Citigroup Earnings: Trading Drives Materially Higher Profitability

Morningstar’s 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 trading revenue helped Citigroup C report improved profitability in the first quarter, with earnings of $1.96 per share equating to a return on tangible equity of 9.1%. Investors should remain cognizant of the economy facing considerable turbulence in 2025 due to tariff-related disruptions.

Why it matters: Tariff-related disruptions didn’t show up in the first quarter, but we think that the impacts will be more visible in the second. The bank kept its allowance for loan losses as a percentage of loans roughly flat on a sequential basis, reported at 2.7%.

• Net interest income grew 4% on a year-over-year basis, driven by the markets business and balance sheet growth, partially offset by the impacts of lower rates.
• Fee revenue also did well during the quarter, powered by the trading business, where principal transaction revenue was up 72% on a sequential basis and 20% year over year. The bank did a good job of controlling core expenses, as they were down 3% compared with the previous year.

The bottom line: We plan on maintaining our $75 per share fair value estimate for no-moat-rated Citigroup after incorporating first-quarter results and believe that the shares are undervalued. Citigroup is relatively cheap, but is also slightly higher on the risk and uncertainty spectrum.

• We were skeptical about the rally in US bank stocks after the presidential election, given the uncertainty around the Trump administration’s policies and the healthy valuations in the sector. Bank stocks have corrected by more than 20%, and valuations look much more appealing.

Between the lines: The US personal banking segment had a great quarter with a ROTE of 12.9%. For context, this compares with an average ROTE of 5.5% in the previous four quarters.

• Most of the improvement in the business was due to lower provisions on credit card loans within the segment. We think this will reverse in future quarters as card chargeoffs edge higher.