pandemic-related loan losses did not occur.
On a media call, Chief Financial Officer Mark Mason stated, “Our base case is still a mild recession in the latter part of 2023.” He also stated that core inflation “appears to be very sticky” and that consumer and corporate balance sheets remain robust.
According to Refinitiv, Citi earned $1.10 per share on an adjusted basis for the fourth quarter that ended on December 31, which was lower than estimates of $1.14 per share.
In order to control inflation, the Federal Reserve of the United States increased its interest rate by 425 basis points last year from a level that was close to zero. This raised concerns of an economic downturn and compelled many businesses to anticipate slower revenue and profit growth.
Citi’s net interest income increased by 61% as a result of the Fed’s tightening by charging customers higher interest rates on loans.
Still, last year, financial markets were tumultuous and deal-making activity was slowed by the aggressive stance of the U.S. central bank, the war in Ukraine, and growing economic uncertainty. Citi’s investment banking revenue decreased by 58% as a result.
In general, the bank is still hiring, according to CFO Mason, “but it is also slowing down headcount additions in some areas.” He added, “We’re also repacing (hiring) where it makes sense in light of the environment that we’re in.” Bonuses in investment banking are likely to reflect a slowdown in deals, he said.
Traders repositioned their portfolios as a result of increased market volatility, boosting Citi’s markets division and the bank’s revenue by 6% to $18 billion.
Jane Fraser, chief executive officer of Citi, stated, “Markets had the best fourth quarter in recent memory.”
The bank exited some overseas markets under Fraser in order to raise its stock valuation and profitability in comparison to peers while also enhancing its risk controls in accordance with regulators’ requirements.
Jason Benowitz, associate partner and senior portfolio manager at CI Roosevelt, stated, “Citi achieved its target of 13.0% Tier 1 common equity faster than expected, as the bank had guided to reach this target in the middle of 2023.”
He stated that they believe the bank will be able to resume its share repurchase program sooner if the Tier 1 common equity target is achieved more quickly than anticipated, which would be beneficial to Citi shares.
Mason stated that Citigroup’s (NYSE:) departure ‘s retail bank Banamex in Mexico is “well underway,” but he cannot predict when the transaction will be completed. In addition to considering a potential initial public offering (IPO), Citi is attempting to sell the unit.
In morning trading, shares of Citigroup were down 0.7%.
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