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January 14, 2019 at 12:24 PM
Citigroup Inc. offered some hope that the worst is over for its bond trading business after the toughest quarter for that unit in seven years.
The lender’s shares jumped 3 percent, reversing an earlier decline, after Chief Financial Officer John Gerspach said Monday that the trading environment was starting to improve this month. The brighter outlook came after the lender reported revenue from fixed-income trading, its largest securities business, plunged 21 percent in the fourth quarter as wild markets kept clients on the sidelines.
“Volatility has somewhat moderated and both equity prices and yields have shown signs of stabilization,” Gerspach said on a call with reporters. “But, again, it’s really early and market conditions — even though there have been improvements — they have yet to fully recover at this point.”
To combat the trading weakness, the bank cut costs by 4 percent to $10.3 billion, led by a 6 percent decline in compensation expenses. That, along with a lower-than-expected tax rate, helped the lender top earnings estimates.
That was welcome news for a stock that had been hammered over the last few months of 2018, plunging 27 percent in the fourth quarter. Citigroup climbed 3.2 percent to $58.52 at 10:15 a.m. in New York, bringing its advance this month to 12 percent.
Bank shareholders have been in the dark for weeks, eager to learn whether traders and dealmakers were able to navigate global market swings including the biggest monthly drop in the S&P 500 Index since 2009. Analysts including Barclays Plc’s Jason Goldberg had cautioned clients that Citigroup’s most recent guidance came in early December, before the storm worsened.
Citigroup’s combined revenue from stock and bond underwriting also dropped more than analysts estimated in the fourth quarter. And the company missed a full-year profitability target by an even wider margin than it signaled just five weeks ago.
“A volatile fourth quarter impacted some of our market-sensitive businesses, particularly fixed income,” Chief Executive Officer Michael Corbat said Monday in a statement disclosing results. The firm will focus on improving profitability this year, he said.
Bright spots included a 47 percent jump in revenue from advising on mergers and acquisitions, which reached $463 million. The bank’s treasury and trade solutions business, which helps corporations move money around the world, boosted revenue 7 percent to $2.4 billion — surpassing the firm’s fixed-income traders for the first time. They only generated $1.94 billion — falling below $2 billion for the first time since the final quarter of 2011. It was their worst performance under Corbat.
