Citigroup Earnings: Improved Profitability Driven by Higher NII

Key Morningstar Metrics for Citigroup

• Fair Value Estimate: $75.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium

What We Thought of Citigroup’s Earnings

Robust net interest income helped Citigroup C report improved profitability in the second quarter with earnings of $1.96 per share, equating to a return on tangible equity of 8.7%. Management gave slightly improved guidance for 2025 and included an expectation of 10%-11% return on tangible equity in 2026.

Why it matters: Shares reacted positively to the results and improved guidance and inched up about 4%. Commentary on 2026 returns was especially well-received by the market, since the bank has struggled to earn its cost of capital over the past decade.

• The recent results suggest the bank has turned the corner and is positioned to perform well in the upcoming cycle. We give management credit for some of the positive momentum in segments like services and wealth, but we are still skeptical about a complete turnaround.
• Citibank’s core business is significantly different than its peer money center banks, and the external environment is especially suitable for its business mix. We think the bank has the highest downside risk in any macro-related negative surprises.

The bottom line: We plan on increasing our $75 per share fair value estimate for no-moat-rated Citigroup by mid-to-high-single digits after incorporating second-quarter results and higher near-term profitability, but we think shares are still expensive.

Big picture: Earning returns closer to cost of capital is welcome news for investors, but this being done in a favorable environment, with the unemployment rate in the low 4s and strong asset valuations. Citi still has some way to go in creating a franchise that can sustain consistent profitability.

Key stats: Net interest increased by 8% on a sequential basis and 12% on a year-over-year basis. The strong sequential NII growth was partially driven by a 3% loan and deposit growth and the remaining portion was a function of strong performance in the markets and higher margins.