RTL Today – Big US bank: Citigroup results boosted by trading and rising interest rates

Citigroup reported better-than-expected results on Friday after a strong performance in trade, as executives described U.S. consumption as healthy despite rising inflation.

The major U.S. bank, like its peers, also suffered a drop in second-quarter profits from the year-ago period, which was boosted by the return of funds set aside at the start of the pandemic in case of default of payment.

But unlike JPMorgan Chase and others, Citigroup has consistently exceeded analysts’ expectations, in part due to higher loan earnings after the Federal Reserve’s interest rate hikes.

Chief Financial Officer Mark Mason told reporters that Citi’s credit card business also performed “very, very well,” indicating that consumers remain on solid footing at the moment.

“There’s still plenty of cash left for consumers,” he said on a media conference call. “Obviously that allows a little more flexibility than they would otherwise have.”

But continued spending is “difficult to reconcile” with data showing consumer sentiment eroding due to inflation, Mason acknowledged.

Citi reported profits of $4.5 billion, down 27% from a year earlier, on revenue of $19.6 billion, up 11%.

Citi had a net build of credit reserves of $375 million in case of bad debts.

Mason said the company “felt sufficiently reserved” for a downturn, but saw no “signs of immediate credit loss issues.”

High financial market volatility drove up revenue from trading in equities, commodities and other financial markets, offsetting a decline in mergers and acquisitions.

As with JPMorgan, Citigroup is suspending share buybacks in light of new US stress-testing requirements to hold more capital in a downturn.

Mason said the decision also reflected uncertainty about the macro economy.

“We are worried about the prospect of a recession,” he said. “We’re worried about rate increases to kind of stabilize things as we manage this environment and the uncertainty that comes with it.”

Wells Fargo also reported lower second-quarter earnings.

The California bank’s profits were $3.1 billion, down 48% from a year earlier, on a 16% drop in revenue to $17.0 billion.

But investors were encouraged by Wells’ forecast of a 20% jump in net interest income in 2022 from last year’s level in light of Fed interest rate hikes.

Citigroup shares climbed 9.7% to $48.40 in morning trading, while Wells Fargo jumped 6.6% to $41.28.

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