By Christopher Ryu,
Money & Investing Writer
Roughly a week ago, Citigroup Inc. (NYSE: C) came out with their first-quarter earnings of the 2016 fiscal year and it is not looking good.
According to reports, everything from poor influx of revenue, to shrinkage costs for the business as well as loans to energy companies that are going bad in this time of high volatility, all contributed to Citigroup’s very weak first-quarter results.
In Citigroup’s earnings call, it was eluded that this isn’t the end. Executives believe the bank might not be able to meet key performance targets and might have $400 million in additional credit costs this year, given that oil drops more than a certain amount.
“2016 didn’t get off to the start we hoped for,” said Chief Executive Michael Corbat, during the conference call with analysts.
When looking at assets, Citigroup is the fourth largest lender in the U.S. For this first-quarter, Citigroup had the largest decline in profits among U.S. banks so far. With all this, they still beat Wall Street’s low outlook with their lowered operating expenses.
Since the report, Citi’s share price was not affected, trading down six cents at $44.92 as of Friday the 15th.
The shares are trading at a discount than what the bank values its hard assets, which is around $62.58 per share.
Globally, this beginning to the year has been tough for banks. China’s economic slowdown as well as loans to energy companies have put all banks on edge and the outlook in the financial sectors are low. Everyone in the industry is looking at anyway of reducing costs to counteract lower revenue stream.
Citigroup alone has reported around $491 million in “repositioning” charges in an effort to cut costs.
The repositioning costs vary from severance packages, to moving positions to lower-cost cities to even exiting expensive locations.
Different revenue streams are getting hit hard on Wall Street. Trading revenue alone for Citigroup dropped 15 percent in the 2015 fourth-quarter from a year-to-date period. For deals and underwriting, revenues dropped 27 percent.
Chief Financial Officer, John Gerspach said that Citigroup is “cutting back in areas where executives think revenue will not be coming back”.
Gerspach also hinted at cuts in the fixed-income segment, including an area that sells products on trade differences in yields on different bonds. On the other side, Citi’s interest-rate trading is bustling.
“We are making selective reductions where we need to, to reflect what we think the market reality is going forward.” Said Gerspach.
Citigroup along with other big banks, such as JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC) and Wells Fargo & Co. (NYSE: WFC), have had a lot of trouble in their energy loan portfolio.
But Gerspach said that the bank (Citigroup) has “a very good book of energy loans” compared to competitors.
“The market is acting as though there were a significant credit quality issue lurking, which we think is highly unlikely and Citi’s numbers were once again outstanding on that front,” said Oppenheimer’s Chris Kotowski.
Citigroup is still facing a scary 2016 fiscal year. Even though their operating expenses dropped around 3 percent (roughly $10.5 billion now), revenues fell by 11 percent.
Gerspach said that the weak outlook on business will likely result “in a worse-than-expected ratio of costs to revenue” at 58 percent for the year.
“It’s tough to recover from the first-quarter that we had,” said Gerspach.
Net income for Citigroup fell to $3.5 billion during the first-quarter ($1.10/share), beating estimates from analysts, predicting $1.03/share, according to Thomson Reuters.
Revenues also beat expectations of $17.48 billion, at $17.56 billion.
A version of this article appeared in the Tuesday, April 26th print edition.
Contact Christopher at