Citigroup’s Improved Performance and Ongoing Transformation

Citigroup, one of the world’s largest financial institutions, has reported its financial results for the second quarter of 2024. The company’s performance demonstrated improved business performance and continued focus on executing its strategic transformation.

Overview of Financial Performance

In the second quarter of 2024, Citigroup’s revenues increased 4% compared to the prior-year period, driven by growth across all its reportable operating segments. This included an approximate $400 million gain related to the Visa B exchange. Expenses decreased 2%, reflecting savings from organizational simplification, cost reductions, and lower repositioning costs, partially offset by continued investment in the transformation and regulatory penalties.

Citigroup’s net income increased 10% to $3.2 billion, as the higher revenues and lower expenses more than offset the higher cost of credit. The company’s effective tax rate decreased to 24% from 27% in the prior-year period, reflecting the impact of geographic mix of earnings and state tax law changes.

Citigroup’s end-of-period loans grew 4% to $688 billion, largely due to loan growth in the U.S. Personal Banking segment. However, end-of-period deposits decreased 3% to $1.3 trillion, primarily reflecting a decline in Treasury and Trade Solutions.

Segment Performance

Services: This segment, which includes Treasury and Trade Solutions and Securities Services, reported a 21% increase in net income to $1.5 billion. Revenues grew 3%, driven by higher revenues in Securities Services and the impact of continued momentum in Treasury and Trade Solutions, partially offset by lower revenue from the net investment in Argentina. Expenses increased 9%, largely due to an Argentina-related transaction tax, a legal settlement, and continued investments in technology and innovation.

Markets: Net income in this segment increased 29% to $1.4 billion, driven by higher revenues and lower expenses. Revenues grew 6%, with Equity Markets up 37% and Fixed Income Markets down 3%. The decline in Fixed Income Markets was largely due to lower volatility and tighter spreads, partially offset by strength in spread products and other fixed income.

Banking: Net income was $406 million, compared to $50 million in the prior-year period, driven by 38% higher revenues and 10% lower expenses. Investment Banking revenues increased 60%, reflecting growth in Debt and Equity Capital Markets as well as Advisory. Corporate Lending revenues also increased, including the impact of gains on loan hedges.

U.S. Personal Banking: Net income decreased 74% to $121 million, driven by higher cost of credit, partially offset by 6% higher revenues and 2% lower expenses. Revenues benefited from loan growth in cards and lower partner payments. However, cost of credit increased significantly due to higher net credit losses and a higher allowance build, primarily reflecting the maturation of card loan vintages and macroeconomic pressures.

Wealth: Net income was $210 million, compared to $84 million in the prior-year period, reflecting 2% higher revenues, 4% lower expenses, and lower cost of credit. The increase in revenues was driven by higher investment fee income, partially offset by lower net interest income due to higher mortgage funding costs.

All Other: This segment, which includes Legacy Franchises and Corporate/Other, reported a net loss of $402 million, compared to net income of $78 million in the prior-year period. The decline was driven by lower revenues, higher cost of credit, and higher income tax expense, partially offset by lower expenses. Revenues decreased 22%, primarily due to lower revenues in Corporate/Other and Legacy Franchises.

Transformation and Regulatory Developments

Citigroup’s multiyear transformation, including the remediation of its regulatory consent orders, is a complex and challenging endeavor. The company continues to make progress in modernizing its infrastructure, simplifying operations, enhancing data quality and governance, strengthening controls, and reducing risk.

In July 2024, the Federal Reserve Board (FRB) and the Office of the Comptroller of the Currency (OCC) issued civil money penalty consent orders with Citigroup and Citibank, respectively, related to ongoing deficiencies in data quality management and failure to make sufficient progress in remediating the 2020 OCC consent order. The orders require Citibank to submit a plan to the OCC to determine if sufficient resources are being allocated to achieve timely and sustainable compliance with the 2020 order.

Citigroup has made progress in areas such as improving risk management, simplifying its technology infrastructure, and enhancing resiliency. However, the transformation efforts will continue to involve significant investments and face ongoing regulatory challenges and risks.

Capital and Liquidity

Citigroup’s Common Equity Tier 1 (CET1) Capital ratio under the Basel III Standardized Approach increased to 13.6% as of June 30, 2024, compared to 13.4% a year earlier. This remains above the required regulatory CET1 Capital ratio of 12.3%.

The company’s Supplementary Leverage ratio decreased to 5.9% from 6.0% a year earlier, driven by a decrease in Tier 1 Capital and an increase in Total Leverage Exposure.

In the second quarter of 2024, Citigroup paid $1.0 billion in common dividends and plans to repurchase approximately $1.0 billion of common shares in the third quarter of 2024, subject to financial and macroeconomic conditions. The company’s required regulatory CET1 Capital ratio is expected to decrease to 12.1% from 12.3% on October 1, 2024, reflecting a decrease in the Stress Capital Buffer requirement.

Macroeconomic and Other Risks

Citigroup continues to face various macroeconomic and regulatory challenges, including central bank interest rate policies, elevated inflation, and geopolitical tensions. These factors have negatively impacted global economic growth and consumer sentiment, and could result in a recession in various regions. Upcoming elections in the U.S. also present additional uncertainties that could adversely affect Citigroup’s customers, clients, and overall performance.

Conclusion

Citigroup’s second quarter results demonstrated improved business performance and the company’s continued focus on executing its strategic transformation. While the transformation efforts involve significant complexities and regulatory challenges, Citigroup is making progress in modernizing its infrastructure, simplifying operations, and strengthening its risk and control environment. The company’s capital and liquidity positions remain strong, though it continues to navigate a challenging macroeconomic environment. Citigroup’s success in completing its transformation will be crucial in enhancing value for its customers, clients, and shareholders.