Citigroup Earnings: Laser Focus on Expenses Needed to Achieve Long-Term Targets

Key Morningstar Metrics for Citigroup

• Fair Value Estimate: $68.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium

What We Thought of Citigroup’s Earnings

Citigroup C reported better-than-expected first-quarter earnings at $1.58 per share, compared with the FactSet consensus prediction of $1.18. An incremental $251 million FDIC special assessment charge increased the firm’s estimated loss from the March 2023 banking problems. Other non-recurring expenses included $225 million of restructuring charges related to organizational simplification. We do not anticipate a material change to our fair value estimate of $68 per share as we incorporate these results.

Revenue grew around 3% from the prior-year quarter, excluding divestiture-related impacts. Fee income was primarily driven by strong results in the services business, robust trading revenues, and a 35% rebound in investment banking revenue compared with the previous year. Net interest income, or NII, was down by around 2.2% sequentially as net interest margins have been under pressure. We expect NII to be down by around 2% for the full year, while fee income remains strong to drive Citi toward the low end of its 2024 revenue target of $80 billion-$81 billion.

The current annualized run rate for expenses, excluding the FDIC charge, is about 3.7% higher than management’s guidance of $53.5 billion-$53.8 billion for the year. The good news is that the absolute expense base should trend downward through 2024 as repositioning costs become smaller. We think the turning point on the expense front will likely come in the back half of the year.

This is positioned to be a transitional year for the bank before we begin to see meaningful results. As Citi continues to exit international consumer businesses and the separation of the Mexico business comes to fruition, we think we should start to see more significant expense savings. Citi’s business transformation efforts are beginning to demonstrate progress, and we expect to see more diligence in the bank’s core expense base management.