Citigroup Inc trounced first-quarter profit expectations, thanks to a rebound in the broader economy and a jump in investment banking activity, and said it will exit some overseas businesses as new chief executive Jane Fraser starts to make her mark on the country’s third-largest lender.
The bank reported $7.94 billion in profit, triple the $2.54 billion it made a year earlier, as it released funds set aside to cover pandemic loan losses and cashed in on a boom in listed shell company deals which has boosted underwriting income across Wall Street.
Citigroup‘s share price was broadly flat in afternoon trading.
“Our first impression is the incoming CEO Jane Fraser is striking the right cord on messaging a sense of urgency to undertake strategic changes that enhance the profitability profile,” UBS analyst Saul Martinez wrote in a note.
Fraser, who took over from Michael Corbat on March 1, is trying to bring Citigroup — an industry laggard hobbled by creaky technology and poor risk-management controls — in line with the profitability and share price performance of its peers.
Over the past decade, Citigroup‘s share price return has paled in comparison to that of JPMorgan Chase & Co and Bank of America Corp, while its ongoing operational problems have got it into hot water with its regulators.
As part of Fraser’s turnaround strategy, the bank is exiting consumer businesses in 13 Asia and EMEA markets, including Australia, China and India where it does not have the necessary scale to compete, said Fraser.
“We believe our capital, investment dollars and other resources are better deployed against higher returning opportunities in wealth management and our institutional businesses in Asia,” she said in a statement.
The consumer bank will still operate “wealth centers” in Singapore and Hong Kong, as well as London and the United Arab Emirates, and its Institutional Clients Group, which includes capital markets, commercial banking and private banking, will be unaffected, the bank said.
It provided no timeframe for the exits but Fraser, who grew up in Scotland, told analysts there would be “no dilly-dallying” on executing the changes.
Efforts to fix risk controls and operational issues pushed expenses up 4%, in line with the company’s projections.
Like its peers, Citigroup‘s bottom line was buoyed by a broader economic recovery thanks to vaccine rollouts, which have allowed Americans to get back to work, and $1.9 trillion in stimulus. As a result, Citigroup released $3.85 billion in loan loss reserves.
Also in line with Wall Street peers, Citigroup‘s investment banking revenue surged 46% on stronger equity underwriting fees. The bank has been a leader in raising money for the so-called special purpose acquisition, or SPAC, company frenzy, which has seen $100 billion worth of U.S. deals this year alone.
But Chief Financial Officer Mark Mason told reporters on Thursday that he doubts the record-breaking activity will last. “We expect to see a decline in SPACs in line with broader equity underwriting activity as interest rates push investors towards surer returns,” Mason added.
The bank also felt the impact of ultra-low interest rates and cash-flush consumers using debit cards for more purchases and paying off loans. That helped push total revenues down 7% to $19.3 billion, while its pre-provision profit – seen as a better gauge of bank performance this quarter – was down 18% on last year.
Much of that was driven by an 18% decline in credit card revenue, even as overall credit card sales grew %1. Net interest revenue, the difference between interest the bank earns and what it pays on deposits and borrowings, was down 12% from a year earlier at $10.17 billion.
Markets and securities revenue for Citigroup rose 2%, compared with an exceptionally strong quarter a year earlier.
“As elsewhere, trading and banking were a bit stronger than expected and net interest income a bit weaker but it was basically all pretty close to expectations,” wrote Oppenheimer analyst Chris Kotowski.