What's in the Cards for Citigroup (C) This Earnings Season?

Citigroup C is scheduled to report third-quarter 2022 results on Oct 14, before market open. While the company’s earnings are expected to have witnessed a year-over-year decline, its revenues are likely to have increased.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on Treasury and Trade Solutions revenue growth, while Investment Banking (IB) revenues declined. Increases in net interest income and non-interest revenues were positives.

Over the trailing four quarters, C’s earnings surpassed the consensus estimate on all four occasions, the surprise being 22.3%, on average.

Factors at Play

Net Interest Income (NII): Per the Fed’s latest data, there was moderation in commercial and consumer lending in July and August. Residential real estate loan growth was decent, whereas commercial real estate loans held ground. These are likely to have driven decent loan growth for C.

The Zacks Consensus Estimate for the company’s average interest-earning assets is pegged at $2.15 trillion, suggesting a marginal increase from the prior quarter’s reported figure.

In the third quarter, the Fed continued to hike interest rates. Hence, decent loan growth and interest rate hikes are likely to have modestly aided the bank’s NII and net interest margin (NIM) in the quarter.

The Zacks Consensus Estimate for NII of $11.67 billion suggests a 2.4% decrease from the prior quarter’s reported figure. We project NII to be $11.5 billion for the quarter.

Fee Income: The investment banking business continued to be under immense pressure in the third quarter due to a contraction in capital markets, higher market volatility and uncertainty. With companies veering away from mergers and acquisitions, as well as debt and equity issuances, revenues from Citigroup’s IB business are expected to have remained muted.

Management expects a 50% year-over-year slump in its IB revenues in the third quarter. The bank expects market revenues to be down in the mid to high-single-digit range.

Also, Citigroup completely terminated overdraft fees, returned item fees and overdraft protection fees this summer, which is expected to have hindered fee income in the third quarter.

The Zacks Consensus Estimate for fee income is pegged at $6.5 billion, indicating a sequential decline of 14%. Our estimate for the same is pinned at $7.2 billion.

Expenses: Management has been focused on revamping its underlying technology, risk management and internal controls as part of remediation highlighted by the Office of the Comptroller of the Currency and the Federal Reserve. The company has been investing in businesses like wealth management, IB, and treasury and trade solutions.

Hence, expenses are expected to have increased as Citigroup continued to ramp up its transformation efforts and modernization in the third quarter.

Asset Quality: With the moderate rise in loan balance and expectations of economic slowdown due to geopolitical and macroeconomic concerns, C is expected to have built reserves in the third quarter.

Key Developments During the Quarter

Progressing with its global consumer banking exits, Citigroup sold its Philippines Consumer Business to UnionBank of the Philippines. The transaction is expected to result in a capital benefit of $700 million.

Citigroup also sold international personal bank business in Puerto Rico and Uruguay, Citi International Financial Services, LLC and Citi Asesores de Inversion Uruguay S.A. (Citi Asesores) to Insigneo, a Miami-based independent broker-dealer and Registered Investment Advisor.

In the third quarter, the company initiated the winding down process of its consumer banking and commercial banking operations in Russia.

What Our Model Predicts

Our proven model does not predict an earnings beat for C this time around. This is because itdoes not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Citigroup is -7.4%.

Zacks Rank: Citigroup currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Prior to the third-quarter earnings release, the company’s earnings estimates have been revised downward, indicating bearish analyst sentiment. The Zacks Consensus Estimate for third-quarter earnings of $1.56 has been revised 3.7% downward over the past week. It suggests a 27.4% year-over-year decline.

The Zacks Consensus Estimate for revenues of $18.47 billion implies a 7.6% rise from the prior-year quarter’s reported figure.

Stocks That Warrant a Look

BankUnited (BKU ) and M&T Bank MTB are a few stocks that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

The Earnings ESP for BKU is +1.32% and the company carries a Zacks Rank #3 at present. BKU is slated to report third-quarter 2022 results on Oct 20.

MTB is scheduled to release third-quarter results on Oct 19. MTB currently has a Zacks Rank #3 and an Earnings ESP of +0.34%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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