Citigroup's second-quarter earnings were a "disappointment," as higher expenses offset a better-than-expected rise in revenue, David Trone, the securities industry analyst at JMP Securities, told CNBC Friday.
Citi reported second-quarter net income that beat analyst expectations, rising 22 percent to $3.3 billion on lower bad-loan costs.
According to Trone, if you look at the headlines "it looked like a big beat, but once you got into the detail we saw that the revenue beat us by 5 percent but unfortunately the expenses were up 8 percent. So they have an issue there that offset on a quarterly basis."
Banks typically try to keep their costs controlled at a time of relatively stagnant revenue, but Citi's efficiency ratio actually deteriorated, Trone said. "Generally you like to see some operating leverage. It was a little bit of a disappointment," he said.
If there is a bright spot it is Citi's international business, particularly in Asia, which Trone called a "big bright spot in their franchise."
If you want an "economically sensitive name," avoid financials, he said.
"There’s probably something in some other area, like tech or consumers, that comes with the cyclical upside without the regulatory burden," Trone said.
Trone's view differs from some analysts, such as Fred Cannon of Keefe Bruyette & Woods, who said in a recent interview there are values in financials "if you think the slow-growth economy is priced in" and "if you get regulatory headwinds shifting away."
In that interview, Trone said he prefers companies in the mergers and acquisitions business. He reiterated that view Friday and named Lazard, Greenhill and Evercore Partners as his picks.
"I think we’re going to see them report some very good numbers over the course of the next few weeks," he said.
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Disclosures:
Neither David Trone nor his company own shares in Citi.