Citigroup’s Bankers, Bond Traders Are Narrowing Gap on JPMorgan

  • Fixed-income revenue at Citigroup now just shy of top firm’s
  • Investment banking results are strongest in years amid hires

JPMorgan 2Q Trading Revenue Falls Short of Estimates

Citigroup Inc.’s bond traders and investment bankers are closing in on their rivals at JPMorgan Chase & Co.

A renewed focus on investment banking, including some big hires, is helping Citigroup lure clients, boost revenue and gain on its larger competitor. Its fixed-income traders, meanwhile, are proving adept at weathering an industrywide slump, almost catching JPMorgan, long the dominant bank in that business.

Those trends played out in the second quarter, when Citigroup’s operations that help clients merge with rivals or raise money by selling stocks and bonds boosted revenue 22 percent to $1.49 billion -- trouncing analysts’ estimates in what Chief Executive Officer Mike Corbat on Friday called the best performance in seven years. Revenue from fixed-income trading slipped 6 percent to $3.215 billion, just $1 million less than at JPMorgan.

“Our institutional clients group had a very strong quarter all around,” Corbat said in a statement announcing the results.

Citigroup is increasingly leaning on operations that serve corporations, big investors and the wealthy while trimming its global network of branches for consumers. But in recent months, Wall Street-dependent banks have been a source of concern for analysts. Across the industry, big investors have been trading less, and some companies have been delaying deals, waiting to see if U.S. lawmakers can carry out promised tax and regulatory changes.

CFO’s Prediction

Citigroup’s second-quarter net income slipped 3.2 percent to $3.87 billion, or $1.28 a share. That beat the $1.21 average estimate of 24 analysts surveyed by Bloomberg -- a prediction that has ticked down 8 cents over the past three months, spurred by warnings from a number of Wall Street leaders.

Citigroup’s stock and bond traders eked out a better results than Chief Financial Officer John Gerspach predicted in mid-June. He told investors to expect a 12 percent to 13 percent drop in trading revenue. Instead it slid 7.2 percent to $3.91 billion -- at least the fourth straight time that Citigroup’s trading desks managed to beat their leaders’ still-fresh forecast.

The company’s stock slipped 0.5 percent in early trading as of 9 a.m. in New York. JPMorgan fell 1.7 percent.

As June started, Corbat said his firm was facing the same slump in client activity that already had prompted executives at JPMorgan and Bank of America Corp. to temper investors’ expectations. Gerspach delivered a more specific forecast June 13 -- extending a pattern of cautious predictions about a business that can be especially volatile. Rates trading subsequently improved, he told journalists on a conference call Friday.

Read more on prior forecasts: Master of restraint sees trading up a bit

The final weeks of the quarter also provided other relief for Corbat. In late June, the Federal Reserve cleared the way for the firm to pay out more capital to shareholders. The bank promptly said it will double its dividend and buy as much as $15.6 billion in shares. The windfall was more than analysts expected, helping push the stock up 13 percent this year, compared with a 5.7 percent gain in the KBW Bank Index.

For Corbat, returning money to shareholders is a critical piece of his profitability target -- achieving at least a 10 percent return on tangible common equity by 2019.

Investors have been worrying in recent weeks about trading desks sitting idle inside banks, hurt by low price volatility and diminished client activity. Before U.S. lenders began posting results Friday, analysts estimated the five largest on Wall Street would say combined trading revenue dropped 11 percent from a year earlier to $18.4 billion -- the smallest haul for a second quarter since 2012.

At Citigroup, total revenue rose 2 percent to $17.9 billion, surpassing the $17.4 billion average estimate of analysts. Non-interest costs rose 1 percent to $10.5 billion, compared with analysts’ $10.2 billion estimate.

JPMorgan’s Drop

Revenue in the institutional clients group, run by President Jamie Forese, rose 6 percent to $9.21 billion, pushing the unit’s net income up 6 percent to $2.76 billion. Citigroup’s revenue from investment banking climbed faster than at JPMorgan, where it rose 14 percent.

Citigroup has been bolstering its roster of investment bankers. This year, it hired dealmaker Alison Harding-Jones from UBS Group AG as head of mergers and acquisitions in Europe, the Middle East and Africa. It also added Toby Ali as co-head of leveraged finance in the region and named Karl-Georg Altenburg, who previously worked as Deutsche Bank AG and JPMorgan, as a senior adviser. A few weeks ago, it appointed Rick Diamond from JPMorgan to a new role serving clients in the financial-technology industry.

Citigroup’s revenue from fixed-income trading was 8 percent higher than the $2.98 billion that analysts had estimated. In equities trading, revenue fell 11 percent to $691 million, short of their $739 million prediction.

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