Citigroup beat Wall Street expectations yesterday with a smaller-than-expected drop in second-quarter profit as a rebound in trading activity partly offset the effects of persistently low US interest rates. Like its rivals, Citigroup saw a spike in trading volumes after Britain voted on June 23 to exit the European Union.
The fourth-largest US bank by assets said earnings, adjusted for counterparty risk, fell 14% to $4bn in the second quarter, far less than the 25% drop Chief Executive Officer Michael Corbat had warned of early in June.
Earnings per share slid to $1.24 from $1.45 but beat the analysts’ average estimate of $1.10, according to Thomson Reuters I/B/E/S.
The outperformance of subdued expectations mirrors that of larger rival JPMorgan Chase & Co, which also beat forecasts with the help of more-robust trading in bonds and currencies.
Citi’s shares were up 0.4% in early trading after gaining 2.5% on JPMorgan’s results on Thursday.
The drop in earnings reflects the struggle of US banks with low US interest rates, which hamper their ability to profit from lending.
After raising rates in December for the first time in almost a decade, the US Federal Reserve was widely expected to do so at least twice again this year. But Wall Street is now uncertain there will be any rate hikes in 2016, especially after Britain’s shock vote to leave the European Union.
Citigroup’s net interest margin, a key measure of lending profitability, shrank to 2.86% from 2.95% a year earlier.
The bank’s bad debt charges fell in the quarter, unlike rival Wells Fargo & Co, which reported a 3.5% fall in quarterly profit yesterday after it set aside more money to cover potential loan losses.
Despite the headwinds from low US interest rates, Citi is trying to cash in on the strong US economy by overhauling its credit card business, which means it must invest more in marketing.
Corbat is hoping the overhaul will increase revenue and improve shareholders’ returns. Citi investors got a boost this year when the bank passed the latest US stress tests after failing twice, enabling Corbat to increase dividends and buybacks.
The most international of the large US banks, Citi’s overseas consumer banking business held up well, with a 7% increase in net profit.
In the North American consumer business, however, net income dropped 22% as revenue fell 3% and expenses rose.
Overall, Citi’s operating expenses declined 5% to $10.37bn, helped by a change in foreign exchange rates, but revenue fell more, dropping 8%.
The bank’s institutional business, which includes the investment banking division, reported a 2% rise in net income, benefiting from a 14% increase in bond trading.
Shaw Communications’ quarterly profit more than tripled, boosted by the purchase of wireless company Wind Mobile and a gain from the sale of its media assets to Corus Entertainment.
The Calgary-based company has transformed itself into a pure-play telecommunications company, selling its media assets to Corus for C$2.65bn in January to fund the purchase of Wind Mobile announced in December. Shaw, however, lost 8,760 consumer internet accounts in the third quarter ended May 31, compared with a gain of 5,292 a year earlier.
The company added satellite video subscribers in its consumer unit in the quarter. The company’s net income rose to C$ 704mn ($547mn), or C$1.44 per share, in the quarter, from C$209mn, or 42 Canadian cents per share, a year earlier. Operating income before restructuring costs and amortization rose 5.3 % to C$555 mn. Shaw’s quarterly revenue rose about 13% to C$1.28bn.
Thailand’s Thanachart Capital, a partner of Canada’s Bank of Nova Scotia, said yesterday its quarterly net profit rose 5.2% to the highest in 10 quarters, helped by lower provisions and a drop in bad debt.
April-June net profit was 1.47bn baht ($42.08mn), slightly higher than analysts’ forecast of 1.44bn baht compiled by Thomson Reuters StarMine.
Thanachart booked lower provisions after its non-performing loans fell to 2.71% of total lending at the end of June from 2.81% at the end of March, it said in a statement.
But loans dropped 1.7% in the first half due to sluggish car sales in Thailand, it added.
Thanachart Capital owns 51% of Thanachart Bank, one of Thailand’s top five auto lenders.
Scotiabank owns 49% of Thanachart Bank.
Scotiabank has approached a unit of Bank of China and other lenders to gauge their interest in its stake in the Thai bank, people familiar with the matter said in February.
Earlier yesterday, Kiatnakin Bank reported a 73% surge in quarterly net profit to 1.3bn baht due to lower costs and rising net interest income, but hire purchase loans contracted 2% in the first half.
On Monday, Tisco Financial Group reported a 20% rise in second-quarter net profit, though loans fell 3.1% in the first half due to weak auto and small to medium sized business loans.
Swedish banking group Handelsbanken said yesterday it remained committed to its British operations and the outcome of the Brexit vote would not change its strategy or its ability to grow in Britain.
Handelsbanken, the first bank with significant business in Britain to report after the Brexit vote, said its low tolerance of risk, sound capitalisation and strong liquidity meant it could deal with even tougher market conditions than those experienced in recent years.
“This would also be the case if the UK economic climate were to deteriorate as a result of a future secession from the EU,” it said in a report.
“During the financial crisis, Handelsbanken had very low loan losses in the UK compared with those of British banks and since that time, the credit quality has improved further,” it said.
Shares in the bank, which entered the UK market some 30 years ago and now has over 200 branch offices there, rose 1.2% by 0911 GMT, outperforming a pan-European banking index, which was down 0.1%.
Its shares were down 3.2% compared with the day before Britain’s vote to leave the European Union.
“We have very good potential to develop the bank long-term in the UK and the referendum has not changed that at all,” group CEO Frank Vang-Jensen told Reuters after the bank posted better-than-expected second-quarter results yesterday.
He added the vote would not change the way the bank is being run in Britain.”We have not planned any changes, we have not discussed any changes and at this point, I cannot see why we would make any,” he said.
The bank saw revenues in Britain grow strongly in 2015 to make up nearly one-fifth of its net interest income.
Overall, second-quarter results benefited from lower loan losses, higher dividends from its holdings and higher customer trading.
Operating profit rose marginally to 5.28bn Swedish crowns ($622mn) in the second quarter, compared with 5.26bn crowns a year ago, beating a mean forecast of 4.92bn crowns seen in a Reuters poll of analysts. Loan losses were down at 229mn crowns, compared with 359mn crowns in the year-ago period and a loss of 346mn crowns in the poll.
Infosys shares plunged more than 9% on the Mumbai Stock Exchange yesterday after the Indian software giant cut its earnings outlook for the year.
The Bangalore-based IT services exporter reported a 13% rise in first-quarter net profit year-on-year but revised down its sales forecast, sparking the share-price fall.
Net profit for the three months to June 30 came in at Rs34.36bn ($513mn) compared with Rs30.30bn for the same period last year, Infosys said.
The performance was weaker than expected, leading the firm to reduce its growth projection in US dollar terms for fiscal year 2016-17 from between 11.8% and 13.8% to between 10.8 and 12.3%.
Shares fell 9.35% to Rs1065.95 in late morning trade.
“We had unanticipated headwinds in discretionary spending in consulting services and package implementations as well as slower project ramp-ups in large deals that we had won in earlier quarters, resulting in a lower than expected growth in Q1,” Infosys CEO Vishal Sikka said in a statement.
Revenue for the period was Rs167.8bn, compared with analysts’ projections of Rs170.3bn, according to Bloomberg News.
Infosys is listed on stock exchanges in Mumbai and New York and was once seen as the bellwether of India’s flagship outsourcing industry and the country’s equivalent to Microsoft.
But it is now engaged in a tough battle to regain the top spot from Tata Consultancy Services, which announced its quarterly results on Thursday.
Mumbai-based TCS said net profit for the three months to June 30 rose to Rs63.17bn ($944mn) from Rs57.09bn for the same period a year ago.
India has become a back office to the world as companies have subcontracted work to firms such as Infosys and TCS, taking advantage of the country’s skilled English-speaking workforce.
Wells Fargo & Co
Wells Fargo & Co reported a 3.5% fall in quarterly profit yesterday as it set aside more money to cover potential losses on new loans it made.
The bank, the biggest US mortgage lender, said its net income applicable to common shareholders fell to $5.2bn in the second quarter, from $5.4bn a year earlier.
Earnings per share slipped to $1.01 from $1.03, matching the average analyst forecast, according to Thomson Reuters I/B/E/S.
Revenue rose 4% to $22.2bn. Although Wells’ results were generally in line with expectations, Oppenheimer analyst Chris Kotowski said they were “an indication of how difficult revenue growth is to come by.”
Wells Fargo shares slipped 0.9% to $48.52 in premarket trading.
Up to Thursday’s close, its stock had dropped about 10% since the start of the year, but Wells remained the most highly valued US bank.
Like JPMorgan Chase & Co on Thursday, Wells said it grew its loan book significantly during the second quarter, especially in commercial loans, auto loans and credit cards.
Residential mortgage loans also grew, but revenue from that business fell.
Wells Fargo’s $950.8bn worth of average loans during the quarter was 9% above the year-ago and 3% higher than the prior period.
It was the 16th consecutive quarter of loan growth for the San Francisco-based bank.
But with that growth comes the need to boost reserves against loan losses that are possible in the future. The banking industry had been reducing reserves for years as credit conditions improved following the 2007-2009 crisis, but lenders are now building them again.