Citigroup Sees Loan Recovery After Profits Fall Beyond Second Quarter Estimates

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July 14 (Reuters) – Citigroup Inc (CN) management on Wednesday reported a pickup in consumer spending amid the booming US economy, predicting loan growth to pick up by year-end after quarterly profits greatly exceeded estimates.

Citi’s second-quarter earnings were boosted by the bank’s decision to withdraw $ 2.4 billion in funds set aside amid the COVID-19 pandemic to cover loans that could go bad. These expected losses have yet to materialize.

An economic recovery fueled by the vaccine rollout and President Joe Biden’s $ 1.9 trillion stimulus package brightened the outlook for Wall Street’s biggest banks, all of which released funds set aside during the pandemic.

Consumers, filled with cash from stimulus checks, began spending on travel and restaurants, while paying off debts without taking on more loans. This has hurt the interest income of major lenders, but bank executives expect this trend to reverse by the end of the year.

CFO Mark Mason said Citi expects more customers to revert to their pre-pandemic methods of carrying revolving balances and paying interest as government stimulus payments end. .

“The good news is that we continue to see spending pick-up and are also returning to pre-COVID acquisition levels. We expect growth in purchase sales to translate into growth in loans by the end of the year. end of the year as the recovery moderates, and consumers are moving back to more normal payment methods, ”Mason said.

Among the positive signs during the quarter, spending on Citi credit cards in the United States jumped 40% from a year earlier. Yet the company also weighed on profits as more consumers paid their monthly balances rather than paying interest to Citigroup and card loans fell 4%. Revenues from these cards have decreased by 12%.

The investment bank’s income edged up to $ 1.8 billion as traders benefited from a record M&A boom. Advisory fees for transactions jumped 77%.

Equity subscription income increased 11%, helped by higher commissions from initial public offerings and Special Purpose Acquisition Companies (SPACs). On the other hand, turnover from debt underwriting fell by 21%.

“Based on clean and essential economic benefits… results actually beat expectations at $ 1.86 / share. The beat was mainly due to better than expected credit quality,” the Oppenheimer analyst said Chris Kotowski in a note to clients.

SLOWING TRADE

While the banks’ results indicate that a recovery is underway, analysts said, this may not translate into big profits immediately due to low interest rates, weak demand for loans and ‘a great slowdown in commercial activity.

For the quarter ended June 30, Citi’s net income jumped to $ 6.19 billion, or $ 2.85 per share, from $ 1.06 billion, or 38 cents per share, a year earlier. Analysts on average expected earnings of $ 1.96 per share, according to data from Refinitiv IBES.

Reserve leases boosted earnings, helping to offset a decline in lending and credit card swaps.

Overall turnover plunged 12%, while loans fell 3%.

Global consumer revenues fell to $ 6.8 billion, down 7% from the previous year, largely due to declining card balances.

Trading revenues fell to $ 4.8 billion, down 30% from the previous year, when unprecedented volatility in financial markets helped generate record trading volumes.

Income from fixed income trading, a strong point for Citigroup, fell 43% to $ 3.2 billion from a year earlier.

On Tuesday, JPMorgan and Goldman Sachs (GS.N) reported sharp declines in bond trading income. Read more

Citigroup’s spending jumped 7% in the quarter, due to spending on improving its risk and control systems to comply with regulatory requirements.

Investors are concerned about the spending as the bank has not been able to say how much money and how long it will take to meet regulatory demands and fix its systems.

The spending is part of what Fraser called the “transformation” of Citigroup and includes technological improvements that she says will ultimately reduce costs.

Citi shares were trading slightly lower after rising as much as 3% earlier on Wednesday.

Reporting by Anirban Sen in Bengaluru and David Henry in New York; Editing by Sriraj Kalluvila and David Gregorio

Our standards: Thomson Reuters Trust Principles.

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