Citigroup results boosted by trading, higher interest rates

NEW YORK — Citigroup reported better-than-expected results on Friday, following a strong performance in trading, as executives described US consumption as healthy despite rising inflation.

The US bank, like its peers, also suffered a drop in second-quarter profits compared with the year-ago period, boosted by the return of funds set aside early in the pandemic in case of loan defaults.

But unlike JPMorgan Chase and others, Citigroup still topped analyst expectations, in part due to higher profits in lending after Federal Reserve interest rate hikes. 

Chief Financial Officer Mark Mason told reporters that Citi's credit card business also had a "very, very strong performance", indicating consumers remain on solid footing for now.

"There's a lot of liquidity that still remains with consumers," he said on a media conference call. "Obviously that is allowing for a bit more flexibility than they otherwise would have."

But the continued spending is "hard to square" with data showing eroding consumer sentiment due to inflation, Mason acknowledged.

Citi reported profits of $4.5 billion, down 27 per cent from the year-ago period on revenues of $19.6 billion, up 11 per cent.

Citi had a net build of credit reserves of $375 million in case of bad loans.

Mason said the company "feels appropriately reserved" in case of a downturn, but saw no "signs of immediate credit loss concerns".

Elevated volatility in financial markets lifted revenues tied to trading in equities, commodities and other financial markets, offsetting a drop in merger and acquisition activity.

As with JPMorgan, Citigroup is suspending its share buybacks in light of new US stress test requirements to hold more capital in case of a downturn.

Mason said the decision also reflected uncertainty about the macroeconomy.

"We're worried about the prospect of a recession," he said. "We're worried about rate increases to kind of stabilise things as we manage through this environment and the uncertainty that comes with that."

Wells Fargo also reported a drop in second-quarter profits.

Earnings at the California-based bank were $3.1 billion, down 48 per cent from the year-ago level on a 16 per cent drop in revenues to $17 billion.

But investors were cheered by Wells' forecast of a 20 per cent jump in 2022 net interest income from last year's level in light of Fed interest rate hikes.

Citigroup shares soared 9.7 per cent to $48.40 in morning trading, while Wells Fargo jumped 6.6 per cent to $41.28.