Citi profits drop as investment banking slowdown outweighs trading boom

A slump in investment banking sent Citigroup’s profits tumbling 22 per cent in the fourth quarter, despite the bank enjoying the benefits of rising interest rates and a trading boom.

Citi was one of several Wall Street lenders reporting heavy falls in investment banking revenues on Friday, though a costly restructuring programme at the bank meant it was hit harder than its peers.

Citi said net income for the final three months of 2022 was $2.5bn, or $1.16 a share, in line with analysts’ estimates, but down almost 22 per cent from $3.2bn in the same period last year.

Chief executive Jane Fraser ordered the restructuring following scrutiny from regulators about its operational controls and years of underperformance. She warned in March that Citi would continue to lag behind Wall Street rivals in the coming years.

“One of our major goals in 2022 was to put in place a strategic plan designed to create long-term value for our shareholders and I am pleased with the significant progress we have already made,” she said.

Overall revenues in the fourth quarter were $18bn, in line with analysts’ estimates. Citi’s net interest income — the difference in what banks pay on deposits and what they earn from loans and other assets — was almost $13.3bn, up 23 per cent from a year ago, helped by the Federal Reserve’s aggressive campaign to raise interest rates.

Citi’s services division, which house the Treasury and Trade Solutions business that Fraser describes as the bank’s “crown jewel”, reported revenues of $4.3bn, up 32 per cent and ahead of estimates of $4.1bn.

Investment banking revenues in the fourth quarter were down 58 per cent at $645mn, compared with analysts’ estimates of $722mn. Like all Wall Street banks, Citi’s investment banking revenue has suffered this year from a prolonged slowdown in dealmaking activity.

Revenues in Citi’s trading division, which has benefited from increased activity during recent market volatility, were up 18 per cent to $3.9bn. Analysts had forecast revenue to be $3.7bn. The gains were driven by a 31 per cent increase in revenues from its fixed income operations.

Fraser said the last three months of 2022 were “the best fourth quarter in recent memory” for the trading division.

Citi reported a return on average tangible common equity (Rotce) of 5.8 per cent for the quarter and 8.9 per cent for 2022. The bank set a target of a Rotce of 11 per cent to 12 per cent over the next three to five years.

Citi said its common equity tier one capital ratio, a crucial benchmark for financial strength, was 13 per cent, up from 12.3 per cent three months earlier.

Fraser is working to exit many of its retail banking operations overseas, including its consumer businesses in Mexico and Poland. In October, the bank said it would shut down its institutional banking operations in Russia amid the country’s war with Ukraine.

In the final quarter of the year, Citi reduced its exposure in Russia from $7.9bn to $7.5bn.

Citi reported earnings on Friday alongside Bank of America, JPMorgan Chase and Wells Fargo. Goldman Sachs and Morgan Stanley, whose business skew more towards investment banking, trading and asset management, report earnings on Tuesday.

This story was amended after first publication to correct the analysts’ estimates figure for investment banking revenues to $722mn