Citigroup’s Mixed Performance Amid Market Trends

Stock Performance Overview: Citigroup stock (NYSE: C) has increased by approximately 44% in 2024, outpacing the 27% rise of the S&P 500 index during the same time frame. Comparatively, Wells Fargo (NYSE: WFC) has seen even stronger growth, rising 54% year-to-date. Let’s delve into Citigroup’s recent results and what the future might hold.

Q3 Earnings Report: In the third quarter of 2024, Citigroup’s earnings exceeded analysts’ expectations. Revenue grew by 1% to $20.3 billion from the previous year, while net income fell to $3.2 billion, an 8% decline year-over-year. Although investment banking and wealth management contributed to revenue growth, higher credit costs and increased provisions for loan losses negatively affected earnings. Notably, banking revenues surged 18% from the previous year, driven by a remarkable 31% rise in investment banking. However, net interest income dipped by 3% to $13.4 billion, mainly due to reduced margins. On the trading front, equity revenues soared 32%, and wealth management revenues rose by 9% compared to the last year.

Historical Context and Comparison: Citigroup’s stock has lagged behind the broader market over the past three years, yielding just 1% in 2021, a downturn of 22% in 2022, and a growth of 19% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio—a collection of 30 stocks—has consistently outperformed the S&P 500 in the same timeframe. This performance highlights the HQ Portfolio’s ability to deliver solid returns with lower risk, steering clear of the volatility seen in Citigroup’s stock. As the economic landscape continues to shift amid potential rate cuts and geopolitical tensions, will Citigroup face the same challenges as in the past, or could it rebound strongly over the next year?

Future Outlook: Looking forward, Citigroup’s net interest income could improve thanks to recent Federal Reserve rate cuts that began in September. Additionally, the bank reports some stabilization in loan delinquency rates among its retail clients and claims it has adequate reserves to absorb potential loan defaults. Citi is also striving to improve its operations and address historical regulatory challenges through better governance and data management practices.

Political Factors and Market Implications: Separately, Donald Trump’s potential second term as U.S. president is expected to positively influence the financial sector. Investors anticipate that his administration will focus on deregulation, which could ease bank oversight compared to the Biden administration’s approach. Such measures might enhance revenues for banks through increased lending and deal volumes as well as lower compliance expenses. Additionally, Trump’s support for tax cuts could benefit financial institutions like Citigroup. With Republicans gaining control of the Senate and House of Representatives, lower interest rates and increased political stability after the election could boost investment banking activities and M&A growth. At present, Citigroup is considered fairly valued at about $72 per share, aligning with Trefis estimates.

[1] Returns as of 12/8/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.