Citigroup beats profit estimate on best Q3 trading revenue in a decade

Revenue comes in at $23.84bn against a forecast of $24.20bn as fixed income and banking carry the quarter

Citigroup reported third-quarter earnings of $2.85 a share, $0.12 above estimates, on revenue of $23.84bn, which fell short of the $24.20bn analysts had expected. Revenue was down 4% from the prior quarter but up 8% from a year earlier, according to the bank's own earnings presentation. Net income came to $5.2bn, compared with $3.8bn, or $1.86 a share, in the same quarter last year, Qz.com reported.

The gap between the profit beat and the revenue miss traces largely to trading and banking. Fixed income markets revenue reached $4.4bn, its best third quarter in at least a decade, up 4% from a year ago on strength in spread products and foreign exchange, Qz.com reported. Equity markets revenue rose 14% to $1.7bn on prime services growth, and the services division brought in $6.6bn, up 15%. Banking revenue climbed 6% to $1.7bn, with investment banking up 9% as equity capital markets revenue surged 77%, even as advisory fell 4% and debt capital markets slipped 3%, according to the same report. Return on tangible common equity was 11.5%, roughly 350 basis points higher than a year earlier, the bank's presentation showed.

Chief Executive Jane Fraser pointed to disciplined execution as the driver behind the results. Citigroup also said it now expects to exceed its full-year return target, while pulling forward its medium-term goal of an 11-13% return and keeping a longer-term target of 14-15%. GuruFocus reported that the bank is preparing documents asking regulators to lift consent orders, a step toward easing constraints that have applied for several years. Citigroup returned $4.1bn to shareholders through buybacks and dividends in the quarter and held a CET1 capital ratio of 12.8%, GuruFocus reported. Its shares have risen 13% so far this year and 40% over the past 12 months, versus a 14% year-to-date gain for the S&P 500, the Associated Press reported via WTOP.

The results give Citigroup's own data a counterpoint. The bank had flagged a third straight month of declining luxury card spending, yet this quarter produced its strongest third-quarter revenue in a decade along with positive operating leverage. Pulling the 11-13% return target forward, while keeping the 14-15% longer-term goal in place, signals that management does not see the softer discretionary spending trend spreading into its institutional and markets businesses.