Citi Beats 1Q18 Estimates On Lower Tax Rate

Citi Beats 1Q18 Estimates On Lower Tax Rate
April 17, 2018

 
The banking behemoth Citigroup Inc. (NYSE: C) reported better than anticipated fiscal 2018 first-quarter results. The impressive results were aided by robust performance of consumer banking and equity trading segments. The results also got a boost from lower corporate tax. Considering the results, we expect the stock, which has appreciated by about 23% in the past one year, to rally further in the days ahead. Citigroup ended Monday’s trading session at $70.07.

During the quarter ended March 2018, total revenues increased to $18.87 billion, from $18.37 billion in the similar period last year. Aided by a 23% decrease in the provision for income taxes, the net income for 1Q18 was $4.62 billion, or $1.68 per share, compared with $4.09 billion, or $1.35 per share, in the similar period last year. Analysts polled by Thomson Reuters anticipated earnings of $1.61 per share on revenues of $18.865 billion.

Provision for income taxes declined to $1.441 billion in the first quarter, compared with $1.863 billion in the similar quarter of 2017. The effective tax rate decreased from 31% in 1Q18 to 24% in 1Q17.

Segment wise, Global Consumer Banking revenues increased 7% y-o-y to $8.43 billion. In particular, Latin American and Asian revenues increased 15% and 11% to $1.347 billion and $1.929 billion, respectively. North American revenues were $5.157 billion, an increase of 4% from last year.

Institutional Clients Group revenue increased 6% y-o-y to $9.848 billion. In particular, Private banking and Corporate lending revenues increased 21% and 19% to $904 million and $521 million, respectively. Likewise, Equity markets trading grew 38% to $1.103 billion. However Investment banking revenues declined 10% y-o-y to $1.130 billion. Fixed income markets revenues were $3.418 billion, compared with $3.678 billion last year. Overall, trading revenue increased 3% to $5 billion in the recent quarter.

Citigroup explained that the sharp rise in trading revenue was due to a remarkable increase in the equity market volatility. While the S&P 500 index posted only eight  moves of at least 1% last year, it has posted 28 moves of a similar magnitude so far in 2018.

Net interest income for the first quarter was $11.17 billion, while net interest margin was 2.64%.

Citigroup’s allowance for loan losses was $12.4 billion at quarter end, or 1.85% of total loans, compared to $12.0 billion, or 1.93% of total loans, at the end of the prior-year period.

Citigroup’s book value per share was $71.67 and tangible book value per share was $61.02, each at the end of first-quarter, representing decreases of 5% and 7%, respectively, primarily reflecting the impact of Tax Reform.

For the full year, Citi continues to expect a return of 10.5% on common tangible equity.

Commenting on the results, Citigroup’s CEO Michael Corbat said “Our first quarter results demonstrate strength and balance across our franchise and position us well for the rest of the year. During the quarter, we returned more than $3 billion in capital to common shareholders, which helped drive a significant improvement in earnings per share.”

Technically, the stock has bounced off support at 68. The stochastic indicator is ascending after coming out of the bearish zone. On the upside, next major resistance is only at 75. Therefore, we can expect the stock to rally in the days to come.

Citigroup - Technical Analysis - 17th April 2018

To capitalise on the uptrend, we are planning to acquire a binary call option contract, which is valid for a period of one week. The option may be bought when Citigroup trades near $70 in the NYSE.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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