10-Q: Citigroup's First Quarter 2024 Results Show Revenue Growth Despite Increased Expenses

Citigroup's first quarter 2024 results reveal a 3% revenue increase excluding divestiture impacts, driven by growth in Banking, U.S. Personal Banking, and Services, though offset by declines in Markets and Wealth.

Summary

• Citigroup's first quarter 2024 revenues decreased by 2% on a reported basis, but increased by 3% excluding divestiture-related impacts, reaching $21.1 billion.
• The revenue growth was driven by Banking, U.S. Personal Banking, and Services, while Markets and Wealth experienced declines.
• Operating expenses increased by 7% compared to the prior year, including repositioning costs of $258 million, an incremental FDIC special assessment of $251 million, and net restructuring charges of $225 million.
• Excluding divestiture-related impacts and the incremental FDIC special assessment, expenses increased by 5%, largely due to inflation and volume-related expenses.
• Citigroup's cost of credit was approximately $2.4 billion, up from $2.0 billion in the prior year, primarily due to higher cards net credit losses.
• Net income decreased by 27% to $3.4 billion, or $1.58 per share, compared to $4.6 billion, or $2.19 per share, in the prior-year period.
• Citigroup returned $1.5 billion to common shareholders through dividends ($1.0 billion) and share repurchases ($0.5 billion).
• The Common Equity Tier 1 (CET1) Capital ratio was 13.5% as of March 31, 2024, compared to 13.4% as of March 31, 2023.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with some positive aspects like revenue growth in certain segments, but also significant negatives such as increased expenses and decreased net income. The overall sentiment is neutral to slightly negative due to the challenges and uncertainties mentioned.

Positives

• Revenues increased by 3% excluding divestiture-related impacts, indicating underlying business growth.
• Services net income increased by 15%, driven by higher revenues in both TTS and Securities Services.
• Banking net income increased significantly, driven by higher revenues and lower expenses.
• U.S. Personal Banking revenues increased by 10%, driven by higher net interest income due to loan growth in cards.
• Citigroup's CET1 Capital ratio increased modestly to 13.5% as of March 31, 2024.

Negatives

• Reported revenues decreased by 2% due to divestiture-related impacts.
• Operating expenses increased by 7%, including significant charges for repositioning, FDIC assessment, and restructuring.
• Net income decreased by 27% due to higher expenses and cost of credit.
• Markets net income decreased by 25%, driven by lower revenues, higher expenses and higher cost of credit.
• Wealth revenues decreased by 4%, largely driven by a 13% decrease in net interest income from higher mortgage funding costs and lower deposit spreads.

Risks

• Continued elevated interest rates and inflation could negatively impact Citigroup's customers, clients, businesses, funding costs, cost of credit, and overall results.
• Geopolitical and macroeconomic uncertainties, including the Russia-Ukraine war and escalating conflicts in the Middle East, could adversely affect economic conditions and Citigroup's performance.
• The wind-downs of the Korea and China consumer banking businesses and the Russia consumer, local commercial and institutional businesses, as well as the separation involving Citis consumer banking and small business and middle-market banking operations in Mexico in preparation for a planned initial public offering in 2025, present ongoing challenges.
• Citigroup expects full-year net credit loss rates for both Branded Cards and Retail Services to be higher in 2024.

Future Outlook

Citigroup expects to incur additional repositioning costs during the remainder of 2024 and expects full-year net credit loss rates for both Branded Cards and Retail Services to be higher in 2024. Citigroup will continue to assess common share repurchases on a quarterly basis given uncertainty regarding regulatory capital requirements.

Management Comments

• Citi continued to make progress with the wind-downs of the Korea and China consumer banking businesses and the Russia consumer, local commercial and institutional businesses, as well as the separation involving Citis consumer banking and small business and middle-market banking operations in Mexico in preparation for a planned initial public offering in 2025.

Industry Context

The results reflect a mixed performance in the financial services sector, with some segments showing growth while others face challenges due to market conditions and economic pressures. The increase in credit losses is consistent with broader trends in the industry, reflecting the maturation of loan portfolios originated during the pandemic and the impact of higher interest rates.

Comparison to Industry Standards

• Citigroup's revenue growth of 3% excluding divestiture impacts is comparable to other large banks that have also seen growth in certain segments, such as investment banking and consumer lending, while facing headwinds in others.
• The 7% increase in operating expenses, including significant charges for repositioning and restructuring, is higher than some peers, reflecting Citigroup's ongoing transformation efforts.
• The increase in cost of credit to $2.4 billion is consistent with other large banks that have reported higher credit losses in their consumer lending portfolios, particularly in credit cards.
• Citigroup's CET1 Capital ratio of 13.5% is within the range of other large banks, indicating a stable capital position.
• The performance of Citigroup's various segments, such as the 15% increase in Services net income and the 25% decrease in Markets net income, is similar to the mixed results reported by other large financial institutions.

Legal Proceedings

• Government and regulatory agencies in the U.K. and Europe are conducting investigations or making inquiries regarding an equity desk trading error that occurred on May 2, 2022.
• On February 22, 2024, the district court issued decisions on several summary judgment motions in the Interchange Fee Litigation.
• On March 14, 2024, in PICARD v. CITIBANK, N.A., ET AL., the United States District Court for the Southern District of New York denied the Citi defendants leave to file an interlocutory appeal of the bankruptcy courts decision denying their motion to dismiss the amended complaint.
• On February 5, 2024, the United States Court of Appeals for the Second Circuit granted defendants Rule 23(f) petition to appeal the district courts order granting class certification in the Variable Rate Demand Obligation Litigation.
• In ILLINOIS EX REL. EDELWEISS FUND, LLC v. JP MORGAN CHASE & CO., ET AL., the parties entered into a settlement agreement effective February 1, 2024.

Stakeholder Impact

• Shareholders will see a decrease in net income and earnings per share, but also a return of capital through dividends and share repurchases.
• Employees may be affected by ongoing repositioning and restructuring initiatives.
• Customers and clients may experience changes in services and products as Citigroup continues its transformation.
• Creditors may be impacted by changes in Citigroup's financial condition and capital ratios.

Next Steps

• Citigroup expects to incur additional repositioning costs during the remainder of 2024.
• Citigroup will continue to assess common share repurchases on a quarterly basis given uncertainty regarding regulatory capital requirements.
• Citigroup intends to pursue an IPO of its consumer, small business and middle-market banking operations in Mexico in 2025.

Key Dates

Keywords

Citigroup, financial results, revenue, expenses, net income, credit losses, capital ratio, banking, U.S. Personal Banking, services, markets, wealth, divestiture, FDIC, restructuring, CET1, share repurchases, dividends