Why did Citigroup's earnings decline year over year in the first quarter of 2024?

Net income fell 27% to $3.4 billion. The prior-year quarter included a roughly $1.06 billion pre-tax gain on the sale of the India consumer business, which lowered comparable revenue. In addition, operating expenses rose 7% on a reported basis, including the FDIC special assessment, restructuring charges, and repositioning costs, and the cost of credit rose 20%, driven by cards.

Which business segments drove growth, and which lagged?

Services revenue rose 8% to $4.8 billion and net income rose 15% to $1.5 billion. Banking revenue rose 49%, and USPB revenue rose 10%. Markets revenue fell 7% to $5.4 billion as fixed income declined 10%, and Wealth revenue fell 4% to $1.7 billion on lower deposit spreads and higher mortgage funding costs.

Is Citigroup's capital position strong enough to support shareholder returns?

Based on the reported metrics, yes. The CET1 ratio was 13.5% on a preliminary basis, up from 13.4%, and the supplementary leverage ratio was 5.8%. Citi returned about $1.5 billion in dividends and repurchases in the quarter. The CET1 ratio benefits from a CECL transition deferral; on a fully reflected basis it would be 13.4%.

What are the main credit quality concerns highlighted in this filing?

Net credit losses rose to $2.3 billion from $1.3 billion a year earlier, driven by cards, where USPB cost of credit rose to $2.2 billion. Total non-accrual loans increased 6% to $2.8 billion, and corporate non-accruals rose 23% to $1.5 billion. Total allowance for credit losses increased to $21.8 billion, with a loan reserve-to-funded-loans ratio of 2.75%.

What should investors watch for going forward?

Investors should watch execution of the Transformation program, including legacy platform retirement and control enhancements, as well as expense discipline and the trajectory of cards credit losses. The filing also flags risks from central bank rate policy, proposed Basel III Endgame capital rules, persistent inflation, and geopolitical conflicts.

CITIGROUP INC 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed April 12, 2024. Cited figures are marked; the original filing is the authoritative source.

Citigroup's first quarter 2024 results show revenue of $21.1 billion^a, down 2% year over year on a reported basis but up 3% excluding divestiture-related impacts (primarily the 1Q23 gain on the India consumer business sale).

Net income was $3.4 billion^b, or $1.58 per diluted share, versus $4.6 billion, or $2.19, a year earlier. The decline was driven by higher operating expenses (up 7% reported, including a $251 million incremental FDIC special assessment and $225 million in restructuring charges), a higher cost of credit ($2.4 billion versus $2.0 billion, led by cards net credit losses), and lower revenues. Management highlighted strength in Services (revenue up 8%, net income up 15%), Banking (revenue up 49%, driven by investment banking fees up 35%), and U.S. Personal Banking (revenue up 10%), offset by a 2% decline in Markets revenue and a 4% decline in Wealth revenue.

Capital and balance sheet metrics were stable to improving. The CET1 ratio rose to 13.5% from 13.4% a year earlier, and the company returned about $1.5 billion^c to common shareholders through dividends and buybacks, with a 49% payout ratio. Book value per share rose 3% to $99.08 and tangible book value per share rose 3% to $86.67.

Return on tangible common equity was 7.6% versus 10.9% a year earlier, reflecting the lower earnings. Loans grew 3% year over year to $675 billion^d, while deposits fell 2% to $1.3 trillion, largely due to quantitative tightening in Services. Total allowance for credit losses rose to $21.8 billion, and non-accrual loans increased 6% to $2.8 billion, with corporate non-accruals up 23%.

Management said the organizational simplification announced in September 2023 is complete and framed 2024 as a critical transformation year, citing legacy platform retirement and risk and control improvements. The filing is an Item 2.02 disclosure, so the results are furnished or filed as exhibits. The figures are preliminary for the March 31, 2024 period, and the filing carries forward-looking risks tied to transformation execution, interest rate policy, Basel III Endgame capital rules, inflation, and geopolitical conflicts.

02—Key points

Key Highlights

Net income fell 27% year over year to $3.4 billion ($1.58 per diluted share) from $4.6 billion ($2.19), reflecting higher expenses, higher credit costs, and lower revenues.
Revenue fell 2% reported to $21.1 billion but rose 3% excluding divestiture impacts, with growth in Banking, USPB, and Services offset by declines in Markets and Wealth.
Banking revenue rose 49% to $1.7 billion on a 38% jump in investment banking fees, driven by debt capital markets issuance.
CET1 ratio improved to 13.5% from 13.4%, and Citi returned $1.5 billion to common shareholders at a 49% payout ratio.
Book value per share rose 3% to $99.08 and tangible book value per share rose 3% to $86.67.
Cost of credit rose 20% to $2.4 billion, driven by higher cards net credit losses, and non-accrual loans increased 6% to $2.8 billion, with corporate non-accruals up 23%.
Return on tangible common equity fell to 7.6% from 10.9%, and expenses included a $251 million FDIC special assessment and $225 million in restructuring charges.

03—Questions

Frequently Asked Questions

Why did Citigroup's earnings decline year over year in the first quarter of 2024?
Net income fell 27% to $3.4 billion. The prior-year quarter included a roughly $1.06 billion pre-tax gain on the sale of the India consumer business, which lowered comparable revenue. In addition, operating expenses rose 7% on a reported basis, including the FDIC special assessment, restructuring charges, and repositioning costs, and the cost of credit rose 20%, driven by cards.
Which business segments drove growth, and which lagged?
Services revenue rose 8% to $4.8 billion and net income rose 15% to $1.5 billion. Banking revenue rose 49%, and USPB revenue rose 10%. Markets revenue fell 7% to $5.4 billion as fixed income declined 10%, and Wealth revenue fell 4% to $1.7 billion on lower deposit spreads and higher mortgage funding costs.
Is Citigroup's capital position strong enough to support shareholder returns?
Based on the reported metrics, yes. The CET1 ratio was 13.5% on a preliminary basis, up from 13.4%, and the supplementary leverage ratio was 5.8%. Citi returned about $1.5 billion in dividends and repurchases in the quarter. The CET1 ratio benefits from a CECL transition deferral; on a fully reflected basis it would be 13.4%.
What are the main credit quality concerns highlighted in this filing?
Net credit losses rose to $2.3 billion from $1.3 billion a year earlier, driven by cards, where USPB cost of credit rose to $2.2 billion. Total non-accrual loans increased 6% to $2.8 billion, and corporate non-accruals rose 23% to $1.5 billion. Total allowance for credit losses increased to $21.8 billion, with a loan reserve-to-funded-loans ratio of 2.75%.
What should investors watch for going forward?
Investors should watch execution of the Transformation program, including legacy platform retirement and control enhancements, as well as expense discipline and the trajectory of cards credit losses. The filing also flags risks from central bank rate policy, proposed Basel III Endgame capital rules, persistent inflation, and geopolitical conflicts.

04—Continue

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