As Citi’s traders struggle, consumers prop up bank’s profit

Bloomberg

While Citigroup Inc.’s Wall Street operations wrestle with tough markets, the bank is getting a boost from the little guy: consumers leaning on credit cards during the worst inflation in a generation.
The bank’s third-quarter profit beat analysts’ estimates even as revenue falls short in trading and deal-making, which had thrived during the pandemic. Salvation this time came from retail operations that saw spending, lending and demand for other financial products soar.
“US personal banking further solidified its growth trajectory with double digit revenue growth in both of our cards businesses,” Chief Executive Officer Jane Fraser said.
The New York-based firm’s earnings per share amounted to $1.63, surpassing the $1.42 average estimate from analysts. Revenue rose 6% to $18.5 billion, also beating the projections.
Inflation has left banks and other card issuers in a lucrative — but potentially precarious — spot this year. Prices have risen just fast enough that shoppers are spending more, but not so steep that people are forgoing luxuries and travel. That and higher interest rates are juicing earnings from lending.
It’s a contrast with the depths of the pandemic, when rising unemployment prompted Citigroup and rivals to curtail card marketing. The firm has since fired up those operations, financing more purchases just as prices climb at the register.
The branded-card unit, which includes Double Cash and Custom Cash cards, saw revenue surge 10% in the quarter to $2.3 billion, topping analysts’ estimates. Spending on branded cards jumped 14%, while average loans rise 12%. Revenue from wealth management declined, hurt by operations in Asia.
Citigroup has been seeking to exit more than a dozen overseas retail operations. Fraser announced the company will also wind down its institutional operations in Russia after it already announced a similar plan for consumer and commercial businesses there.
“We continue to shrink our operations in and exposure to Russia and we will be ending nearly all of the institutional banking services we offer next quarter,” Fraser said.
At the same time, the battle against inflation is taking a toll on Wall Street. Industry leaders have warned in recent weeks that corporate clients are getting worried about the Federal Reserve’s rate hikes and the potential for a recession, which is also setting off strains in markets.
Citigroup is spending more on improving technology and controls as it seeks to satisfy a pair of consent orders from the Fed and Office of the Comptroller of the Currency in 2020.
Those expenses and higher inflation sent costs up 8% to $12.7 billion.

At Citigroup, fees from investment banking plummeted 64%, while revenue from stock trading slumped 25%. That more than countered a surprise increase in revenue from fixed-income trading, where rates and currencies desks successfully navigated dramatic shifts in prices.
Higher levels of inflation and the ensuing economic concerns forced Citigroup to set aside more reserves for souring loans, sending the firm’s total cost of credit up to $1.4 billion in the quarter — in line with analysts’ estimates. That compares with a benefit of $192 million a year earlier, when the bank released reserves it had taken during the pandemic.