Citigroup Generally Checks the Boxes in Q1 Earnings

No-moat rated Citigroup C reported its first earnings since its investor day. Earnings per share of $2.02 came in well ahead of the FactSet consensus of $1.43. Top-line revenue came in at $19.3 billion compared to consensus of $18.2 billion, showing a relatively healthy beat all around. Citigroup’s earnings are set to be quite messy for a while given all of the moving parts with different divestitures, so we wouldn’t focus too much on the quarterly numbers compared to consensus. Instead, we’re looking for signs of growth for card balances, signs of other balance sheet growth, signs of fee growth within treasury and trade solutions, or TTS, and personal banking and wealth management, or PBWM, to help offset expected pressure within investment banking and trading, and whether management can meet its expense goals. Based on this quarter’s results, we do not plan to materially alter our current fair value estimate of $78 for the bank, and we view shares as undervalued. It remains a long road ahead for the bank to grind through the many steps of its turnaround, but we thought this quarter was an acceptable start.

Management had targeted 10% expense growth for the first quarter, and it met that target. Results for TTS were solid, with net interest income and fees both growing year over year. Securities services also saw revenue growth across the board. Not too unexpectedly, consumer card spending volumes saw some pressure compared with the fourth quarter, and while average loan balances were not making any big moves just yet, they were still sticking above third-quarter 2021 levels, suggesting to us that we should be seeing some growth this year. Overall, we thought Citigroup checked a lot of the boxes this quarter.

Management gave an update on the bank’s exposure to Russia, and the potential loss from a severe stress scenario has now fallen to a range of $2.5 billion to $3 billion, down from roughly $5 billion previously, a move in the right direction.

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