Citigroup’s CFO Says Trading Revenue Could Slide 25%

Citigroup Inc. (C) Chief Financial Officer John Gerspach said second-quarter trading revenue could be down 20 percent to 25 percent from year-earlier levels in a market he described as “becalmed.”

The decline might curtail overall institutional revenue for the period, Gerspach, 60, told analysts and investors today. He spoke during an investment conference in New York, where the third-largest U.S. bank has its headquarters.

The market feels like participants are “sitting on the sidelines,” Gerspach said, referring to both fixed-income and equity trading. “There isn’t a lot of direction.”

Gerspach and Chief Executive Officer Michael Corbat are grappling with setbacks that include a $400 million loan fraud in Mexico and rejection by regulators of a proposed dividend increase. The bank has sold $600 billion in assets and exited more than 60 businesses to shake off lingering effects of the 2008 financial crisis.

Citigroup shares, which had advanced as much as 2.2 percent today, erased some of the gain after Gerspach’s remarks, posting a 0.7 percent rise to $47.60 at 3:09 p.m. in New York.

Gerspach’s outlook is more dire than at JPMorgan Chase & Co. (JPM), the world’s biggest investment bank by revenue, which said in a May 2 regulatory filing that trading revenue will drop about 20 percent from a year earlier amid “a continued challenging environment and lower client-activity levels.”

Source: Citigroup

Citigroup Inc. Chief Financial Officer John Gerspach. Close

Citigroup Inc. Chief Financial Officer John Gerspach.

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Source: Citigroup

Citigroup Inc. Chief Financial Officer John Gerspach.

Low Volatility

The soft trading comes amid historically low volatility in the markets, particularly in interest rates and foreign exchange, Gerspach said, adding that he couldn’t be sure about the cause.

“In order to create some level of volatility, there needs to be people on both sides of a view,” Gerspach said. “Right now I don’t think people know what view to be on either side of. It is just a market that is becalmed at this point.”

Daniel Pinto, head of JPMorgan’s corporate and investment bank, said clients are hesitating to place the larger hedges that typically happen earlier in the year.

Wrong-way bets made at the start of the year -- including shorting Japan’s currency and betting that U.S. interest rates would rise more steeply than those in Europe -- are also partly to blame, Pinto, 51, said today. Banks may have to wait until 2016 before revenue improves, he said.

Revenue Outlook

At Citigroup, investment-banking revenues should be “somewhat higher” compared with the first quarter while consumer units look little changed, Gerspach said.

Bank of America Corp.’s stock posted its best intraday gain in more than a year today after the company resubmitted its stress-test data to the Federal Reserve in a bid to raise payouts to shareholders. The bank, ranked second by assets in the U.S., had to withdraw an earlier version and put off plans for a higher dividend after finding mistakes in capital calculations.

Gerspach affirmed that Citigroup doesn’t expect to submit a revision of its 2014 capital plan that the Fed rejected in March because of poor quality. The bank will focus on improving its processes and concentrating on its 2015 submission, he said.

To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net Rick Green, Steven Crabill

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