JPMorgan Chase & Co. (NYSE:JPM) has already warned that trade volumes are going to be disappointing for this quarter, and it seems that other banks are facing the same problem. Speaking at Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB) conference, Citigroup Inc. (NYSE:C) CFO John Gerspach recently guided for trade revenues to be down 20% – 25% compared to 2Q13, though it could be partially offset by improved investment banking fees.
“People lack direction,” said Gerspach, report Saabira Chaudhuri and Christina Rexrode for The Wall Street Journal. “People are uncertain. There just isn’t a lot of movement.”
Citi 2Q14 EPS estimate down $0.15, still rated Outperform
“This decline was somewhat expected following JPM’s guidance in its 1Q14 10-Q that markets revenues were likely to be down approximately 20% y/y in 2Q14,” writes Credit Suisse Group AG (ADR) (NYSE:CS) analyst Moshe Orenbuch, who has reduced his 2Q14 EPS estimate from $5 to $4.85 to reflect the change. He continues to rate Citigroup Inc. (NYSE:C) as Outperform and has left his $62 price target, as well as 2015/2016 EPS estimates, intact.
While Orenbuch accepts that investment banking fees should improve sequentially, he thinks that Treasury and trade solutions and consumer revenues will be flat, and that FICC (fixed income, currencies, and commodities) revenues will decline 15% – 20% for the entire industry. Weak FX expectations mean that Citigroup Inc. (NYSE:C) will probably have worse FICC numbers than its peers and a rough 2Q14 earnings day in general. On the bright side, core expenses should be down sequentially from the $11 billion spent in 1Q14 while legal and repositioning costs should remain flat at about $1.1 billion.
Citigroup won’t resubmit capital plans this year
Gerspach also said that Citigroup Inc. (NYSE:C) will not resubmit its capital plans this year, after the bank’s first capital plan was one of five that the Federal Reserve rejected because it judged that the remaining regulatory capital would be too little to weather a crisis. Instead, Citi will focus on improving its internal stress test procedures.
In the long run, being able to make better estimates (or at least estimates that better match the Fed numbers) will help Citigroup Inc. (NYSE:C) to make more accurate forecasts, though shareholders are likely to be disappointed that the bank isn’t also going to push for higher buybacks or and dividends.