Citi beats expectations, bets on consumers amid low rates

Fri Jul 15, 2016 2:52pm EDT
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By David Henry and Sweta Singh

(Reuters) - Citigroup is betting on U.S. consumers and multi-national corporate clients to navigate lower interest rates after a rebound in trading helped it beat Wall Street's subdued expectations for the second quarter.

A burst in client demand for currencies and bonds in the wake of Britain's vote to leave the European Union, along with a drop in the amount of money set aside to cover soured loans, meant Citi reported a 14 percent fall in net profit, far less than the 25 percent slide Chief Executive Officer Michael Corbat had warned of in early June.

The slip in earnings reflects U.S. banks' struggle with low U.S. interest rates, which hamper their ability to profit from lending.

After raising rates in December for the first time in almost a decade, the U.S. Federal Reserve was widely expected to do so at least twice again this year. But Wall Street is now uncertain there will be any rate hikes in 2016, especially with a volatile race for the White House.

"While the U.K. has a new leader, the US is still in the midst of a unique presidential campaign," Corbat said on a call with analysts on Friday. "And such geopolitical and economic uncertainty doesn't create a clear picture of potential interest rate increases."

Citigroup's net interest margin, a key measure of lending profitability, shrank to 2.86 percent from 2.95 percent a year earlier. Chief Financial Officer John Gerspach said it would only rebound to about 2.90 percent the rest of the year and be less beneficial than the company expected at the start of 2016.

To navigate the lower interest rates, Corbat is banking on growth in its U.S. credit card business, where it launched a co-branded card with retailer Costco Wholesale Corp last month, as well as the marketing of its 2 percent cash-back card.

The bank expects revenues in U.S. consumer banking to grow in this quarter from the second quarter and sees modest growth in international consumer revenues due to improvements in Asia and Mexico.   Continued...

Traders work in the Citigroup booth on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 25, 2016.  REUTERS/Brendan McDermid