[Overseas Stocks Spotlight] "Citigroup, Loan Loss Costs Stabilizing... Topline Recovery Is Key"

[Asia Economy Reporter Eunmo Koo] An analysis suggests that Citigroup Inc. (Citigroup Inc.·C.US) is seeing stabilization in credit loss expenses, with topline recovery being the key factor.

Citigroup's net income for the third quarter of this year was $3.2 billion, down 34.7% compared to the same period last year, but up 146.2% from the previous quarter. Earnings per share (EPS) were $1.40, exceeding consensus estimates by 50%. The third quarter net operating income was $17.3 billion, a 6.8% decrease from the same period last year. Eungap Kim, a researcher at IBK Investment & Securities, explained in a report on the 19th, "The decline in net operating income was mainly due to weakness in Global Commercial Banking (GCB) and Corporate Banking, partially offset by performance in bonds and Investment Banking (IB)."

Interest income was $10.49 billion, down 9.9% year-over-year and 5.3% quarter-over-quarter. Non-interest income was $6.81 billion, down 1.8% year-over-year and 21.6% quarter-over-quarter. Citigroup expects low interest rates and the impact of COVID-19 to continue into the fourth quarter, but anticipates normalization in IB and trading. There was a one-time expense of $400 million related to internal control fines, which reduced EPS by $0.19.

Credit loss expenses decreased to the average level of last year. Third quarter credit loss expenses were $2.26 billion, down from $7.03 billion in the first quarter and $7.9 billion in the second quarter, reaching a level similar to the quarterly average credit loss expenses in 2019. Researcher Kim stated, "Like other U.S. banks, the sharp decline in credit loss expenses contributed to improved results compared to the previous quarter, and the pace of normalization is relatively fast." Third quarter credit loss expenses decreased 71% quarter-over-quarter, with the GCB segment at $1.56 billion, down 60% from the previous quarter, and the Corporate Banking segment at $840 million, down 78%.

The dividend payout ratio was announced at 35%, and Citigroup's common equity tier 1 capital ratio stands at 11.8%. Researcher Kim forecasted, "Consensus expects fourth quarter net operating income to decline 4.5% from the previous quarter, indicating continued weakness. Future performance improvement will hinge on topline recovery, including increased interest income from net interest margin (NIM) recovery."