Citi Gets Credit Card Boost as Borrowers Start to Struggle

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(Bloomberg) -- Citigroup Inc., the world’s second-largest credit-card issuer, is reaping the gains as customers borrow more — even as a growing number struggle to make payments.

Higher interest rates and larger card balances set the stage for an 11% jump in revenue from US personal banking in the second quarter, the New York-based lender said Friday. That blunted the impact of a 78% surge in write-offs tied to consumer loans.

Overall, Citigroup earned $1.33 per share, topping the average estimate of analysts by 2 cents.

Interest income and fees from handling corporations’ cash were bright spots amid a widely anticipated slump in Wall Street business lines that forced the firm to trim its workforce. The bank’s expenses jumped 9% to $13.6 billion in the quarter, boosted by what executives had predicted would be hundreds of millions of dollars in severance costs for eliminating about 1,600 jobs, including investment bankers and traders.

“Amid a challenging macroeconomic backdrop, we continued to see the benefits of our diversified business model,” Chief Executive Officer Jane Fraser said in a statement. Though trading clients stayed on the sidelines, “our cards businesses had double-digit growth due to strong engagement.”

Shares in the bank were little changed at $47.66 at 9:49 a.m. on Friday in New York.

The firm’s treasury and trade solutions division, which Fraser has touted as Citigroup’s “crown jewel,” saw revenue jump 15% to $3.5 billion. Securities services, which offers custody and collateral management, also boosted revenue 15%.

Swelling Balances

Total revenue slipped 1% to $19.4 billion, in line with the $19.3 billion average estimate from analysts. That, combined with the heightened expenses and credit costs, contributed to a 36% slump in net income to $2.9 billion.

The bank’s return on tangible common equity — a key measure of profitability — slid to just 6.4%. That compared with a ratio of 25% at rival JPMorgan Chase & Co. and 13.7% at Wells Fargo & Co., which reported second-quarter results earlier on Friday.

Still, Fraser reiterated her bank’s medium-term return targets. The bank has said it’s aiming for about 11% to 12%.

Balances on Citi’s US credit cards swelled to $149 billion from a year earlier. Firmwide credit costs soared 43% to $1.8 billion, fueled by the write-offs as some cardholders fell behind, the bank said. The firm added $161 million in reserves, citing that business’s growth.

Traders fared better than the bank’s own leadership had predicted at investor conferences just weeks ago, a feat that analysts had anticipated. Revenue from those operations slipped 13% in the quarter, close to their average estimate for a 15% decline. That included a 13% drop in revenue from fixed income, currencies and commodities at $3.5 billion.

Citigroup, like rivals, muddled through a slump in investment banking in the quarter. Its haul from those operations shrank 24% to $612 million.

--With assistance from Peter Eichenbaum.

(Adds shares in sixth paragraph.)

©2023 Bloomberg L.P.

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