By Utkarsh Shetti and Tatiana Bautzer
July 14 (Reuters) – Citigroup beat Wall Street estimates for second-quarter profit after reporting its highest quarterly revenue in a decade on Tuesday, as the bank benefited from robust trading income in a volatile market and strong investment banking fees.
The U.S.-Iran war has rattled global markets and driven sharp moves in oil prices and other assets, leading investors to rejig their portfolios and adjust risk exposure. Volatile markets typically help lift trading revenues at big banks.
Lighter regulation under the Trump administration has bolstered confidence among executives to pursue acquisitions, while the scramble for AI-related assets has added momentum to dealmaking activity.
Global M&A volumes have already surpassed $3 trillion this year, with Citi advising on deals worth over $300 billion, per Dealogic data. In the second quarter, Citi was among the underwriters of SpaceX’s record-breaking $75 billion IPO and advised the $44.8 billion combination of Unilever and McCormick’s food businesses.
Its revenues from investment banking jumped 44% in the quarter to $1.55 billion. Total banking revenues rose 34% to $1.92 billion, despite a 4% fall in corporate lending revenue.
“Clients pivoted towards equity and debt capital markets,” Chief Financial Officer Gonzalo Luchetti told reporters. He added the bank is also “very disciplined in terms of deploying the balance sheet.”
Lucchetti said the escalation in the Middle East conflict has yet to hit deal pipelines, but it could have an effect if it extends over time.
MARKETS A BRIGHT SPOT
Trading desks across Wall Street have been reaping bumper revenues from the volatility, which has also extended to a highly lucrative AI-trade that has seen stocks rallying this year.
A surge in oil prices from the U.S.-Iran war has reignited concerns that higher energy costs could complicate the inflation outlook, leading investors to recalibrate expectations for the Federal Reserve’s interest-rate path.
Citi’s revenue in equities and fixed-income markets jumped 45% and 7%, respectively, from a year earlier. Luchetti told reporters the bank was late to invest in the equities business, and the results in the second quarter show ‘early momentum’ from these investments. Rates and currency trading rose 1%, while other fixed income revenue, which includes commodities, came in 25% higher.
The bank reports results alongside the largest U.S. lenders on Tuesday, whose earnings offer a window into the health of the economy. JPMorgan, Goldman Sachs, Wells Fargo and Bank of America reported strong quarters with a jump in profit across the board.
OVERHAUL IN FOCUS
The earnings growth comes as the bank vies for stronger profitability in the years to come. CEO Jane Fraser has outlined higher targets as part of a sweeping overhaul she has led to slim down the bank through the sale of consumer businesses while cutting management layers and strengthening risk and control functions.
“Jane Fraser’s ability to build Citi into a competitive player in IB, Wealth Management, and Trading puts them back on par with other global banks,” said Brian Mulberry, Chief Market Strategist at Zacks Investment Management, which holds Citi’s shares.
It posted a 45% jump in net income to $5.8 billion, or $3.15 per share. Analysts on average expected it to report a profit of $2.74 per share, according to data compiled by LSEG.
Return on tangible common equity (ROTCE) for the quarter was 13%, on the high end of the 11% to 13% target the bank has set for 2027 and 2028.
Its revenue was $24.8 billion, up 14% from a year earlier, also above Wall Street expectations.
Citi’s shares, which are up 20.6% so far this year, have outperformed its Wall Street peers, as its overhaul takes shape. The stock was up 2% in early trading on Tuesday.
ROBUST INTEREST INCOME
The U.S. consumer has remained remarkably resilient despite elevated borrowing costs, supported by a still-solid labor market and wage growth, though spending patterns have become increasingly divided as lower-income households face rising living costs.
The cards division’s revenue rose by 1% but net income was up 12% to $852 million. Citi’s overall net interest income, the difference between what it earns on loans and pays out on deposits, rose 13% in the quarter.
SPOTLIGHT ON WEALTH MANAGEMENT
Citi has been trying to grow its wealth management business to emulate Wall Street peers that lean on its steadier, fee-based revenue compared with the volatility of trading.
While Citi’s wealth unit remains smaller than those of several rivals, CEO Fraser has repeatedly ruled out acquisitions to narrow the gap, saying the bank’s strategy is centered on organic growth.
The unit raked in $3.18 billion in revenue in the quarter, 13% above a year earlier, thanks to a broad recovery in markets that has pushed up asset values. It posted a 14.4% ROTCE, still substantially lower than peers.
Bank executives are also awaiting a series of regulatory changes favored by the industry, including a proposed overhaul of risk-based capital requirements under the Basel framework.
The changes could free up billions of dollars in capital, giving lenders greater flexibility to boost shareholder payouts or invest in growth initiatives.
(Reporting by Tatiana Bautzer and Utkarsh Shetti in Bengaluru; Editing by Devika Syamnath and Nick Zieminski)
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