(Bloomberg) — Citigroup Inc. posted its biggest quarterly profit of the pandemic after reaping another windfall from trading bonds and expressing newfound confidence in the resilience of its loan book.
Traders focusing on fixed income, currencies and commodities posted their best third quarter in eight years, while the firm set aside about $1.5 billion less for bad loans than what analysts had estimated. That helped the bank blunt the impact of regulatory costs and low interest rates.
While the trading boon came from a surge in client activity that’s helped Wall Street banks throughout the pandemic, Citigroup’s provisions for loan losses marked a shift. After setting aside almost $15 billion in the year’s first half for problem loans, the firm stockpiled only $2.26 billion in the third quarter — nearly returning to the year-earlier level.
“Credit costs have stabilized,” Chief Executive Officer Michael Corbat said in a statement announcing results Tuesday. Overall, “we continue to navigate the effects of the Covid-19 pandemic extremely well.”
The bank’s bond traders boosted revenue 18% from a year earlier to $3.79 billion, while its stock traders saw a 15% increase to $875 million — in both cases surpassing analysts’ estimates.
Citigroup shares rose 1.6% to $46.60 at 8:39 a.m. in early New York trading. They had declined 43% this year.
The company had offered relatively little guidance on loan provisions, leaving analysts guessing far too high. At an investor conference in September, Chief Financial Officer Mark Mason predicted “an additional increase in reserves, albeit meaningfully lower” than earlier this year.
Unemployment, GDP
Despite setting aside less in provisions, Citigroup’s forecast for unemployment and growth in gross domestic product worsened in the quarter. The bank now expects unemployment to be 6.4% at the end of next year, compared with its previous estimate of 5.9%. Citigroup believes GDP will likely grow only 3.3% next year, versus the 5.5% the bank previously expected.
Total costs were still elevated by a $400 million fine announced this month by the Office of the Comptroller of the Currency for the bank’s failure to fix longtime deficiencies in infrastructure and controls. The sanction — which some analysts anticipated would be booked later — contributed to a 5% jump in expenses to $11 billion in the third quarter. The bank also entered into two consent orders with regulators that will require years of spending to overhaul its systems.
“We are committed to thoroughly addressing the issues contained in the consent orders,” Corbat said in the statement. “These investments will not only further enhance our safety and soundness, they will result in a digital infrastructure that will improve our ability to serve our clients and customers and make us more competitive.”
Earlier Tuesday morning, competitor JPMorgan Chase & Co. posted a surprise increase in earnings, fueled by a 30% jump in markets revenue. The biggest U.S. bank also defied expectations by cutting its reserve for loan losses by $569 million, after adding $20 billion to the allowance in the first half.
Other key figures from Citigroup’s results:
Net income dropped 34% to $3.23 billion, or $1.40 a share, beating the 92-cent average of analyst estimates compiled by Bloomberg. That compares with $1.05 a share in the first quarter and 50 cents a share in the second.Revenue from the firm’s sprawling consumer unit, led by CEO-elect Jane Fraser, dropped 13% to $7.17 billion. That still topped the $6.6 billion estimate of analysts as mortgage and wealth management units benefited from increased activity. Fraser is set to succeed Corbat in February.Debt and equity underwriting pulled in $1.22 billion, surpassing analysts’ projections and helping boost total investment banking revenue 13% to $1.39 billion.Average deposits in the firm’s retail-banking operations surged 16% to $320 billion. In North America, where the bank has been building out its digital-banking capabilities, the improvement was even greater, with deposits climbing 19%.
(Updates with economic forecasts in eighth paragraph, deposits in last bullet point.)
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