Citigroup uses M&A boom on Wall Street to offset slow loan portfolio

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Oct. 14 (Reuters) – Citigroup Inc (CN), like its peers on Wall Street, took advantage of a trading boom to post solid quarterly profit on Thursday, fending off weakness in its lending business, which, according to bank management, would continue. to be under pressure.

A hot stock market and cheap borrowing costs have helped US companies raise billions of dollars in debt and equity, and funnel much of it into deals, for which they have used big banks. investment for advice.

The frenetic pace of transactions took investment banking fees to an all-time high in the first nine months of the year, with banks like JPMorgan Chase (JPM.N), Citi and Morgan Stanley (MS.N) benefiting the most.

“It was Citi’s best M&A quarter and second best investment banking quarter in a decade,” Chief Executive Officer Jane Fraser said on a post-results conference call with analysts.

The bank’s investment banking revenues jumped 39% to $ 1.9 billion, offsetting a 16% drop in fixed income income from a year ago, while market volatility was unprecedented.

Its earnings were boosted significantly by the decision to reduce its loan loss reserves by $ 1.16 billion. A year earlier, he had added $ 436 million to reserves to survive a potential impact of the pandemic.

JPMorgan, Bank of America (BAC.N) and Wells Fargo (WFC.N) have also released funds.

MALENT LOAN BOOK

The release of the reserve along with an increase in transactions helped Citi offset declines in its consumer bank due to declining interest income as customers saved money during lockdowns and paid off their loans. . Net interest income decreased by 1% compared to the previous year.

Executives said on Thursday that the bank has struggled to expand its lending business, even as consumer spending rose in the quarter.

“Healthy consumption balance sheets and consistently high payment rates mean loan growth has remained under pressure,” said CEO Fraser.

However, the silver lining is that net interest income was 2% higher than in the second quarter, suggesting the end of the downtrend that began when the pandemic began and the Federal Reserve cut back. interest rate near zero.

Lower rates also hurt Citi’s treasury and business solutions business, as revenue fell 4% even as it collected more fees and saw growth in business loans.

Sales of its branded cards in North America were down 1%. But on a positive note, card purchase sales have increased as consumer spending picks up. Spending on branded cards in North America jumped 24% from a year ago.

Executives of other major U.S. banks have also said consumers are starting to take on more debt as their cash balances shrink.

The results included the impact of a loss on the sale of its banking business to consumers in Australia. Excluding that, overall turnover increased by 3%, driven by institutional activity.

EXPENSES INCREASE

For the three months ended Sept. 30, net income jumped 48% to $ 4.6 billion, or $ 2.15 per share, from a year earlier. Analysts had expected earnings of $ 1.65 per share, according to data from Refinitiv.

Operating expenses rose 5% to $ 11.5 billion as the bank spent more on technology and personnel to improve its control systems and comply with regulatory requirements a year ago.

Investors have been particularly concerned about Citi’s spending because it has not disclosed how much money and how long it will take to meet regulatory demands and fix its systems.

Spending on credit card marketing has also increased. Rival card issuer JPMorgan said on Wednesday it could spend more on card marketing to attract customer spending as the pandemic abates.

Reporting by David Henry in New York and Anirban Sen in Bengaluru; Editing by Sriraj Kalluvila and Arun Koyyur

Our Standards: Thomson Reuters Trust Principles.


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