Citigroup Remains A Work-In-Progress

Citigroup Inc C reported a decline in its Q3 adjusted earnings and revenues. “In our view, Citi remains a work in progress as it attempts to get better control of expenses and improve its efficiency ratio, and as it winds down assets at Citi Holdings,” Argus’ Stephen Biggar said in a report, while maintaining a Hold rating on the company.

Citigroup reported its Q3 adjusted EPS at $1.24, down from $1.35 a year earlier, although this was higher than the consensus estimate of $0.08. Adjusted revenues came in at $17.8 billion, down 4 percent. However, net income declined 8 percent due to a smaller decline in expenses.

Analyst Biggar lowered the EPS estimates for 2016 and 2017 from $4.72 to $4.71 and from $5.34 to $5.22, respectively.

Work In Progress

The financials of Citigroup’s basic lending businesses have been improving. Biggar pointed out, however, that the improvements have been overshadowed by declining revenues in the capital markets businesses, particularly investment banking and equity markets.

The focus remains on Citigroup’s cost-saving initiatives going into 2017. The company’s profitability has been below that of peers. The analyst added that the company’s return on equity was below 7 percent in Q3, significantly short of the 10 percent level “that we believe would mark a return to financial health.”

“In addition, the balance sheet is not expected to grow as the company unwinds troubled loans, meaning that net interest income is unlikely to be a good source of growth,” Biggar stated.

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