Citigroup’s profit beats expectations as interest rate hike boosts lending business

Oct 14 (Reuters) – Citigroup Inc reported third-quarter profit on Friday that beat expectations as its lending business benefited from a series of Fed rate hikes and offset other divisions such as investment banking and trading of weakness.

After dealing with near-zero interest rates for years, banks’ net interest income has soared on higher prime lending rates as the Federal Reserve tightens monetary policy to contain decades of high inflation.

However, the central bank’s aggressive stance has sparked fears of an economic downturn, which in turn has stalled investment banking activity, turmoiled financial markets and prompted businesses and households to shelve borrowing plans.

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“I don’t think there’s going to be a financial crisis…

“We’re ready for any environment and we’re constantly running scenarios to make sure we’re ready for this situation.”

Net interest income, or the spread that banks can charge between borrowing costs, rose 18% year over year to $12.6 billion in the quarter.

Investment banking revenue, however, fell 64% to $631 million from a year earlier, when Citi had its best M&A quarter and investment banking had its second-best quarter in a decade.

Revenue in the markets unit, which has fixed income and equity trading units, also fell 24% in the quarter.

Jason Benowitz, senior portfolio manager at Roosevelt Investments, said: “Citi’s trading revenue decline was more severe than other banks, but we believe this is mainly due to its trading portfolio rather than market share losses.”

Excluding items, Citi reported earnings of $1.5 a share, beating analysts’ expectations of $1.42 a share. Its revenue rose 6% to $18.5 billion.

Citi, while not a significant player in leveraged financial markets, took a $110 million writedown in the third quarter as rising interest rates made it harder to pass risky debt on to investors and other more

The worsening economic conditions also caused the bank to increase its loan-loss provisions by $370 million in the most recent quarter, compared with $1.16 billion a year earlier.

The increase in reserves pushed Citi’s overall credit cost to $1.36 billion, the highest level in eight quarters since the third quarter of 2020.

The bank disclosed a $7.9 billion exposure to Russia, down $500 million from the second quarter, and said it also planned to close nearly all institutional banking services.

Under chief executive Jane Fraser, the bank has pulled out of key overseas markets as it struggles to compete with greater competition on share valuations and profitability while trying to rein in risk Opponents stay in sync.

Morningstar equity strategist Eric Compton said it may take Citi “3-5 years to reach more ‘normalized’ earnings metrics”.

Shares of the bank were up 2 percent at $43.78 in early trade.

Citigroup is the most undervalued bank stock among the major U.S. banks Citigroup is the most undervalued bank stock among the major U.S. banks

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Reporting by Mehnaz Yasmin in Bengaluru and Saeed Azhar in New York; Editing by Anil de Silva

Our Standard: The Thomson Reuters Trust Principles.

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