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Citigroup earnings beat Wall Street, but shares fall on concerns of rising credit costs

Key Points
  • Citi reported a 3 percent year-over-year increase in global consumer banking revenue.
  • A decline in fixed-income trading was offset by an increase in equity trading revenue.
Citi beats Street on top and bottom line
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Citi beats Street on top and bottom line

Citigroup reported better-than-expected quarterly results on Thursday, as its global consumer business showed further revenue growth.

Here's how the banking giant's results fared against Wall Street estimates:

  • EPS: $1.42 vs $1.32 expected by a Thomson Reuters survey
  • Revenue: $18.173 billion vs $17.896 billion expected
  • Fixed income trading: $2.877 billion vs StreetAccount's projected $2.84 billion

But the company's stock closed 3.4 percent lower as of 3 p.m. in New York, after hitting its highest level since 2008.

"Revenue growth remains light, while a sharp rise in the cost of credit bears watching," said Stephen Biggar, an analyst at Argus Research, in a note to clients. "Operating expenses were down 2%, while the cost of credit increased 15%, which management attributed to global consumer banking and a higher credit reserve build."

The silhouette of a pedestrian holding a mobile device is seen walking past a Citigroup bank branch in San Francisco.
David Paul Morris | Bloomberg | Getty Images

Citi reported a 3 percent year-over-year increase in global consumer banking revenue. In North America, retail banking revenue rose 12 percent, excluding mortgages. Citi cited "continued growth in loans and assets under management," as well as higher interest rates.

The bank's international consumer business saw an 8 percent revenue increase, driven by higher loans and deposit volumes growth.

Citi's end-of-period loans, meanwhile, rose 2 percent to $653 billion, while deposits increased by 3 percent to $964 billion.

"We had revenue increases in many of the products we have been investing in, tightly managed our expenses, and again saw loan growth in both our consumer and institutional businesses," Citigroup CEO Michael Corbat said in a release.

Citigroup's $2.877 billion fixed-income trading revenue represents a 16 percent year-over-year decline. The sharp decline was offset by a 16 percent increase in equity trading revenue. Earlier Thursday, JPMorgan reported third-quarter earnings that beat Wall Street estimates. However, the bank also reported a 27 percent drop in bond trading revenue.

Shares of Citigroup have risen 26 percent this year, easily outperforming the broader market. The S&P 500 has gained 14 percent in 2017.

Citigroup's stock has also outperformed those of other big banks. Shares of JPMorgan Chase and Bank of America are up 11.9 percent and 16.9 percent, respectively.

John Heagerty, research analyst at Atlantic Equities, said in a note last month the stock could see further gains.

"We believe the combination of an inexpensive valuation, substantial capital return, declining cost to income ratio and rising ROE should deliver above peer-group share price performance for C over the next 12-18 months," Heagerty said.

Citigroup could also benefit from tighter monetary policy in the near future. The Federal Reserve signaled a December rate hike in the summary of its Sept. 20 meeting.