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

Citi’s transformation efforts are showing progress.

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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.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Michael Wong

Sector Director
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Michael Wong, CFA, CPA, is director of equity research, financial services, North America, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Michael previously served as chair of the valuation committee. Before assuming his current role in 2017, he was a senior equity analyst, covering investment banks and brokerages. Before joining Morningstar in 2008, he worked in corporate and public accounting.

Wong holds a bachelor’s degree in business administration, with concentrations in accounting, corporate finance, and financial services from San Francisco State University, where he graduated summa cum laude. He also holds the Chartered Financial Analyst® designation and is a Certified Public Accountant. Wong has also passed the Certified Financial Manager (CFM) and Certified Management Accountant (CMA) exams.

Wong won the “Technology Thought Leadership” award at the 2016 Industry Awards for his report, The Financial Services Observer: The U.S. Department of Labor’s Fiduciary Rule for Advisors Could Reshape the Financial Sector. In 2011, he ranked second in the Investment Services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. Wong was awarded the summer 2005 Johnson & Johnson Institute of Management Accountants CFM Gold Medal.

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