Shares of Citigroup Inc (NYSE:C) are trading slightly higher, up 0.22% to $49.72 a share after reporting earnings results for the third quarter of the current fiscal year. According to analysts at Sterne Agee, the bank financials are in line and the quality is better than expected.
Citigroup earnings analysis
Sterne Agee analysts Todd L. Hagerman and Robert Greene opined that Citigroup Inc (NYSE:C) earnings of $31.2 billion or $1.00 per share were “effectively in line with meaningfully lowered expectations.” According to them, weak capital markets were offset by improved core expenses and lower credit costs.
Hagerman and Greene noted that positive aspects in the financial results of Citigroup Inc (NYSE:C) for the quarter included a reduced earnings drag from Citi Holdings, and positive TBV momentum (up ~$1.50 1/q). The analysts emphasized that the company by far had better earnings quality overall compared with its large cap peers.
Compared with SALI estimate of $1.05 per share and Street consensus of $1.04 per share, Citigroup Inc (NYSE:C)’s $1.00 earnings per share were effectively in line, indicating that one-items were confined to relatively standard securities G/L ($24mm, ptx), CVA impact (-$33mmpts, $0.07/she atx) and ongoing restructuring chargers ($133 mm pts).
In addition, Hagerman and Greene noted that Citigroup Inc (NYSE:C) achieved $176 million or $0.06 per share tax benefit during the quarter. Their initial estimate for its operating EPS was approximately $0.03 to $0.04 per share higher than the reported ~$1.03 or GAAP EPS.
Citigroup’s operating expenses
Hagerman and Greene said Citigroup Inc (NYSE:C) managed to control its expenses while its operating leverage was negative. The company’s operating expenses excluding restructuring chargers declined to $11.5 billion in the third quarter. The figure fell bu 5% on 1/q basis. They also noted that its $677 million legal and related accruals were lower than the $832 million recorded in the previous quarter.
The analysts indicated that the capital markets of Citigroup Inc (NYSE:C) were slightly lower than expected at $5 billion, a 20% decline on 1/q basis and a 10% drop compared to the same period a year ago. Hagerman and Greene noted that FICC was the soft spot in light trading results of the company, which is not surprising under the current environment. The company also reported a 17% decline in fixed income capital market compared with the previous quarter and 26% lower compared with the same quarter last year.
Decline in assets
Citigroup Inc (NYSE:C) equities, both trading and underwriting, were positive, up by 22% and 36% respectively compared with its results in the same period a year earlier. According to the analysts, the company’s Citi Holdings breakeven results for the quarter were surprising. Its total average assets declined by 12% on 1/q basis to $172 billion, but the earnings drag improved at -$98 million compared with -$569 million due to lower mortgage R&W accrual, increased incremental reserve release of ~$300 million, and improved legal and related expenses.
Citigroup Inc’s (NYSE:C) loan loss provision slightly increased in Latin America and EMEA. The company reported generally weak consumer and securities and banking results on both geographies. On the other hand, its loan loss provision in Asia was better than expected. The company’s credit quality continues to improve on a 1/q basis with total NPAs declined by 3% 1/q.
Sterne Agee has a Buy rating and $61 price target for shares of Citigroup Inc (NYSE:C).