Like its peers, Citigroup is trying to navigate a macroeconomic environment increasingly clouded by recession fears, soaring inflation across much of the world and central bank rate tightening.
While the megabank's investment banking and corporate lending revenues weakened in the third quarter, the company was bolstered by its vibrant treasury services and branded cards businesses.
The question is: How long will CEO Jane Fraser and her team find success with that formula?
It may depend, in part, on the timing and severity of "rolling, country-level recessions" that Fraser predicts will take hold starting this quarter. While the United States' economy is so far proving to be "relatively resilient," growth prospects are deteriorating in Europe and the United Kingdom, and COVID-19 lockdowns in China are affecting economic activity, Fraser told analysts on Friday.
As a result of the ongoing market turbulence, Citi's investment banking revenues tumbled 64% year over year as clients pulled back from mergers and acquisition. At the same time, corporate lending fell by 11% due to lower volume and higher credit default swap premiums.
Citi, however, has a couple of advantages that may provide some protection from the turmoil.
For starters, the treasury and trade services unit put up
On Friday, Fraser said the business was Citi's "crown jewel."
"I think there's a bit of a myth at the moment that the global environment is detrimental to activity," Fraser said during the company's quarterly earnings call. "We see quite the opposite. Volatility is something in which we're active in helping our multinational clients … manage. The local footprint we have and the global network we have is a tremendous asset right now.
Citi is also seeing momentum in branded cards, where third-quarter revenues increased by 10% year over year. New branded-cards accounts rose by 10%, spending on such cards increased 14%, and average loans on those cards went up by 12%, Citi Chief Financial Officer Mark Mason said on the call.
Similarly, year-over-year retail services revenues increased 12% during the quarter, Mason said.
Card payment rates remain elevated, interest-earning balances grew 9% in branded cards and 7% in retail services, and the bank expects more growth in balances during the fourth quarter, Mason said.
Leaning into areas such as treasury and trade solutions and branded cards is part of Citi's broader business
One part of that is the ongoing divestiture of overseas businesses, mostly consumer franchises. During the third quarter, Citi completed the sale of its retail business in the Philippines. The deal generated about $520 million in pretax earnings, boosting quarterly revenues to $18.5 billion.
Citi expects to wrap up three more divestitures — in Bahrain, Thailand and Malaysia — during the fourth quarter, while it keeps working on sales in other countries, including
Meanwhile, it is dissolving, rather than selling, certain businesses in other countries including the U.K. and Russia. Citi announced on Friday that it will stop offering all institutional banking services to multinational clients operating in Russia by the end of the first quarter.
The decision follows an August announcement that Citi would
Separately, the bank is still trying to fix its risk management and internal control systems in the aftermath of two consent orders that were issued two years ago by the Federal Reserve and the Office of the Comptroller of the Currency. Last month, The Wall Street Journal
During Friday's call, analyst Matt O'Connor of Deutsche Bank asked Fraser to address the speed at which the company is moving to fix the regulatory issues.
"We all want things to go faster, both our clients, our shareholders, the management team, regulators, the board," Fraser said. But she reiterated that "it will be a multiyear journey."
"I have to say, we have constant and constructive engagement with our regulators that personally I find to be very helpful and essential to our success," she said. "We have got a lot to get done."
Citi reported third-quarter net income of $3.5 billion, down 25% from the third quarter of 2021 due to higher expenses and higher cost of credit related to loan growth in the company's personal banking and wealth management division. Expenses were up 8% for the period, reflecting in part the ongoing spending on risk management improvements, business-led spending and inflation.
Cost of credit totaled $1.4 billion compared with a benefit of $192 million during the third quarter of 2021, the company reported.
