Citigroup on Tuesday beat analyst projections in its second quarter with a surge in trading revenue, though its profit fell 73% compared to last year, and CEO Michael Corbat foresees a long road back to growth that hinges on the production of a COVID-19 vaccine.
The lender posted net income of $1.3 billion for the second quarter, down from $4.8 billion in the same period last year. Income was dragged down by a hike in credit loss reserves, which totaled $7.9 billion — up from $7.03 billion it set aside last quarter — reflecting the bank’s grim global economic outlook and downgrades in its corporate loan portfolio.
“The pandemic has a grip on the economy and it doesn’t seem likely to loosen until vaccines are widely available,” Corbat said on a call with analysts. “I don’t want to be pessimistic. I want to be a realist, and I just think in order to truly normalize, that’s what’s necessary to do that.”
Citigroup’s losses were partially offset by the bank’s investment banking unit, which had its “best quarter in recent history,” Corbat said. Citigroup’s institutional clients group drew in $12.1 billion for the quarter — up 21% from last year. Its fixed-income trading group in particular saw revenue grow 68%.
Overall, the bank’s revenue rose 5% to $19.8 billion.
The gains helped Citigroup beat analyst estimates with earnings per share of 50 cents, topping the average analyst estimate of 35 cents a share, according to FactSet.
As the most internationally exposed of the U.S.’ Big Four banks, Citigroup may be put under more pressure by governments’ uneven approaches to fiscal stimulus and regional trends in containment rates, compared to the bank’s more domestically focused peers.
For example, though revenues in Citigroup’s global consumer banking sector fell 10%, to $7.3 billion, as consumers worldwide spend less through the pandemic, the effects have not been felt equally. In North America, where governments are aggressively propping up the economy through expanded unemployment benefits, small business loans and a raft of other emergency policies, revenue fell 5%. In Latin America, where government responses have been more mixed and coronavirus infections are on the rise, revenue declined 20%.
Latin America also saw a troubling bump in 90-plus day delinquencies for credit card loans, which rose to 3.81% in the second quarter. While in North America delinquencies fell as government stimulus helped consumers pay down debt, Citigroup Chief Financial Officer Mark Mason said on the call.
Corbat singled out Mexico as a market that has been particularly hard hit, adding that the bank projects that the country’s GDP will contract by about 8%.