Loans & Trading to Aid Citigroup's (C) Q2 Earnings, IB to Hurt
Citigroup C is scheduled to report second-quarter 2022 results on Jul 15, before market open. While the company’s earnings are expected to have witnessed a year-over-year decline, its revenues are likely to have increased.
In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on Treasury and Trade Solutions revenue growth, while Investment Banking (IB) revenues declined. Increases in the deposit balance and book value per share were positives.
Over the trailing four quarters, the company’s earnings surpassed the consensus estimate on all four occasions, the surprise being 24.5%, on average.
Citigroup Inc. Price and EPS Surprise
Citigroup Inc. price-eps-surprise | Citigroup Inc. Quote
Factors at Play
Net Interest Income (NII): In the second quarter, recovery in the commercial lending backdrop continued to aid loan growth for banks. Per the Fed’s latest data, there was notable strength in commercial lending, backed by commercial and industrial loans and commercial real estate loans, in April and May. Residential real estate loans and consumer loans also improved. These are likely to have driven loan growth for C.
The Zacks Consensus Estimate for the company’s average interest-earning assets is pegged at $2.19 billion, suggesting a 3.3% increase from the prior quarter’s reported figure.
In the second quarter, the Fed hiked interest rates by 50 basis points (bps) in May and another 75 bps in June. With this, the level of the policy rate reached 1.5-1.75%, the highest since just before the March 2020 pandemic. Hence, decent loan growth and interest rate hikes are likely to have modestly driven the bank’s NII and net interest margin (NIM) in the quarter.
The Zacks Consensus Estimate for NII of $11.27 billion suggests a 3.7% rise from the prior-year quarter’s reported figure.
Markets Revenues: Due to the Russia-Ukraine conflict, and prospects of multiple and bigger rate hikes by the Federal Reserve to tame the red-hot inflation, there was an increase in client activity and trading volume in the second quarter.
This is likely to have set the stage for Fixed Income, Currency and Commodities (FICC) trading. Hence, JPMorgan is likely to have recorded a decent improvement in market revenues this time. The bank expects a 25% year-over-year boost in its Markets revenues in the second quarter.
IB Fees: Deal flow considerably dried in second-quarter 2022 due to fewer companies going public and a. Also, a fall in investment banking activity due to subdued capital markets, and a decline in equity and debt issuance deal volume were seen. High market volatility, triggered by the Ukraine crisis, and uncertainty regarding an economic slowdown tied to inflation continued to delay the finalization of dealsin the June-end quarter for C’s IB fees.
Management expects a 55% year-over-year slump in its IB revenues in the second quarter.
Expenses: Management has been focused on revamping its underlying technology, risk management and internal controls as part of remediation highlighted by the Office of the Comptroller of the Currency and the Federal Reserve. The company has been investing in businesses like wealth management, IB, and treasury and trade solutions.
Hence, expenses are expected to have increased as Citigroup continued to ramp up its transformation efforts, investments in front-office expansions and modernization in the second quarter.
Key Developments During the Quarter
Citigroup announced the sale of its consumer banking franchise in Bahrain to Ahli United Bank B.S.C. The deal includes Citigroup’s retail banking, credit card and unsecured lending businesses but excludes institutional businesses.
In June, Citigroup completed the previously announced sale of its Australia consumer business to National Australia Bank Limited. The sale was announced last August and marked the completion of the first among 14 consumer market exits as part of the bank’s global strategy refresh. The sale includes unsecured lending, residential mortgages, deposits and wealth.
What Our Model Predicts
Our proven model does not predict an earnings beat for C this time around. This is because itdoes not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Citigroup is -0.79%.
Zacks Rank: Citigroup currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Prior to the second-quarter earnings release, the company’s earnings estimates have been unchanged. The Zacks Consensus Estimate for second-quarter earnings of $1.63 indicates a 42.6% year-over-year decline.
The Zacks Consensus Estimate for revenues of $18.1 billion indicates a 3.7% rise from the prior-year quarter’s reported figure.
Stocks That Warrant a Look
JPMorgan Chase & Co. JPM and Truist Financial TFC are a few stocks that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for JPMorgan is +1.32% and the company carries a Zacks Rank #2 (Buy) at present. JPM is slated to report second-quarter 2022 results on Jul 14.
The Zacks Consensus Estimate for JPM’s second-quarter earnings has moved marginally north over the past month.
Truist Financial is scheduled to release second-quarter results on Jul 19. TFC currently has a Zacks Rank #3 and an Earnings ESP of +1.38%.
The Zacks Consensus Estimate for TFC’s second-quarter earnings has been unchanged over the past month.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
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