The third-largest U.S. bank reported profit of $1.52 a share for the three months ended June 30. Analysts had expected $1.39, according to LSEG data.
The upbeat earnings report came two days after U.S. regulators fined Citi $136 million for “inadequate” efforts to resolve data management issues identified in 2020. Regulators also demanded that Citi show it was dedicating sufficient resources to those efforts.
Citi had already booked fines and additional investments related to its data work in the second quarter.
Citi Chief Financial Officer Mark Mason said on a conference call with reporters that the bank’s resourcing plan has not yet been agreed with regulators and that any agreement would be confidential for supervisory purposes. In areas where regulatory work is likely to be delayed, Citi will look at the root causes and determine whether further technology spending, additional applications or platform tweaks or additional employees are needed, Mason added. The bank’s shares fell 1.4%, reversing gains in premarket trading. Chief Executive Jane Fraser is pushing through sweeping reforms aimed at improving the bank’s performance, cutting costs and simplifying its sprawling business. As part of the turnaround, Citi aims to cut 20,000 employees over the next two years.
Second-quarter revenue was $20.1 billion, up 4% from the same period a year ago, helped by a $400 million gain on the conversion and partial sale of Visa shares in May.
Citi now breaks down revenue separately for its five businesses – Services, Markets, Banking, U.S. Consumer Banking and Wealth – that were previously grouped under broader divisions.
The new structure is part of Fraser’s efforts to cut bureaucracy and increase profits, and under it, divisional leaders will report directly to the CEO.
Investment banking fees rose 60% in the second quarter to $853 million. The surge came as a long period of sluggish deal activity across the industry finally showed signs of a real recovery. The increase helped drive a 38% increase in banking revenue, which included corporate lending, to $1.6 billion.
“We continued to see strong debt issuance this quarter, strong M&A activity, the IPO market is showing signs of recovery and we have a very strong pipeline,” Mason said on the conference call.
“We expect the interest rate environment and funding markets to be accommodative. M&A could play a larger role in the second half of the year.”
Citi earlier this year hired Viswas Raghavan, a veteran of JPMorgan Chase & Co., as head of its banking division, and Mr. Fraser has high hopes for Mr. Raghavan, who is tasked with revitalizing the multinational business unit.
Services revenue increased 3% to $4.7 billion. This division is focused on the company’s flagship business, financial and trade solutions, which saw revenues flat at $3.4 billion for the quarter. The business processes $5 trillion in payments per day for multinational companies across 180 countries.
Fraser and other executives touted the services strategy at an investor day last month at the bank’s New York headquarters.
Markets revenue increased 6% to $5.1 billion behind a 37% increase in equity trading revenue.
Reported operating expenses for the quarter fell 2% to $13.4 billion as the bank restructured to streamline its structure and save money.
But the decline in expenses was offset by penalties for failing to comply with regulatory penalties known as consent orders dating back to 2020, and investments in remediation work.
Citi now sees full-year expenses at the high end of its previous range of $53.5 billion to $53.8 billion.
Rival JPMorgan Chase & Co. reported an increase in second-quarter profit on Friday, while Wells Fargo’s net income fell and interest income fell short of expectations.
Citi’s asset management division, a key part of Fraser’s growth strategy, has yet to see significant growth, with revenue rising 2 percent to $1.8 billion in the quarter.
The bank’s U.S. consumer banking revenue rose 6% to $4.9 billion, mainly due to growth in branded cards.
Focus on turnaround
Analysts say 2024 will be a year of transition for City as Fraser’s restructuring slims down the club.
Investors have welcomed the initiative, sending Fraser Bank shares up 28% this year, far outperforming its closest rivals JPMorgan and Bank of America and the overall stock market.
Still, Citi has recently faced regulatory challenges related to its so-called living will, which details how it would be unwound in the event of bankruptcy.
Citi is also responding to two 2020 consent orders in which the Federal Reserve and the Office of the Comptroller of the Currency directed the bank to fix long-standing and widespread deficiencies in its risk management, data governance and internal controls.
