Citi profit beats as tumult spurs currencies, commodities

Bloomberg

Citigroup Inc is collecting a windfall from tumultuous international markets, even as a dimming economic outlook and Russia’s invasion of Ukraine pose billions of dollars in risks.
The bank’s second-quarter profit soared past analysts’ estimates, driven by unexpectedly large hauls from currencies, commodities and interest-rates trading and its shuttling of corporate money over borders. Net income amounted to $4.5 billion, trouncing the $3.6 billion predicted by analysts.
The firm, drawing a larger share of revenue from overseas than any of its US peers, announced results a day after rivals JPMorgan Chase & Co. and Morgan Stanley posted profits that disappointed investors.
“In a challenging macro and geopolitical environment, our team delivered solid results and we are in a strong position to weather uncertain times, given our liquidity, credit quality and reserve level,” Chief Executive Officer Jane Fraser said in a statement.
Total revenue rose 11% to $19.6 billion, surpassing the $18.4 billion average analyst estimate compiled by Bloomberg.
Revenue was helped by better-than-expected results from Citigroup’s trading division, with the bank citing strong performance from fixed-income products and equity derivatives.
That helped offset a 46% slump in investment banking revenue as the market for initial public offerings and special purpose acquisition companies dried up amid the macroeconomic uncertainty.
Revenue from the firm’s treasury and trade solutions business, which moves $4 trillion a day for corporate clients in 140 currencies, soared 33%, helping the division notch its best quarter in a decade. Citigroup said results from the unit were helped by higher interest rates and increased deposits.
The bank set aside almost $1.3 billion to cover souring loans as it braces for a potential economic slowdown, and it disclosed new headaches from operations in Russia, where the company has been struggling to sell its consumer and commercial banking divisions.
The firm is now considering a range of possibilities for operations in that country, it said.
Citigroup spent much of the quarter whittling its exposure to Russia as President Vladimir Putin pressed on with the invasion. The bank projects that it could lose $2 billion in a severely stressed scenario, down from as much as $3 billion previously.
Even so, the company saw the dollar value of its exposure to Russia jump to $8.4 billion in the quarter, which the firm blamed on the appreciation of the ruble. The value of the ruble soared 50% against the US dollar in the period, reversing two straight quarters of declines.
Citigroup has said it will have to spend more as it revamps many of its underlying technologies and infrastructure — a years-long effort that the bank says will help it become more modern and satisfy a pair of consent orders that regulators saddled it with back in 2020. In all, costs for the quarter jumped 8% to $12.4 billion, slightly better than the 9.3% increase analysts were expecting.