Citigroup quarterly profit tumbles on low interest rates, loan demand

[NEW YORK] Citigroup reported a 34 per cent drop in quarterly profit on Tuesday, as rock-bottom interest rates and a slowdown in loan demand outweighed the boost from a surge in financial market trading.

A 16 per cent jump in trading fees somewhat offset a shrinking loan book and bullish results from US peer JPMorgan helped prod shares higher in early trade.

Bond trading revenue rose 18 per cent from a year earlier, while equities trading increased 15 per cent.

But the results showed revenue falling for the first time this year, sliding 7 per cent to US$17.3 billion as consumers used extra cash from stimulus programs to pay down debt and corporate clients tapped capital markets for cash rather than rely on credit from banks.

The US Federal Reserve cut interest rates to near zero in March in an emergency move to help shore up the economy and has kept it unchanged since then, crimping banks' lending margins and their ability to grow revenue.

Credit card customers are also spending less during the Covid-19 pandemic. Revenue in North American branded cards, the growth engine for Citi's consumer bank going into the year, tumbled 12 per cent.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Expenses rose 5 per cent, primarily due to a US$400 million fine tied to risk-and-control failures across the sprawling international bank. Executives have committed US$1 billion to overhauling its operations systems.

Citi has faced renewed regulatory scrutiny since an "error"led the bank to mistakenly send Revlon creditors US$900 million of its own funds in August. Since then, chief executive Mike Corbat announced he would retire earlier than expected in February, handing the reins to Jane Fraser who has highlighted improving risk and control systems as a priority.

The bank further boosted reserves for potential loan losses as coronavirus cases rise around the world crippling local economies. The third-largest US bank by assets set aside an additional US$314 million on top of the US$15 billion it reserved in the first half of the year.

The New York-based bank's total net income applicable to common shareholders fell to US$3.23 billion, or US$1.40 per share, in the quarter ended Sept 30, from US$4.91 billion, or US$2.07 per share, a year earlier.

Analysts on average had expected a profit of 93 cents per share, according to IBES data from Refinitiv. It was not immediately clear if the estimates were comparable.

REUTERS