Citi CFO Sees Trading Revenue Dropping as Much as 20% in Quarter

Todd Gillespie, Bloomberg News

(Bloomberg) -- Citigroup Inc. shares soared after Chief Financial Officer Mark Mason said the Wall Street giant remains on track to deliver full-year revenue that’s in line with the firm’s earlier guidance despite a slump in trading revenue.

Citigroup continues to expect full-year revenue to be between $78 billion and $79 billion, though Mason said it’s likely to be at the lower end of that range. The company also still expects expenses to be about $54 billion this year even after the bank had to set aside $1 billion in restructuring charges.

Still, fixed-income and equities trading revenue could drop as much as 20% compared to the third quarter, Mason said at the Goldman Sachs Group Inc. US financial services conference. In the third quarter, Citigroup’s markets business hauled in $4.48 billion in revenue.

“Client activity across a broad set of asset classes has been somewhat muted through the quarter,” Mason said. “We started off probably pretty strong early in the quarter, but we saw pressure certainly in rates,” he said, adding that “FX has held up pretty nicely. Commodities is probably a bit softer in light the lack of volatility.”

Citigroup shares jumped 4.8%, the biggest jump since April, to $49 at 11:29 a.m. in New York. That was the best performance in the 24-company KBW Bank Index.

The expected drop in trading revenue is worse than the 11% drop that analysts in a Bloomberg survey were forecasting. Mason said the expense guidance doesn’t include a $1.65 billion charge Citigroup will pay to refill the Federal Deposit Insurance Corp.’s coffers, which were depleted by a series of bank failures earlier this year.

The remarks came just before Chief Executive Officer Jane Fraser began testifying before the Senate Banking Committee in Washington, D.C., alongside leaders of other major banks. Executives in the hearing pushed back on proposals by Congress force lenders to increase the capital they need to set aside, saying the measures represent an overreach that will limit consumers’ access to loans.

The new rules “potentially impact the way we think about pricing, the way we think about collateral that’s required against positions, and the way we think about how much we want to be in those different types of businesses,” Mason said at the conference.

For the quarter, Citigroup expects to set aside a couple hundred million dollars in charges tied to the bank’s restructuring, reaching about $1 billion for the year as a whole, he added. Fraser kicked off the massive restructuring in September that’s meant to make the company more efficient and eliminate layers of management.

The restructuring is supposed to allow Citigroup to focus on five key businesses: trading, institutional banking, US retail banking, wealth management and services like treasury management or securities services.

As part of the moves, Fraser eliminated the three regional chiefs who oversaw the company’s operations in about 160 countries around the world as well as two core operating units known as the institutional clients group and the personal banking and wealth management division.

The company expects to see the benefits of the reorganization, such as lower expenses, starting in the second half of next year, Mason said.

“Before we announced the reorg, I had an ICG CFO and a PBWM CFO and a Latin America CFO as well as an EMEA CFO and Asia CFO and underneath them, they all had CFOs for the five core businesses,” Mason said. “When I eliminate those roles, the support for those roles goes away as well, right? And that’s how we get at the saves, but at the same time, the efficiency that allows us to run the business more effectively.”