Citigroup profit beats expectations on trading boom

Citigroup Inc posted a smaller-than-expected 27% drop in quarterly profit on Friday as the third-largest U.S. bank’s trading desk cashed in on increased market volatility, cushioning a slump in investment banking.

Revenue at the markets business jumped by a quarter to $5.3 billion, thanks to volatility in the commodities and foreign exchange markets — a particularly strong segment for the bank.

Trading has emerged as a bright spot for Wall Street banks this quarter as clients look to rebalance their portfolios in the face of geopolitical tension, surging inflation and fears that aggressive Federal Reserve policy tightening could plunge the economy into a recession.

Citi shares rose 5% shortly after the market opened.

The bank’s profit fell to $4.5 billion, or $2.19 a share, in the quarter ended June 30, from $6.2 billion, or $2.85 a share, a year earlier.

Excluding items, Citi earned $2.30 per share, according to Refinitiv calculations, beating the average analyst estimate of $1.68 per share.

The profit drop also reflected a $375 million increase in reserves for potentially sour loss loans as the economic outlook darkens. A year earlier, exceptional government stimulus and the economy’s recovery from the pandemic had allowed it to release $2.4 billion of reserves.

That pushed up credit costs to $1.3 billion, a sharp contrast to the $1.07 billion benefit a year earlier.

Citigroup will suspend share buybacks in the face of threats to the economy and the need to build up a key regulatory capital ratio, which is increasing, Chief Financial Officer Mark Mason told reporters.

The move confirmed expectations of analysts and followed a similar move by JPMorgan Chase & Co on Thursday.

Investment banking revenue fell 46% to $805 million as the volatility in markets dried up underwriting and advisory fees for investment bankers who drove Wall Street’s profit during the depths of COVID-19.

The Treasury and Trade Solutions business — Citi’s crown jewel — posted a 33% jump in revenue to $3 billion on the back of higher net interest income and fee growth.

The bank, which disclosed an exposure of $8.4 billion to Russia as of the second quarter, said it was mulling options to exit its consumer and commercial banking business in the country.

Major U.S. banks and securities firms are intent on exiting their Russia businesses as they work to comply with U.S. sanctions imposed after the invasion of Ukraine. .

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