Citigroup said on Friday its third-quarter profits fell 25% as it increased its provision for loan losses and its investment banking collapsed.
However, Citi shares gained more than 1% as revenue rose more than analysts expected, helped by rising interest rates, and earnings per share beat Wall Street expectations.
The bank reported revenue of $18.51 billion versus the $18.25 billion expected by analysts, according to Refinitiv. This was an increase of 6% over the previous year.
For the quarter ended Sept. 30, net income fell 25% year over year to $3.48 billion, or $1.63 earnings per share.
Results include a $520 million pre-tax gain on the sale of its Asia consumer business. Excluding this item, Citi reported making $1.50 per share. That adjusted number came in above analysts’ expectations of $1.42 per share, according to Refinitiv.
The decline in earnings resulted in part from an increase in credit risk reserves. Citigroup increased its allowance for loan losses by a net $370 million in the quarter, compared to a release of more than $1 billion in the same period last year. Total provision for loan losses was $1.37 billion for the quarter.
On the trade front, Citigroup reported $3.06 billion in fixed income earnings and $1.01 billion in equity earnings. Analysts were expecting revenue of $3.19 billion and $965 million, respectively, according to StreetAccount.
Personal banking was a bright spot for Citi, as revenue rose 10% year over year to $4.33 billion, reflecting growing net interest income as interest rates have risen.
Bank stocks have been hit this year by concerns that the US is heading into a recession, which would lead to a spike in loan losses. Citigroup’s shares are down 29% this year, the lowest among U.S. peers by some margin.
The potential for a global economic slowdown as central banks around the world battle inflation could hamper CEO Jane Fraser’s turnaround efforts at Citigroup. Fraser, which acquired the New York-based bank last year, has announced plans to exit retail markets outside the US and set medium-term return targets in March.
“There is increasing evidence of a slowdown in global growth and we now expect a country-level recession to begin this quarter,” Fraser said at an investor call on Friday. She added that the US is in relatively strong shape but could still experience a “mild recession” in the second half of 2023.
The sale of its consumer business in the Philippines was the main driver of revenue growth in the quarter, according to Citi. Last year the company posted a loss on the sale of an Australian company. The bank also said it will shut down almost all institutional customer services in Russia by the end of the first quarter of next year.
Even after its reorganization, Citigroup has more overseas offices than its peers, making it more vulnerable to slowing economies as the impact of a strengthening US dollar spreads around the world. Volatility in the UK bond market and an emergency measure by the Bank of England have been the most prominent examples of market stress so far.
“We’re more focused on liquidity in the market and the impact on some counterparties right now, much more than credit risk,” Fraser said.
Like the rest of the industry, Citigroup is grappling with a sharp drop in investment banking revenue. The bank reported $631 million in investment banking revenue for the third quarter, down more than 60% year over year. Chief Financial Officer Mark Mason said Citi is gaining market share in the institutional client business.
JPMorgan and Wells Fargo beat third-quarter sales estimates on Friday, while Morgan Stanley missed estimates for sales and earnings. Bank of America reports on Monday and Goldman Sachs on Tuesday.
Read Citi’s press release here.