Summary
- Citigroup, Inc. turned in a stable second quarter earnings report, maintaining its return on tangible common equity and returning a lot of cash to its shareholders.
- Michael Corbat, Citigroup's CEO, has done an excellent job in bringing his bank back from the Great Recession and positioning it so that it can work through some unsettled times.
- Mr. Corbat has the banking system functioning well and continues to maintain control of costs, so that the bank does not have to rely on trading revenues to support earnings.
Many investors are watching the release of bank earnings for the second quarter of 2019 to get some idea of how commercial banks are faring during this time of monetary uncertainty. Just last week, I reviewed some of the things analysts are looking for.
Well, Citigroup, Inc. (C) is the first to put out their results, and the bank’s report provides us with little new information to chew on in terms of where the banking industry now stands.
Robert Armstrong is right there to summarize the results in the Financial Times:
“Citi…managed to post a better than expected 12 percent jump in earnings per share thanks to cost control, share repurchases and improved performance at its US consumer bank.”
This was in spite of the fact that “The bank…suffered a 5 percent decline in trading revenues in the second quarter and a 10 percent drop in investment banking activities such as mergers and acquisitions advisory and debt underwriting.” Overall, in the second quarter, Citi posted a return on tangible common equity of 11.9 percent, the same number posted for the first quarter.
Actually, confidence is running pretty high for Michael Corbat, Citi’s CEO, as the bank’s stock has risen by 40 percent in 2019, nearly doubling the rise in the S&P 500 stock index.
Mr. Corbat continues to keep control of bank costs, something he has been very adamant about during his tenure at the top. Furthermore, the bank passed the Federal Reserve’s stress test given this year and consequently committed to providing shareholders with $21.5 billion in stock buybacks and dividends this year.
Mr. Corbat has done a good job in turning Citi around, and investors seem to appreciate this fact as they seem to be confident that the bank can hit its 2020 target return on tangible common equity, which is set for 13.5 percent.
Overall, Citi’s report has given us very little new information to judge the current state of the banking system and how it is responding to the current issues facing the Federal Reserve on the question of the future of interest rates.
