Citigroup sees a recovery in the loan after Reuters eased gains in Q2 from previous calculations

By David Henry and Anirban Sen.

(Reuters) -Citigroup Inc.’s management on Wednesday highlighted a recovery in consumer spending on the back of the balanced U.S. economy, which predicts a recovery in loan growth by the end of the year after comfortably surpassing quarterly earnings.

Citi’s profit in the second quarter was decided by the bank’s decision to remove $ 2.4 billion in funds saved in the midst of the COVID-19 pandemic to cover potentially sour loans. These projected losses have not yet materialized.

The economic recovery driven by the spread of vaccines and President Joe Biden’s $ 1.9 trillion stimulus package has brightened the outlook for big Wall Street banks, all of which have released funds saved during the pandemic.

Consumers, with the money they get from stimulus checks, have started spending on travel and restaurants, they also pay off debts without taking out more loans. This has hurt the interest income of large lenders, but bank executives hope that this trend will be reversed by the end of the year.

Chief Financial Officer Mark Mason said Citi expects more customers to move revolving balances and pay interest to the pandemic’s pre-pandemic ways as government stimulus payments decrease.

“The good news is that we continue to see a recovery in spending and return to previous levels of COVID purchases. We expect growth in sales to become a growth stimulus by the end of the year, with consumers returning to more normal payment models,” Mason said.

Among the positive signs during the quarter, spending on Citi credit cards in the United States rose 40% a year earlier. However, the business was hampered by profits, as more consumers paid monthly balances than they paid Citigroup (NYSE 🙂 card interest and loans fell 4%. Revenue from these cards fell by 12%.

Investment bank revenues rose slightly to $ 1.8 billion as sellers broke the M&A boom record. Agreement advisory fees rose by 77%.

Revenue from capital subscriptions rose by 11%, increasing the share of initial public offerings and special purpose companies (SPACs). Revenue from debt, however, fell by 21%.

“Based on the net economic result … the results improved expectations by $ 1.86 / share. The heart rate was better than expected credit quality,” Oppenheimer analyst Chris Kotowski said in a note to clients.

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Although the results of the banks indicate that the recovery is underway, analysts say it may not immediately turn into a big profit due to low interest rates, weak loan demand and a sharp slowdown in trading activity.

In the quarter ended June 30, Citi’s net profit rose to sales of $ 6.19 trillion, which is $ 2.85 per share, $ 1.06 billion or 38 cents a share a year earlier. Analysts had expected an average profit of $ 1.96 per share, according to data from Refinitiv IBES.

The reserve lease boosted profits, helping to offset the decline in credit card lending and bargaining.

Revenue fell 12% and loans fell 3%.

Global consumer revenue was $ 6.8 billion, down 7% from a year earlier, largely due to lower card balances.

Trading income was $ 4.8 trillion, 30% less than a year earlier, as the record trading volume recorded unprecedented volatility in financial markets.

Fixed income trading revenue, which is very good for Citigroup, fell 43% year-on-year to $ 3.2 billion.

On Tuesday, both JPMorgan (NYSE 🙂 and Goldman Sachs (NYSE 🙂 both fell sharply in declining bond trading.

Citigroup’s expenses rose 7% during the quarter, which led to risks to improve risks and control systems to meet regulators ’demands.

Investors are worried about the costs, the bank could not say how much money and time it will take to meet the requirements of regulators and fix their systems.

Expenses are part of what Fraser has called Citigroup’s “transformation,” and ultimately include technological improvements that he hopes will reduce costs.

Citi shares were the least traded on Wednesday after rising to 3%.