(Bloomberg) -- Citigroup Inc. is the first big U.S. bank to report second-quarter earnings when its latest results come out Monday at 8 a.m. Investors will be keeping a close eye on how tightly the bank reined in expenses, and how its international businesses fared, as weak trading revenues are already anticipated.
In mid-June, Citigroup CFO Mark Mason said second-quarter fixed-income and equities trading revenue would likely fall by a “mid-single-digit” percentage range from a year ago, while investment-banking fees were expected to drop in the “mid-teens.” Morgan Stanley sounded a warning bell on trading then, too.
“Weakness in trading revenues could be offset by controlled expenses,” Barclays analyst Jason Goldberg wrote in a note previewing the second quarter. If revenues remain soft, Barclays will look to see whether Citigroup adjusts its 2019 expense guidance from “flattish” to down. Relative to the first quarter, Goldberg expects higher net interest income, driven by balance sheet growth; little change in net interest margin (NIM); higher tech and marketing costs; higher provisions, though “still benign” credit metrics; a higher tax rate and a lower share count.
Any signs from Citigroup’s international business “will be watched closely - Mexico and Asia in particular,” Bloomberg Intelligence’s Alison Williams said. She expects expenses will fall 1% compared with the prior year, with modest revenue growth, and will be tracking FICC (fixed income, currency and commodities) for its implications for Citi’s rivals.
Citigroup’s “forward look and management’s take on the macro backdrop” will be key for Credit Suisse’s Susan Roth Katzke, along with “global GDP growth, capital markets health and of course, the cost of the yield curve shift.” She’s watching the bank’s willingness to affirm its return-on-tangible-equity targets.
“We need to see revenue growth, especially from the North American consumer business,” RBC analyst Gerard Cassidy wrote via email. The bank’s Institutional Clients Group, or ICG, business is “always important to them as well.”
Cassidy is a contrarian overall, as he views a cut in the Fed Funds rate as a likely positive for bank stocks, since it would “steepen the yield curve for the banks, which will bolster net interest revenue growth,” according to a recent note. Other analysts have been trimming their estimates for earnings per share, with some cutting ratings, too.
Cassidy said he believed that the Fed waited too long to cut rates in 2007-2008, which meant “the down leg of the credit cycle overwhelmed” the benefits of rates cuts and a steeper yield curve. This time may be different.
“Bank stocks are unloved,” and should outperform the broader market, he said.
JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co. follow Citigroup with reports on Tuesday. Then comes Bank of America Corp. on Wednesday, and Morgan Stanley on Thursday.
Banks were gaining in mid-day Friday trading, with Citigroup shares up 0.4%, JPMorgan rising 0.6%, Goldman up %, and Morgan Stanley rallying 1.3%. Earlier, Morgan Stanley got a lone upgrade from Citi analyst Keith Horowitz, who downgraded a host of regional banks.
- Earnings release expected Monday 8am
- 2Q EPS estimate $1.80 (range $1.70 to $1.88)
- 2Q adjusted revenue estimate $18.52 billion (range $18.01 billion to $19 billion)
- 4Q equities trading revenue estimate $830.7 million (Bloomberg MODL, 7 ests.)
- FICC $3.01 billion (7 ests.)
- I-banking revenue est. $1.26 billion
- See Bloomberg Intelligence, July 11: Citi Leads View on Trading Result, Evolving Outlook: 2Q Preview
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- Earnings release expected 7am July 16
- 2Q adjusted EPS estimate $2.50 (range $2.40 to $2.56)
- 2Q adjusted revenue estimate $28.88 billion (range $28.28 billion to $29.61 billion)
- 4Q equities trading revenue estimate $1.82 billion (Bloomberg MODL, 7 ests.)
- FICC $3.33 billion (7 ests.)
- I-banking revenue est. $1.82 billion
- Bloomberg Intelligence, July 12: JPMorgan Rate Risk, Long-Term Landscape in Spotlight: 2Q Preview
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GOLDMAN SACHS ESTIMATES
- Earnings release expected 7:30am July 16
- 2Q adjusted EPS estimate $4.93 (range $4.38 to $5.52)
- 2Q net revenue estimate $8.90 billion (range $8.62 billion to $9.36 billion)
- 4Q equities trading revenue estimate $1.84 billion (Bloomberg MODL, 8 ests.)
- FICC $1.60 billion (8 ests.)
- I-banking revenue est. $1.91 billion
- Bloomberg Intelligence, July 11: Goldman’s Trading, CCAR Result and Outlook Are Focus: 2Q Preview
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WELLS FARGO ESTIMATES
- Earnings release expected 8am July 16
- 2Q EPS estimate $1.16 (range $1.08 to $1.27)
- 2Q net interest margin estimate 2.86% (range 2.81% to 2.9%) (BD)
- Bloomberg Intelligence, July 11: Wells Fargo Mortgage, Costs Eyed Amid Rate Pressure: 2Q Preview
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- Earnings release expected 6:45am July 17
- 2Q adjusted EPS estimate 71c (range 67c to 75c)
- 2Q revenue net of interest expense estimate $23.16 billion (range $22.78 billion to $23.72 billion)
- 4Q equities trading revenue estimate $1.21 billion (Bloomberg MODL, 7 ests.)
- FICC $2,12 billion (7 ests.)
- I-banking revenue est. $1.41 billion
- 2Q net interest yield estimate 2.46% (range 2.41% to 2.5%)
- Bloomberg Intelligence, July 12: BofA Wealth Margin May Be Bright Spot in Rate Cloud: 2Q Preview
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MORGAN STANLEY ESTIMATES
- Earnings release expected 7:30am July 18
- 2Q EPS estimate $1.15 (range $1.03 to $1.29)
- 2Q net revenue estimate $10.03 billion (range $9.71 billion to $10.66 billion)
- 4Q equities trading revenue estimate $2.30 billion (Bloomberg MODL, 6 ests.)
- FICC $1.35 billion (6 ests.)
- I-banking revenue est. $1.56 billion
- Bloomberg Intelligence, July 12: Morgan Stanley Wealth Margin, Mix May Help Meet Goal: 2Q Preview
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