The global financial services company, Citigroup Inc (C), has warned of increased expenses in the second quarter and also signaled a fall trading revenue, as reported by BloombergQuint. Shares dropped 3.2% to close at $71.46 on June 16. (See Citi stock chart on TipRanks)
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Spiraling Expenses
At a recent Morgan Stanley (MS) virtual conference, Citi CFO Mark Mason told investors that Q2 expenses are likely to fall in the range of $11.2 – $11.6 billion, a significant increase compared to the operating costs of $10.4 billion recorded in the year-ago period. The rise is due to the firm’s spending to satisfy a pair of consent orders received from regulators late last year.
In October 2020, Citi was fined with a $400 million civil money penalty related to deficiencies in enterprise-wide risk management, compliance risk management, data governance, and internal controls.
Mason said, “Last year this time we took expenses down pretty meaningfully… But we also, as you know, have spend that we’re making in the way of transformation”
Declining Revenue
Mason said that the bank’s trading desk will report a decline in revenue by 30% compared to the prior-year period.
He also noted that the momentum in the firm’s equity trading business will be offset by a dwindling performance in the fixed-income unit.
Mason noted that the current quarter is “a very different place than we were a year ago,”
He also stated that government-aided stimulus packages have led to a decline in the overall loan growth of Citi’s U.S. card segment, as credit-card holders continue to reduce the amount owed on the loans at faster rates.
Overall, Mason expects revenue from the firm’s North American consumer business to fall by around 15%.
Analyst View
Following the news, Credit Suisse analyst Susan Roth Katzke reiterated a Buy rating on the stock but lowered the price target to $83 (16.2% upside potential) from $84.
As per BloombergQuint, Katzke said in a note to clients, “We think it’s fair to expect the higher level of expenses in 2Q21, with increased investment spending — key to Citi’s transformation and consistent with new management — to be the new run rate.”
The Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 10 Buys and 5 Holds. The Citi average analyst price target of $86.61 implies 21.2% upside potential to current levels. Citi’s shares have gained 34.8% over the past year.
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