Citigroup Surpasses Profit Estimates As Rate Hikes Strengthen Lending Business

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Author: Garcia Rodriguez

Like any other business, Citigroup Inc. surely has its own profit estimates as a great way to observe the overall performance. In the case of Citigroup, it has recently successfully outperformed its expected profit, specifically for the third-quarter profit. 

While Citigroup performs well, it has a series of interest rate hikes by the Federal Reserve to owe for the high jump in profit. 

At the same time, the offset weakness in investment banking and trading also helped with the profit increase. 

Remarkably, the big jump in their net interest income for lending businesses and banks is great news because they have battled with near-zero interest rates in the past. 

Just recently, the Federal Reserve has taken the side of lending businesses and banks by easing the monetary policy that was made to stamp out and manage decades-high inflation back then.

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Other details to know about Citigroup 

While the bank effectively beats profit estimates, it has sparked fears related to a downturn in the economy for some because of its aggressive stance. However, the bank’s Chief Financial Officer, Mark Mason, mentioned on a media call that the bank doesn’t see a financial crisis coming. 

Apart from that, the CFO also gave assurance that they are ready to deal with whatever the environment looks like. 

As for the bank’s net interest income, or the charge between the cost of borrowing funds and lending them out, it impressively rose 18% to $12.6 billion for the quarter—a high jump from a year earlier. 

Yet, the bank’s revenue from investment banking fell 64% to $631 million from a year earlier. 

That’s unfortunate news because Citigroup made an effort for its best M&A quarter. That doesn’t end because the bank also tumbled in revenue on its market division. 

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The bank’s markets division is about the house fixed income and equity trading units. As said, it also dropped in this income, which fell 24% for the specific quarter. 

Well, the senior portfolio manager at Roosevelt Investments, Jason Benowitz, has shared his opinion about the little downfall. He said that even if Citigroup’s trading revenue decline is a little worse compared to other banks, it is more connected to business mix within trading, not as market share loss. 

Despite some drops in other revenues, Citigroup has been proud to post about its profit of $1.5 a share, which is a rise from analysts’ estimate of $1.42 a share. 

Its revenue climbed 6% to $18.5 billion. Even though it is not a big player in terms of the leveraged finance market, it has taken a write down of $110 million during the third quarter. 

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Meanwhile, the rising interest rates made it more difficult to effectively offload high-risk debt on investors. 

In comparison to a year earlier release of $1.16 billion, the bank has added $370 million to its loan-loss reserves in the latest quarter due to the worsening economy. 

This pushes the bank’s overall credit costs to $1.36 billion. According to its Chief Executive Officer, it has been revealed that the bank has also decided to exit key overseas markets because of the real struggle of pacing with its larger competitors regarding stock valuations and profitability. 

The news about the bank outperforming the profit estimates positively impacted the trading, which rose 2% to $43.78 in late morning trading.

Takeaway 

While Citigroup celebrates a surpass in estimated profit, some of its revenue experienced a downfall. This translates to the reality that the bank still has to work on. Even though it might still take some years for it to guarantee its best profitable measure, it is undeniable that the series of interest rate hikes helped the company to beat some profit expectations.

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