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Citigroup Q3 earnings surpass expectations, restructuring plan in progress



 

Citigroup Inc (NYSE:C). reported a 2% increase in profits for the third quarter of 2023, beating Wall Street’s downgraded forecasts. The bank registered $1.63 earnings per share on a $20.1 billion revenue, outperforming FactSet’s forecast of $1.23 per share on a $19.3 billion revenue. This improvement comes after major structural changes implemented by Citigroup to enhance overall efficiency and address previous internal control deficiencies.

On Friday, the bank’s shares saw a 2% increase following the release of its robust Q3 results. Despite this, Citigroup shares continue to trade at half of the bank’s tangible book value due to persistent investor wariness. According to InvestingPro data, the stock’s P/E ratio stands at 6.53, indicating a low earnings multiple. The bank’s market cap is currently $79.96 billion.

Under CEO Jane Fraser, Citigroup has embarked on a restructuring strategy that includes eliminating its personal-banking and wealth-management layer and exiting from several international markets. This move is aimed at simplifying operations, boosting client service, and unlocking shareholder value—an impact expected to be seen in the forthcoming fourth-quarter results.

The bank’s Treasury unit had its best quarter in a decade amidst bond market turbulence, leading to a 9% revenue surge to $20.1 billion. However, Citigroup’s stock fell 8.2% in 2023, contrasting the S&P 500’s 13.3% rise. InvestingPro data shows a 1-year price total return of 1.02%, indicating the stock’s volatile movements.

As part of its restructuring strategy, Citigroup sold its consumer-wealth portfolio in China to HSBC Plc and confirmed plans for a Banamex IPO in Mexico. It also announced exits from 14 markets including Australia, Bahrain, India, Malaysia, the Philippines, with an expected exit from Indonesia in 2023.

Despite banking sector challenges like a slowdown in deal-making and an expected recession in 2024, Citigroup’s Q3 net income ascended to $3.5 billion. This was buoyed by escalating investment banking fees and interest payments amidst depressed dealmaking conditions. Its institutional clients group saw a 12% revenue uptick, contributing to a 9% overall revenue boost, with revenues totaling $70.8 billion according to InvestingPro data.

CEO Jane Fraser’s sweeping reorganization hasn’t yet impacted Q3 results but foresees headcount reductions and savings through management layers reduction. This plan involves investments in control systems and severance payments for laid-off employees during the sale of international businesses.

As part of its future plans, Citigroup has revised its 2023 net interest income guidance to $47.5 billion, excluding Markets, and hinted at Q4 2023 stock buybacks. The bank also anticipates a steady year-end normalization of net credit losses in its cards business. A substantial operational shift is on the horizon with the implementation of a new reporting structure aligned with its five core businesses by Q4 2023.

In line with the InvestingPro Tip, Citigroup, despite its challenges, has maintained dividend payments for 13 consecutive years. The bank’s dividend yield stands at 5.1% as per InvestingPro data.

In addition to Citigroup, other top-tier banks such as JPMorgan Chase (NYSE:JPM) and Wells Fargo have already disclosed their third-quarter earnings, while Bank of America, Goldman Sachs, and Morgan Stanley are set to release their results soon. For more insights like these, check out the numerous other tips available at InvestingPro.

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