Consumer banking powers Citigroup's profit

New York

CITIGROUP Inc reported higher-than-expected earnings on Tuesday on the back of its global consumer business, showing consumer spending and sentiment remain high.

Citi, the most global of the US banks, said profit in its consumer unit rose 13 per cent excluding the impact of currency fluctuations, outpacing its institutional client business where revenue inched up 1 per cent.

The consumer business was helped by more US credit card customers beginning to pay interest as promotional periods wore off. North America-branded card revenue jumped 11 per cent in the third quarter, and profit in the US consumer business rose 9 per cent.

Expenses in the consumer business fell 2 per cent, partially offset by rising credit costs which have increased every quarter this year.

Citi has been leaning on its US credit card business, which accounts for more than 60 per cent of its global consumer banking revenue, to help it grow deposits by pitching chequing and savings accounts to cardholders. Chief financial officer Mark Mason said that strategy has helped them earn more than US$4 billion in digital deposits this year, most of which came from areas where the bank does not have a physical presence.

The US consumer proved to be more resilient than the corporate sector where clients continued to show more caution reflecting macroeconomic uncertainty. JPMorgan Chase & Co also reported strong results in its consumer business.

Trading revenue fell 1 per cent as a decline in equities offset stable revenue in fixed-income trading. JPMorgan and Goldman Sachs Group Inc both reported a rise in revenue from bond trading.

Citi also reached a key profitability target. The third-largest US bank by assets hit a return on tangible common equity (ROTCE) of 12.2 per cent, above the goal of 12 per cent it has promised investors for the year.

ROTCE is a widely-watched measure of how well a bank uses shareholder money to generate profits.

Citi has been focused on building credibility with investors after missing targets in recent years. Estimates often hovered below the bank's stated goals, indicating Wall Street analysts were sceptical management could reach the targets it had set.

The performance on ROTCE may be hard to replicate in the fourth quarter without the one-time tax benefit which boosted earnings by 10 cents a share.

Net income applicable to the bank rose 6 per cent to US$4.9 billion, or US$2.07 per share, in the third quarter from US$4.6 billion or US$1.73 per share a year earlier.

Excluding a tax benefit, the bank earned US$1.97 per share.

Revenue was up about 1 per cent at US$18.57 billion.

Analysts were expecting a profit of US$1.95 per share and revenue of US$18.5 billion, according to IBES data from Refinitiv. REUTERS