Citigroup executives see better growth ahead, but not
yet
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[July 14, 2018]
By Sweta Singh and David Henry
(Reuters) - Citigroup Inc <C.N> is still on
track to hit its goals for efficiency and revenue growth, executives
said on Friday, as analysts pressed them to explain how those
expectations line up with second-quarter results.
Although Citigroup beat Wall Street profit expectations, its revenue
fell short of forecasts and businesses like branded credit cards and
retail banking in Mexico are not yet generating the kind of revenue
investors want to see.
During a conference call, Chief Executive Officer Michael Corbat touted
progress Citigroup has made toward goals he set last year to grow
revenue faster than expenses and return more capital to shareholders.
Although some businesses are not operating at their full potential,
management has confidence in longer-term growth prospects, Chief
Financial Officer John Gerspach said.
Analysts asked how Citigroup will improve performance without having to
spend a lot more on those businesses. Wells Fargo's Mike Mayo, the
fourth analyst to bring up a question about costs, wondered whether
management would need to spend more on digital banking to attract
customers.
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"I don't think there's anything we're going to surprise you with in
terms of new investments," said Corbat.
Expenses accounted for 58 percent of Citigroup's revenue in the second
quarter, marking the seventh straight period of improvement, but
remained well above the "low-50s" range Corbat wants to reach by 2020.
Since taking the helm almost six years ago, Corbat has struggled to get
Citigroup's profit engine humming. The bank has been recovering from the
2007-2009 financial crisis, which left it with a $45 billion bailout
bill, a diluted stock, and an assortment of businesses around the globe.
Corbat set about divesting underperforming businesses and amplifying
others worth keeping, but Citigroup is still far less profitable than
rivals.
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![](../images/071418PICS/busine59.jpg)
The Citigroup Inc (Citi) logo is seen at the SIBOS banking and
financial conference in Toronto, Ontario, Canada October 19, 2017.
REUTERS/Chris Helgren
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JPMorgan Chase & Co <JPM.N>, which also released earnings on Friday, generated a
return on assets of 1.28 percent last quarter compared with 0.94 percent at
Citigroup. JPMorgan's return on common equity was 14 percent, compared with 9.2
percent at Citigroup.
Citigroup's share price reflects the difference, trading at 93 percent of book
value, while JPMorgan investors pay 1.6 times what the bank says its assets are
worth.
"We expect Citigroup to be a relative underperformer as concerns still linger
about long-term revenue growth in the company's cards business," KBW analysts
wrote in a report on Friday. "In addition, loan growth missed estimates and that
is opposite of what we have seen at peers that have reported today."
Citigroup shares fell 2.3 percent to close at $67 on Friday. The stock is down
10 percent for the year, compared with a 3.0 percent drop in the S&P 500 Banks
index <.SPXBK>.
Overall, Citigroup's net income rose 16 percent to $4.5 billion, or to $1.63 per
share, compared with $3.9 billion, or $1.28 per share, in the second quarter of
2017. The boost was driven by lower taxes and more revenue from providing
treasury and trade services to corporations, as well as consumer banking.
Analysts had expected Citigroup to report $1.56 per share in earnings, according
to Thomson Reuters I/B/E/S.
Revenue rose about 2 percent to $18.47 billion, slightly below the average
expectation of $18.51 billion. Its loan book grew 5.0 percent to $671 billion
from $641 billion.
(Reporting by Sweta Singh in Bengaluru and David Henry in New York; editing by
Sriraj Kalluvila and Clive McKeef)
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