Buybacks boost earnings for Citigroup

Second-quarter profit up 7%

By Matt Egan, CNN Business
Mario Tama/Getty Images

NEW YORK - Citigroup kicked off bank earnings season on Monday with solid results that were boosted by a splurge in share buybacks.

The stronger-than-expected earnings from Citi suggest America's big banks continued to chug along during the second quarter in the face of a challenging economic and market backdrop.

Much like the US economy, Citi benefited from strength among consumers that helped offset weakness elsewhere, especially in capital markets.

"We navigated an uncertain environment successfully by executing our strategy, and by showing disciplined expense, credit and risk management," Citi CEO Michael Corbat said in a statement.

Later this week, Citi rivals JPMorgan Chase, Wells Fargo and Bank of America are scheduled to post quarterly results.

Citi reported $4.8 billion in second-quarter profit, up 7% from the year before, thanks to higher revenue and lower taxes and expenses. The bank's net income was lifted by a gain on its investment in Tradeweb, an electronic trading platform that went public in April.

Excluding the Tradeweb gain, Citi's per-share profit totaled $1.83, topping the Street's view of $1.80. Citi's EPS was driven by a 10% decline in its shares outstanding as the bank repurchased 54 million shares during the quarter.

Big banks have increasingly relied on share buybacks to pad their bottom lines.

"With the Fed likely cutting rates, buybacks are now the only driver of bank EPS growth through 2020," analysts at investment bank Keefe, Bruyette & Woods wrote in a note to clients on Friday.

Citi, which has more overseas exposure than its big bank peers, reported a 3% increase in global consumer banking revenue. All three geographical areas grew revenue.

Citi's global deposits rose 5% and surpassed $1 trillion, in a positive sign for the economy. Loans rose by 3% to $689 billion.

"We have good momentum and solid growth across our consumer franchise, particularly in the US," Corbat said.

But, like most big banks Citi has been hurt by the inversion of the yield curve, the phenomenon in which long-term Treasury rates are lower than short-term ones. That environment makes it more difficult for banks to make money on the difference between interest charged on loans and paid on deposits.

That's in part why Citi reported its net interest margin, a key metric of bank profitability, unexpectedly dipped to a five-quarter low.

Revenue was flat at Citi's institutional clients group. Meanwhile Citi's fixed income markets group suffered a 4% decline in revenue excluding the Tradeweb gain due to a "challenging trading environment," especially in rates. Equity markets revenue declined 9% due to lower client activity.

M&A revenue tumbled 36% to $232 million, while equity underwriting revenue dipped 6%.

Citi has been the star of America's big banks of late, with its stock up 37% this year heading into earnings season in part due to enthusiasm for its aggressive share buybacks. Citi shares alternated between gains and losses on Monday.

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