NEW YORK: Citigroup Inc posted weaker-than-expected third-quarter earnings yesterday as weak bond market trading volume hurt revenue at the No. 3 US bank and across Wall Street.
Citigroup’s bond trading revenue dropped 26 percent, or $956m, excluding an accounting adjustment, contributing to earnings that missed analysts’ forecasts.
While the drop in fixed-income revenue was more severe than at larger rival JPMorgan Chase & Co, which reported earnings last Friday, it could spell trouble for investment banks Goldman Sachs Group Inc and Morgan Stanley, which post results later this week.
“Investors should have been expecting this,” said Tom Jalics, senior investment analyst at Key Private Bank. “The investment bank was a little bit weaker than people had been expecting, but the company’s management had been telegraphing this for the past 6-8 weeks.”
He and other investors pointed to Citi’s efforts to control costs in the third quarter as the most positive part of the earnings, which were also marked by top-line weakness in retail banking. Similar moves could be imminent at other banks, especially as Wall Street bonus season — typically a huge part of their budgets — approaches.
In last year’s third quarter Citigroup took a pretax charge of $4.7bn related to selling its Smith Barney brokerage business, a charge that ended up costing Vikram Pandit, then the bank’s chief executive, his job.
Pandit’s successor, Michael Corbat, has struggled to improve Citigroup fortunes in an environment where client business is tepid and new regulations are raising banks’ expenses.
Corbat told analysts in a conference call that business conditions would remain “uneven” through the rest of the year.
“While many of the factors which influence our revenues are not within our full control, we certainly can control our costs, and I am pleased with our expense discipline and improved efficiency year-to-date,” Corbat said.
The bank’s expenses fell nearly $500m from the second quarter to $11.7bn as performance-based compensation and transaction costs fell, partly reflecting a weak revenue environment, Chief Financial Officer John Gerspach said.
The lender, which has said it was aiming to reduce costs by $1.2bn annually, said it plans to cut areas like marketing expenses in the fourth quarter.
The third quarter is typically a slow one for bond trading, and this was exacerbated by the Fed announcement, according to analysts. Under generally accepted accounting principles, Citigroup’s net income rose to $3.23bn, or $1 per share, from $468m, or 15 cents per share, a year earlier.
Excluding the Smith Barney charge, as well as the impact of tax benefits and changes in the value of Citigroup debts and those of trading partners, third-quarter earnings slipped to $3.26bn, or $1.02 per share, from $3.27bn, or $1.06 per share, a year earlier.
Revenue for its retail banking business fell 7 percent to $9.24bn, and revenue for its securities and banking business fell 2 percent to $4.75bn.