Citigroup Warning on Trading Revenue Drags Down U.S. Bank Shares

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  • Investment-banking revenue to tumble 25%, CFO Gerspach Says
  • Bank also cites $400 million expense for restructuring costs

Citigroup Inc. joined U.S. rivals in signaling another dismal start to the trading year, spurring a slide in Wall Street bank stocks.

First-quarter revenue from fixed-income and equity trading will probably drop 15 percent, Chief Financial Officer John Gerspach said during an investor presentation Tuesday. That would make 2016 the fourth straight year that the company’s revenues from those operations have declined in what is typically the industry’s strongest quarter.

Revenue from investment-banking operations will tumble 25 percent, Gerspach said. Shares of the firm slid 3.7 percent to close at $41.05 on Tuesday in New York. Morgan Stanley tumbled 4.1 percent, Bank of America Corp. fell 3.5 percent and Goldman Sachs Group Inc. slipped 2.4 percent.

Banks including JPMorgan Chase & Co. have warned shareholders the industry is wrestling with a tough quarter as low interest rates, plunging commodity prices and volatile stock markets drive customers to the sidelines. JPMorgan, the largest global investment bank, said last month that revenue from sales and trading has tumbled about 20 percent this year. Daniel Pinto, who runs that firm’s Wall Street operations, said lower earnings from debt and equity underwriting may contribute to a 25 percent decline in the division’s fee revenue.

Restructuring costs

Gerspach said fixed-income spread products continue to be pressured, while interest rates and currencies are hampered by a tough comparison to last year.

Citigroup will set aside $400 million to cover restructuring costs as the firm continues to adjust its infrastructure and capacity to the sluggish revenue environment, Gerspach said. The bank planned to begin job cuts earlier this year that would affect at least 2,000 employees, a person briefed on the decision said in December.

Analysts at Credit Suisse Group AG said the revenue forecasts for equity and fixed-income trading were in line with their forecasts, though they lowered their projections for Citigroup’s earnings in view of the restructuring charge and "some additional fine tuning."

The cost of credit for the corporate bank will be about $350 million in the first quarter, with most of that tied to energy, Gerspach said. Reserves on funded loans to the sector will be about 4.5 percent, with the level for junk-rated firms amounting to more than 10 percent, he said.

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