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Bond Market News
Citigroup Reports 27% Drop in Profits; Wells Fargo Profits Also Fall
July 18, 2022
Citigroup Inc. posted revenues of $19.6bn in Q2 2022, 11% higher YoY than $17.8bn one year prior. However, the bank reported a 27% YoY drop in Q2 2022 net income to $4.5bn compared to $6.2bn a year ago due to higher credit costs and an increase in expenses. Citi’s cost of credit stood at $1.3bn vs -$1.1bn in Q2 2021, primarily due to a net build in the allowance for credit losses (ACL) of $375mn, as compared to a net ACL release of $2.4bn in the prior year. That said, Reuters mentioned that the drop in Citi’s net income was lower than the markets expected, causing its stock price to rally more than 10% on Friday. Their Institutional Clients Group revenues were up 20% at $11.4bn. This was driven by strong performances from their Treasury and Trade Solutions and Markets divisions, which posted increases in revenues of 33% and 25% respectively. Personal Banking and Wealth Management revenue was up 6% at $6.0bn. Citigroup also returned $1.3bn to common shareholders in the form of dividends and share buybacks during the quarter. Citi’s current CET1 ratio is 11.9%, which stands at the same level as it was in Q2 2021. It is worth noting that this ratio currently sits below the new CET1 requirement of 13.3% beginning October 1, 2022. Therefore, Reuters notes that similar to JP Morgan last Thursday, Citi has announced it will suspend share repurchases in view of the need to meet the elevated regulatory capital requirements.
Citi’s 5.9% perps callable next year are trading slightly lower at ~99, lower by 0.28 points at a yield of 7.71%.
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Wells Fargo’s net income was at $3.1bn for Q2 2022, plunging 48% from the same period last year where it stood at $6bn. The bank’s sharp profit decline can be attributed to lower results in their VC and PE businesses, and a $580mn provision for credit losses compared to a net credit release of $1.2bn a year ago. Their CET1 ratio currently stands at 10.3% vs 12.1% in Q2 2021.
Wells Fargo’s 3.9% perps are up 0.8 points, trading at 88.5 cents on the dollar, at a yield of 7.53%.
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