Citi Joins Peers to Prepare for Pandemic Stress

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Citigroup has aligned itself with its major US banking counterparts to prepare for the stress that the coronavirus pandemic will cause to borrowers by increasing its loan reserves by $ 4.9 billion in the first quarter.

Net profit fell 46% to $ 2.5 billion, or $ 1.05 per share. Wall Street analysts expected $ 1.68 per share.

But the return of market volatility boosted Citigroup’s revenues in the first quarter by 12% over the previous year, despite the global economic slowdown caused by the Covid-19 pandemic.

Chief Executive Officer Mike Corbat followed other bank executives, noting the uncertainty facing the industry. “No one knows how serious or how long the virus will impact the global economy,” he said. “There are too many unknowns to count.”

Total revenues of $ 20.7 billion exceeded analysts’ expectations of $ 1.7 billion as fast-paced markets boosted fixed income and equity income by 39%. Trading contributed $ 6 billion to total sales.

In investment banking, Citi’s revenues remained stable, as growth in equity underwriting and merger advisory was offset by lower debt underwriting revenues, lower debt issuance quality having ceased.

Like its counterparts, JPMorgan Chase, Wells Fargo and Bank of America, Citi also benefited from significant increases in deposits and loans, which increased by 15% and 6% respectively. The bank said corporate clients cut their credit lines by $ 25 billion during the quarter.

While revenues were higher thanks to Citi’s major credit card transaction, with bank brand cards up 7%, Chief Financial Officer Mark Mason said that in the last week of March, card activity had decreased by about 30%. “Last month’s trend line would indicate a significant reduction in spending activity” in the second quarter, he said.

Credit quality in cards and other consumer loans remained solid, said Mason. “Overall, we haven’t seen a significant impact on our credit statistics, but it is still early days – we expect unemployment to increase. “

While provisions increased sharply, actual credit losses increased only 8% from the previous year to $ 2.1 billion. The bank said it “operates from a position of strength in terms of capital, liquidity and balance sheet.”

He added that due to the impact of Covid-19, he no longer expected to achieve his target return on tangible common shares of 12-13% for 2020, especially given the expectation of ‘a “more pronounced impact of the fall in interest rates” in the coming months. The ROTCE, affected by the increase in provisions, stood at 6% in the first quarter.

Citigroup shares have fallen more than 40% since fears about the coronavirus first appeared on the markets in late February, against a 37.5% drop in the KBW index of US banks. Shares fell another 5% on Wednesday morning, as investors sold the sector as a whole.

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