Citigroup cheers twin fixed income boost


Citigroup Canary Wharf building

The bank on July 15 followed JP Morgan in reporting its results for the three months to June 30, a period in which European takeover and equity market activity was dragged down by uncertainty ahead of and in the wake of the UK’s vote to leave the European Union.

Advisory revenues slipped 7% from a year earlier to $ 238 million, while equity underwriting revenues dropped 41% to $ 174 million – more than the 37% drop at JP Morgan.

Debt revenues, however, grew 9% from a year ago of $ 805 million – its best quarterly performance since 2003, according to analysis of previous results statements.

Citi worked on all five of the largest bonds sold globally during the quarter, according to Dealogic data. The largest was a $ 20 billion blockbuster from computer company Dell in May.

That brought total revenues from investment banking, spanning underwriting and advisory work, to $ 1.2 billion, down by 6% year-on-year but up 39% compared with the first three months of 2016. The bank said the year-on-year drop primarily reflected “lower industry-wide activity during the current quarter.”

In Citi’s markets, or sales and trading, business, revenues from fixed income rose by 14% to nearly $ 3.5 billion, the best quarterly performance from that business since the first three months of 2015, according to analysis of past results.

The bank said the rise was “driven by an increase in corporate client activity in rates and currencies as well as a better trading environment in the current quarter, partially offset by lower revenues in securitised products driven by decreased trading opportunities”.

Together with $ 788 million from equities sales and trading – down 4% when a valuation adjustment made in the second quarter of 2015 is excluded – that left trading revenues at $ 4.3 billion, 15% ahead of a year earlier and at their highest three-month level since the first quarter of 2015, when they were $ 4.4 billion.

On a earnings call, Citigroup chief executive Michael Corbat described the environment as “challenging and volatile” but said the banking and markets businesses had seen a “rebound in client activity” during the quarter.

Corbat said: “Looking forward, the environment remains challenging. We’re continuing to navigate the consequences of the UK referendum on the EU, from its economic impact to how exactly we’ll structure our legal vehicles to continue to best serve our clients. And while the UK has a new leader, the US is still in the midst of a unique presidential campaign and such geopolitical and economic uncertainty doesn’t create a clear picture for potential interest rate increases.”

He added: “While there’s been a high degree of uncertainty in the wake of the referendum, the capital markets are open, strategic transactions are getting done and we feel good about the client activity we’re seeing.”

Across the entire institutional clients group, which houses Citi’s corporate finance and sales and trading business as well as its treasury and trade solutions, corporate lending, private banking and securities services activities, revenues for the second quarter nudged up 2% from a year earlier, excluding valuation adjustments, to $ 8.8 billion.

Adjusted profits for the ICG division – again excluding valuation adjustments – were $ 2.7 billion, also up 2%. The bank pointed to “higher revenues and lower operating expenses, partially offset by a higher cost of credit”. Expenses had dropped by 2%, it added, due to “repositioning savings and a benefit from foreign exchange translation”.

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