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By David Henry and Anirban Sen
(Reuters) -Citigroup Inc comfortably beat market estimates for second-quarter earnings on Wednesday as the economic recovery allowed the bank to free up loan loss reserves and offset a drop in income from falling prices. credit card transactions and loans.
For the quarter ended June 30, net income jumped to $ 6.19 billion, or $ 2.85 per share, from $ 1.06 billion, or 38 cents per share, a year earlier. Analysts on average expected earnings of $ 1.96 per share, according to data from Refinitiv IBES.
The bank’s profits were bolstered by its decision to cut $ 2.4 billion in loss reserves it had built up during the pandemic for expected losses that did not materialize. A year ago, it added $ 5.9 billion to its loss reserves.
“The pace of the global recovery is exceeding previous expectations and with it, consumer and business confidence is rising,” Chief Executive Officer Jane Fraser said in a statement.
An economic recovery fueled by the rollout of vaccines across the country and a $ 1.9 trillion stimulus package put in place by the Biden administration earlier this year is expected to generate bank profits in 2021.
However, unlike its larger and more diverse rivals, JPMorgan Chase and Bank of America, Citigroup has not been able to make up so much for the slowdown in credit card business where customers have cut spending and paid off loans for the pandemic.
Income plunged 12%, while loans were down 3%.
Citi’s consumer banking contracted in the quarter as fewer consumers took loans on their cards, while deposits were also hit in all regions. Overall personal banking revenues fell 7% to $ 6.8 billion.
Income from fixed income trading, a strong point for the bank, fell 43% from a year earlier when trading in global financial markets hit record levels of volatility in the first few months of the COVID-19 pandemic.
On Tuesday, JPMorgan Chase and Goldman Sachs reported sharp declines in bond trading income.
Citigroup’s spending jumped 7% in the quarter, due to spending on improving its risk and control systems to comply with regulatory requirements. The magnitude of the increase suggests the bank could miss its April estimate that spending for the entire year would only increase by 2% to 3%.
Investors are particularly concerned about the spending as the bank has not been able to say how much money and how long it will take to meet regulatory demands and fix its systems.
The spending is part of what Fraser called Citigroup’s “transformation” and includes technological improvements that she says will ultimately reduce costs.
PERIOD OF EXECUTION
Fraser, who became CEO earlier this year, is trying to turn around Citigroup, crippled for years by poor risk management and control systems.
Since Fraser took over, she has focused on removing unprofitable companies from Citi’s sprawling global operations, while focusing on building a competitively profitable organization that will lose its reputation as lag behind the banking sector.
Fraser announced in April that the bank would pull out of consumer activities in 13 markets, mostly in Asia, where it has not been big enough to make satisfactory profits.
Market downturns come with one-time costs, but over time they should reduce costs and support its capital ratios.
Fraser aims to expand Citi’s global offerings to multinational corporations, strengthen its major credit card businesses in the United States, and develop private wealth management services around the world.
(Reporting by Anirban Sen in Bangalore and David Henry in New York; editing by Sriraj Kalluvila)
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