Citigroup Posts Q3 Revenue Beat as Economic Fears Spark Rise in Provisions

By Scott Kanowsky

Investing.com -- Citigroup Inc (NYSE:C) has posted better-than-expected revenue in the third quarter, even as net income at the U.S. lender dipped by 25% following a rise in loan-loss provisions driven by recession fears.

The top-line figure grew by 6% compared to the same three-month period last year to $18.5 billion, beating Bloomberg estimates of $18.25 billion.

The bank cited the positive impact from the sale of its consumer business in the Philippines, which helped offset a loss of the divestiture of a similar unit in Australia.

However, when excluding these transactions, revenue dropped by 1%, as an increase in net interest income - or the difference between what the lender pays for its deposits and what it receives for its lending - was canceled out by weakness in Citi's investment banking division.

Aggressive interest rate hikes by the Federal Reserve this year to cool down red-hot inflation have helped boost margins for large lenders like Citi, although these moves have heightened concerns that they could also fuel a broader economic slowdown.

This uncertainty has in turn contributed to an ebbing in deal flows, Citi chief executive officer Jane Fraser said in a statement, with investors showing a "lower appetite" for big money mergers and acquisitions.

Net income of $3.5 billion dropped by 25% year-on-year, due mainly to the higher cost of credit resulting from loan growth at Citi's personal banking and wealth management unit, as well as an uptick in operating expenses. Earnings per diluted share fell 24% annually to $1.63.

It was not yet clear how these bottom-line figures stacked up to Wall Street estimates.

Provisions against souring loans, which lenders often increase to build a financial buffer in times of slowing economic activity, jumped to just under $1.37 billion. That level is up from $1.27 billion in the prior quarter.

Meanwhile, Citi chief financial officer Mark Mason told reporters that it will extend a halt on share buybacks, which Citi previously paused in the second quarter as a "prudent" measure in response to burgeoning capital requirements and recession concerns.

Elsewhere, Citi provided more details about its plan to wind down its operations in Russia following the Kremlin's invasion of Ukraine. The bank said it is now informing its clients in the country that it will be ending "nearly all" of its services there by the end of the first quarter of 2023.

"Going forward, Citi’s only operations in Russia will be those necessary to fulfill its remaining legal and regulatory obligations," Citi said.