How would a multitrillion-dollar-asset bank rebound from $135.6 million in new penalties stemming from data quality and risk management issues that have dogged it for years?
If you’re Citi, you’d report your earnings.
Profit at the bank jumped 10% — to $3.22 billion — during the second quarter, compared with the same three-month span a year earlier.
And for the first time since Citi realigned its structure last year into five reporting divisions (rather than two), all five saw gains in revenue at the same time.
Broken down to the unit level, some of these revenue increases sound legitimately eye-popping: Citi’s investment-banking revenue, for example, catapulted 60% year over year. Revenue in the banking division at large rose 38%. Meanwhile, operating expenses in the banking division dropped 10%, showing that Citi is capitalizing on the headcount it has gradually reduced since September.
All of this together means the banking division’s net income in the second quarter — $406 million — eclipsed its year-ago total eightfold.
This should be tempered with the caveat that it’s unclear how Friday’s banking division numbers can make for a one-to-one comparison against those from a year ago — before Citi’s structure was reimagined to its current form.
And not every segment Friday saw double-digit percentage-point gains. Profit in Citi’s U.S. credit card and consumer banking businesses dropped 74% year over year. Credit losses in those segments rose to $2.3 billion, from $1.5 billion a year ago, as borrower delinquencies saw an uptick.
To combat that, Citi is closing unused credit card accounts and boosting its capacity to collect bad debts, CFO Mark Mason said, according to Bloomberg. That includes decreasing credit limits and toughening underwriting criteria to ensure new accounts go to borrowers with higher credit scores.
“We’re watching the intent to pay very closely,” Mason said.
But, overall, enthusiasm from Citi’s upper echelons was palpable.
“We have made an incredible amount of progress in simplification — both strategically and organizationally,” CEO Jane Fraser said in a statement Friday, adding that the bank’s earnings show the benefit of a “diversified business model.”
Other winners
Arguably another winner in the Citi sphere this week is Viswas Raghavan, the lender’s newly minted head of banking.
Citi granted Raghavan 623,837 shares in the bank, according to paperwork filed Thursday with the Securities and Exchange Commission. Based on Citi’s $65.71 share price at closing Thursday, that’s nearly $41 million.
The shares will vest in six installments between January 2026 and 2031, with the first $11 million’s worth becoming available at the start of that time frame.
The award, negotiated as part of Raghavan’s hiring package, is meant to replace shares he abandoned by leaving JPMorgan Chase in February.
Added to Raghavan’s winnings this week, he no longer has to worry about sharing a workspace with his (presumably) chief rival for the top banking post at Citi.
Investment management firm Blackstone announced Monday it hired Tyler Dickson, formerly Citi’s investment-banking chief, to serve as head of client relations for credit and insurance.
Dickson, too, may count the fresh start as a win. Especially if he sees Citi’s earnings and thinks, “Gosh, 38% revenue jump, huh? Now the C-suite and investors are going to expect that every quarter. Good luck, Vis.”
Citi’s second-quarter results come, of course, in the shadow of Wednesday’s orders from the Federal Reserve and Office of the Comptroller of the Currency, demanding faster progress on issues the agencies highlighted in 2020. Those issues spurred Citi, over the past four years, to dub the modernization of its tech as “Transformation” with a capital T.
The regulators may see the new penalties against Citi as a win in the name of banking safety and soundness. To be sure, the impact of the fresh orders permeated the backdrop of Citi’s earnings presentation.
“The Transformation is critically important to our firm,” Mason said Friday. “Jane and I both reference it as our number-one priority … We’re going to do what is required to get that done and get that done the right way.”
