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Citigroup's Q3 Fails To Impress As Doubts Mount

Citigroup's Q3 Fails To Impress As Doubts Mount
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Societe Generale downgraded shares of Citigroup Inc (NYSE: C), attributing the rating change to credit quality concerns.

The rating was lowered from Hold to Sell, and the price target was decreased from $70 to $65.

Delving on the results, analyst Andrew Lim noted that the third-quarter earnings per share of $1.29 after stripping out a 13-cent sales gain were below the consensus estimate of $1.32. However, the analyst said revenues were 2 percent ahead of consensus, thanks to capital market revenues.

The analyst expressed concerns about the deterioration in the credit quality of NA cards, flat net interest margin and the weak earnings momentum.

Higher Provisioning For Cards

Societe Generale noted that group loan loss provisions were $2 billion, up 15 percent year over year and 7 percent above the consensus. Though conceding that part of the increase was due to seasonal effects and one-offs like hurricanes, the firm said it is concerned with the deteriorating trend in North America over several quarters.

Accordingly, the firm lowered its 2019 earnings per share estimate by 11 percent, while it maintains its estimate for 2018.

See also: Why The Market Isn't Giving Citigroup Credit For Its Q3 Beat

No Signs Of Improvement In Net Margins

While the Fed fund rate was raised by 25 basis points recently, the firm noted that Citi's NIM was steady at 2.72 percent. The firm also noted that the core accrual margin rose only 1 basis point to 3.45 percent and trading-related margin continued to fall sharply.

The firm indicated that net interest income was flat year over year.

Unimpressive Cost Control

After excluding the sales gain, the firm said the efficiency ratio of 55.7 percent was in line with the consensus. This marked little improvement over the longer-term trend, the firm added.

Excess Capital Return

The firm modeled the return of all excess capital by the end of 2018. The firm said its net profit forecasts for 2018 and 2019 were 4 percent and 7 percent below the consensus estimates, respectively, while its earnings per share estimates were in line due to its higher share count reduction forecast.

"On balance, we think that CITI should be viewed negatively, with the weaker earnings trajectory more than outweighing the prospect of excess capital returns, which has been well flagged by management," the firm concluded.

Related Link: Big Bank Q3 Earnings Cheat Sheet: The Thing That Matters Most For Each Bank


Image Credit: By Raysonho @ Open Grid Scheduler / Grid Engine - Own work, CC0, via Wikimedia Commons

Latest Ratings for C

Jan 2019Standpoint ResearchDowngradesBuyHold
Jan 2019BMO CapitalUpgradesMarket PerformOutperform
Jan 2019Morgan StanleyMaintainsOverweightOverweight

View More Analyst Ratings for C
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