Market revenue hits a 10-year high! Citigroup's business across the board "in the red" in the third quarter, with investment banking revenue surging 31% | Financial Report Insights

Although the increase in non-performing loans has dragged down profitability, Citigroup seized the opportunity of various asset growth in the third quarter of this year, achieving the best trading performance in the past decade. Market business revenue increased instead of decreasing, and other major businesses also saw year-on-year growth.

On Tuesday, October 15th, before the U.S. stock market opened, Citigroup announced its financial data for the third quarter of 2024 and full-year performance guidance.

1) Key Financial Data:

Revenue: Revenue in the third quarter was $20.32 billion, an increase of nearly 0.9% year-on-year, exceeding analysts' expectations of $19.84 billion.

Net Profit: Net profit in the third quarter was $3.238 billion, a decrease of 8.7% year-on-year.

EPS: Diluted earnings per share (EPS) was $1.51, a decrease of approximately 7.4% year-on-year, compared to analysts' expectations of $1.31.

Credit Costs: Credit costs in the third quarter were $2.675 billion, an increase of 45% year-on-year. Net credit losses for the quarter were $2.172 billion, an increase of 33% year-on-year, including loan loss reserves (ALL) and unfunded commitment loan loss reserves. The net increase in credit loss reserves (ACL) was $315 million.

2) Segment Business Data:

Markets: Market business revenue in the third quarter increased by 1% year-on-year to $4.817 billion, exceeding analysts' expectations of $4.6 billion. Fixed income market revenue, including FICC sales and trading, was $3.578 billion, a 6% decrease year-on-year, compared to analysts' expectations of $3.54 billion. Equity market revenue was $1.239 billion, a 32% increase year-on-year.

Services: Service business revenue in the third quarter was $5.028 billion, an 8% year-on-year increase. Revenue from bonds and trading solutions was $3.64 billion, a 4% year-on-year increase, while revenue from securities services increased by 24% to $1.388 billion year-on-year.

Banking: Banking business revenue in the third quarter was $1.676 billion, an 18% year-on-year increase. Investment banking revenue was $934 million, a 31% year-on-year increase, and corporate lending revenue was $742 million, a 5% year-on-year increase.

Wealth: Wealth business revenue in the third quarter was $2.002 billion, a 9% year-on-year increase. Private banking business revenue was $614 million, with roughly zero year-on-year growth, and Wealth at Work workplace service management revenue increased by 4% to $244 million USPB: In the third quarter, the revenue of the U.S. Personal Bank (USPB) was $5.045 billion, a year-on-year increase of 3%. Among them, the revenue from branded card business was $2.7 billion, an 8% increase year-on-year, while retail service revenue was $1.7 billion, a 1% decrease year-on-year, and retail banking business revenue decreased by 8% to $599 million.

3) Performance Guidance:

• Revenue: It is expected that the adjusted revenue for the full fiscal year will still be between $80 billion and $81 billion.
• Expenses: Excluding certain regulatory costs and penalties, it is expected that the adjusted expenses for the full fiscal year will still be between $53.5 billion and $53.8 billion.

After the financial report was released, Citigroup's U.S. stocks rose more than 1% in pre-market trading on Tuesday, opened up 1.1%, hit a new daily high at the beginning of trading with an increase of over 1.7%, but quickly followed the broader market in turning lower. At midday, it hit a new daily low, with an intraday decline slightly exceeding 5%.

Third Quarter: Credit Loss Provisions Increase by $1.9 Billion, Stock Market Revenue Grows by 32%, Investment Banking Expenses Increase by 44%, Service Revenue Reaches a New Quarterly High

Affected by the increase in credit loss provisions, Citigroup's net profit and EPS declined in the third quarter. By the end of the quarter, Citigroup's total allowance for credit losses (ACL) was approximately $22.1 billion, an increase of about $1.9 billion compared to the same period last year, representing a year-on-year growth of 9.4%. The total ACL for loans was approximately $18.4 billion, a 44.5% year-on-year increase.

Citigroup's five major businesses all grew year-on-year in the third quarter. The market business was the biggest surprise. Just a few weeks ago, Citigroup warned that revenue from market business in the third quarter might decline. However, the latest financial report showed positive growth, achieving the highest quarterly revenue in at least a decade for this business. Although fixed income market revenue declined, stock market revenue increased by over 30%.

Citigroup stated that the growth in stock market revenue was mainly driven by strong growth in quality assets, derivatives trading, and increased stock cash trading volume. Among them, the balance of quality assets held by Citigroup's brokerage clients increased by about 22%. Citigroup's Chief Financial Officer (CFO) Mark Mason stated that the performance of the stock business in the third quarter benefited from trading gains in indices and individual stocks, while stock solutions trading benefited from increased stock buybacks. The bank's algorithmic trading and high-touch trading activities also saw growth.

The decline in fixed income market revenue in the third quarter was mainly due to the strong performance base in the same period last year. Although the decrease in natural gas volatility led to a decline in commodity revenue, the growth in interest rate products such as financing and securitization trading volume, as well as increased underwriting fees, drove a 5% increase in fixed income product revenue, partially offsetting the overall decline in fixed income business revenue year-on-year.

In the banking business, Citigroup pointed out that expenses for investment banking business increased by 44% in the third quarter. The growth was driven by a strong debt capital market, benefiting from continued strong investment-grade bond issuances, and growth in advisory business driven by strong trading volumes announced earlier this year. The growth in investment banking expenses was also driven by the equity capital market, partially offsetting the impact of reduced IPO activity due to market volatility in the middle of the quarter Comments suggest that Citigroup's investment banking business has performed well for two consecutive quarters. Like the two major banks, JPMorgan Chase and Wells Fargo, which announced their earnings last Friday, Citigroup also benefited from corporate clients' bond and stock issuances, driving a rebound in the capital markets. Wall Street executives are optimistic that the Fed's rate cut in September will pave the way for more trading and IPOs.

CFO Mason commented that the bank has been "strong in the debt capital markets" and will continue to benefit from the issuance of investment-grade bonds as clients look to re-enter the market.

In the third quarter, Citigroup's service revenue hit a record high for a single quarter. The bank stated that in this business segment, net interest income (NII) remained essentially unchanged as deposit growth was offset by lower rates in Argentina.

Within the segmented businesses of bonds and trading solutions, some benefited from the relatively minor impact of the devaluation of the Argentine peso, with cross-border transaction values growing by 8%, USD clearing volume increasing by 7%, and non-interest income growing by 41% for the quarter, partially offset by a 5% decline in NII. Another segment, securities services, saw growth primarily driven by increased deposit volume and deposit spreads, leading to a 23% growth in NII for the quarter, as well as a 24% increase in non-interest income driven by growth in custodial assets