The Banking and Strategy Initiative

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Bank Earnings Season 3Q 2014: Citi misses its key international markets performance..

Citi reported $1.07 much below our expectations but a 8 cent hit on its own Debt value having ridden up during the quarter is usually good news for the industry. Revenues closed on the $20 Bln mark at $19.97 Bln and the bank CEO will be sitting in conference a good three hours from now, as a busy earnings season starts for banks. The bank’s net income is more or less where it was a year ago, with similar hit from its own debt at $3.4 bln from $3.2 Bln last year.

The bank announced its exit from 11 emerging markets, cutting down to 2 4 global markets apart from its North America Business as individual country Capital requirements would anyway make the coming business cycle tougher on banks used to easy money

Bank assets have not moved from its June performance by any significant amountthough EOP loans are down to $654 Bln and Deposits are also just $943 Bln

The $1.7 Bln increase in revenues translated into a fatter Income before Taxes even as the bank went thru another $1.5 Bln in non core expenses with businesses shutting down and legal costs adding on like it was par for the course ($950 mln this quarter added to reserves for a Forex settlement) even as core operating expenses increased by just $107 mln over September 2013. Citi holdings legacy book also added to the profits before tax figure

The 11 discontinued markets to be reported with the legacy book accounted for $1.6 Bln topline in the last twelve months and the performance will improve as the entire topline did nto account for much in profit making the $3.4 Bln count to a third of a percent increase in the return on income next Q3

More details after the sit in, as CCAR expenses add to the legal charges of $1 Bln for the forex settlement and $300 mln to changes in incentive compensation structures

Sales process is to be completed in the 11  unprofitable markets for a total of 19 markets by end 2015 including Japan and the Consumer Finance business in Korea with markets in Guam, Panama, Peru and Costa Rica following the consolidation in Mexico

Treasury and trade solutions grew for Citi as well in competition in the Asian tigers and EMEA even as spreads continue to come down and investment banking did well outside USA. Sale of assets in Greece and Spain ended up with substantial tax costs not expected by the management

International Consumer Credit losses NCLs  ended just under 2% and NA rates improved slowly further even as retail credit takeoff jumped 9% in NA. Best Buy portfolio acquisition tamped down operational efficiencies even as legal and repositioning(comp structure related) charges negated the cost cut gains. GCB has reclaimed an efficiency ratio of 56% targeting under 50% in a year (49-52%)

More than a 100 support sites are likely to close by end of year since end 2012 and branch count already down to 3436 is likely to end the year under 3500(3525)

In Institutional business Equity buisiness is up 16% on June quarter’s bad scores and despite the 1% tick down from June 2014, FI trading revenues are up 5% on September 2013

Trading and settlement businesses shared 50% of the Institutional business at $4.3 Bln despite the 30% jump in Investment Banking fee income

Net Interest Income at $12.3 Blnheld its own as NIMs were up to 2.9% and Core Tier I ratio (Basel III ) was 10.7% though the Fed would be taking a look at that calculation again and Citi is still spending on processes to harmonise that computation.

Last but not the least improvements in NA business are far from over with NCLs down from 4.2% but only to 3.6% which leaves a fairly long way to go. One wonders why these were not part of Citi holdings, the Mike Corbat reason for the same part of Q2 results conference proceedings ( transcripts on morningstar and seeking alpha)


This entry was posted on October 14, 2014 by in Uncategorized.


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