Citigroup (C.N) exceeded Wall Street expectations for second-quarter profit on Friday, driven by a rise in investment banking, markets, and services revenue.
However, shares fell 2% due to investor concerns about expenses, dividends, and market share.
The third largest U.S. lender reported a profit of $1.52 per share for the three months ended June 30, surpassing analysts’ expectations of $1.39, according to LSEG data.
Warren Kornfeld, senior vice president at Moody’s Ratings, noted, “Citi had a 7.2% shareholder return in the second quarter, far from its target of 11% to 12%.”
He added, “The results again reflect the services sector’s strength. But Citi has challenges in broadening market share and reducing expenses in its other segments.”
This performance comes shortly after U.S. regulators fined Citi $136 million for making “insufficient progress” in fixing data management problems identified in 2020.
During a conference call, Citigroup CEO Jane Fraser and CFO Mark Mason faced questions about the bank’s share buyback and dividend plans amidst regulatory issues.
They announced potential acquisitions of up to $1 billion in stock over the next quarter, with no cap on dividend payments.
Mason and Fraser discussed the bank’s ongoing problems with data quality, stating that Citi has unified many data collection systems but still requires further improvements.
They emphasized prioritizing regulatory reports crucial to U.S. regulators.
Jane Fraser is implementing a significant overhaul to improve performance, reduce costs, and simplify the bank’s operations.
As part of this effort, Citi plans to cut its workforce by 20,000 over the next two years.
Second-quarter revenue rose 4% to $20.1 billion, aided by a $400 million gain from the conversion and partial sale of Visa stock in May.
Citi now reports earnings for its five businesses separately: services, markets, banking, U.S. personal banking, and wealth.
Investment banking fees surged 60% to $853 million in the second quarter, signaling a recovery in the industry.
This contributed to a 38% increase in banking division revenue to $1.6 billion.
“We see continued strong debt issuance this quarter, good M&A, the IPO market has shown a glimpse of revival and the pipeline … is quite strong,” Mason stated.
Services revenue grew 3% to $4.7 billion, and markets revenue increased 6% to $5.1 billion, driven by a 37% rise in equities trading revenue.
Operating expenses fell 2% to $13.4 billion due to cost-saving measures. Citi expects full-year expenses to be at the high end of its forecast range, excluding regulatory fines.
Citi’s wealth management revenue increased 2% to $1.8 billion, while U.S. personal banking revenue grew 6% to $4.9 billion.
Despite challenges, analysts see 2024 as a transitional year for Citi under Fraser’s leadership. The bank’s stock has risen 28% this year, outperforming rivals JPMorgan and Bank of America.