Citigroup CFO says revenue will drop and loss provisions will grow in Q3

September 14, 2020.

A executive said the bank has not fully absorbed the impact of the pandemic, and is set to increase loan loss reserves to prepare for an expected uptick in credit losses amid a period still mired in challenges.

Speaking to attendees of the Barclays Global Financial Services Conference on Monday, Citigroup Chief Financial Officer Mark Mason said he expects both revenue to slip and expenses to increase as loan loss provisions surge, painting a gloomy portrait of future earnings.

Citing a “slower pace of rehiring,” and “a slower pace of recovery in terms of consumer behaviors and buying activity,” Mason said the current quarter has presented difficulties for the country’s fourth-largest bank, with $1.63 trillion in assets. 

The U.S. is still short 13 million jobs from pre-pandemic levels, after adding 1.8 million jobs in July, a factor which is likely to weigh down the economy and slow the pace of recovery.

Mason said he expects job growth would be “meaningfully lower,” from the first half when the bank’s allowance for credit losses skyrocketed to $10.5 billion from $131 million over the same period in 2019.

The CFO predicted a third-quarter revenue drop in the high single digits due to flat interest rates, constrained consumer spending and less investment bank activity, despite expected growth in fixed income and equities trading.

The bank’s stock fell 5.59% by the close of trading Monday on the New York Stock Exchange from Friday’s close. Meanwhile, the S&P 500 gained 1.27% over the same period.

With 37% of its revenue coming from consumer banking in the second quarter, the New York-based bank has said its fortunes are tied to the progression of COVID-19. 

“The pandemic has a grip on the economy and it doesn’t seem likely to loosen until vaccines are widely available,” said CEO Michael Corbat in a second-quarter earnings call. “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.” Bank profits fell 73% compared to the second quarter of 2019.

Corbat will be replaced by Citigroup President Jane Fraser in February.

Mason also touched on Citigroup’s recent litigation resulting from accidentally sending lenders to cosmetics company Revlon $900 million, calling the mistake unacceptable. Citigroup is pushing for a quick resolution over a case regarding the fate of those funds. 

The bank had to own up to another embarrassment last week, when it acknowledged that it had misstated the maturity date of a $1 billion bond by 18 years. 

--Additional reporting by Rachel Uda