(Reuters) – Citigroup Inc beat analysts’ estimates for quarterly profit on Monday as a tight lid on costs and strength in consumer lending helped the third-largest U.S. bank counter weakness in its trading business.
New York-based Citi is the first major bank to report second-quarter earnings. Fellow Wall Street titans JPMorgan Chase & Co, Bank of America Corp and Goldman Sachs Group Inc are scheduled to report later in the week.
Bank stocks have been lagging the market in recent weeks amid concerns that their net interest margins, or the difference between what they pay on deposits and earn on loans, have been squeezed by falling interest rates. Citi’s interest margin declined slightly to 2.67% from 2.70% a year earlier and 2.72% in the first quarter of 2019.
Citi shares were down 0.3% in midday trading. The S&P 500 bank index was down 1%.
Analyst Marty Mosby of Vining Sparks said Citi’s drop in net interest margin sparked anxiety among investors that this will presage lower earnings and profitability for other big U.S. banks.
Citi continued to add loans and deposits in the most recent quarter, allaying concerns that a weaker economic outlook was hurting consumers’ ability to borrow.
Total loans at the third-largest U.S. bank by assets rose 3% to $689 billion, while deposits increased 5% to $1.05 trillion, excluding foreign exchange fluctuations.
Trading revenue, however, remained challenged. Fixed-income trading fell 4%, excluding a gain from Citi’s investment in TradeWeb, while revenue declined 9% in its equities business.
Executives at leading U.S. banks had warned that trading revenue would be hit by a slump in client activity due to burgeoning trade tensions and uncertainties around Britain’s planned exit from the European Union.
“We navigated an uncertain environment successfully by executing our strategy, and by showing disciplined expense, credit and risk management,” Chief Executive Officer Michael Corbat said in a statement.
A key was that the bank was able to make more money from its lending activities during the quarter. Net interest income rose 2%.
Net income rose to $4.80 billion, or $1.95 per share, in the second quarter, from $4.50 billion, or $1.63 per share, a year earlier. The quarter included a one-time gain of 12 cents per share related to the investment in electronic trading company TradeWeb.
Revenue rose 2% to $18.76 billion, while expenses fell 2%.
Analysts had expected a profit of $1.80 per share and revenue of $18.50 billion, according to IBES data from Refinitiv.
One of the broadest measures of performance improved dramatically as Citi posted a return of 11.9% on tangible common equity, up more than a percentage point from a year earlier.
Banks have been under pressure to cut costs as a weaker economic outlook raised concerns about revenue growth. Chief Financial Officer Mark Mason said earlier this year the bank has accelerated some cost-cutting plans to cope with potential headwinds.
Citi’s per-share earnings have been propped up by a lower outstanding share count due to large stock buy-back programs, but investors have been pressuring the bank to prove it can grow profit organically. Its share count declined 10% in the second quarter from a year earlier.
Last month, Citi announced plans to return $21.5 billion to shareholders through a 6-cent dividend hike and a $17.1 billion stock repurchase program.
U.S. banks largely increased the amount of capital they plan to return to shareholders over the next year, but Goldman Sachs analyst Richard Ramsden warned that this year might represent “peak returns” for many in the group.
Reporting by Imani Moise in New York and Sweta Singh in Bengaluru; Editing by Sriraj Kalluvila, Nick Zieminski and Dan Grebler