Earnings preview: Sentiment mixed as Citigroup prepares to kick off bank earnings

When Citigroup (NYSE: C) kicks off bank earnings next week, the market will be closely following the event for insights into the overall performance of the financial services sector in the changed economic scenario.

Citi’s second-quarter results are scheduled to be published Monday before the market opens. Wall Street sees a reversal of the top-line performance trend this time and predicts a 1% increase in revenues to $18.66 billion. In trailing three quarters, the bank had reported annual declines in revenues. The estimate for second-quarter earnings is $1.83 per share, up 12.3% from last year.

While it is almost certain that earnigns will exceed the estimates, like in the preceding quarters, the market’s response to the outcome will depend more on the company’s outlook. Shareholders will be looking for updates on the next dividend payout, with many expecting a hike. Earlier, the management had expressed hope that the top-line will return to the growth mode, which is in line with the analysts’ view.

Related: Citigroup Q4 2018 Earnings Call Transcript

Pros & Cons

It needs to be noted that the macroeconomic environment improved slightly since the first quarter, though trade-related uncertainties persist. Since the Federal Reserve is unlikely to go for a rate-cut at the upcoming meeting later this month –  after retaining the policy rate in the previous two occasions – there is no immediate threat to banks’ net interest margin.

Wall Street sees a reversal of the top-line performance trend this time and predicts a 1% increase to $18.66 billion

Like in the past, high credit costs might put income under pressure in the to-be-reported quarter. Meanwhile, the efficiency saving efforts and wind-down of legacy assets, to tackle the general slump in operations, will be helpful. It is speculated that the restructuring activities, marked by key changes in the management team, will have a mixed effect on the results.

Looking Back

The ongoing cost-cutting initiatives have helped Citi to maintain bottom-line growth in the recent quarters. In the first quarter, earnings moved up 11% year-over-year to $1.87 per share, while revenues dropped 2% to $18.6 billion, hurt by broad-based weakness across all business segments and geographical regions.

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Among Citi’s peers, JP Morgan (JPM) and Wells Fargo (WFC) will be publishing results for their most recent quarter on Tuesday. Bank of America (BOA) is all set to release its second-quarter report on July 17.

Citi’s stock, which was among the most affected during last year’s selloff, slipped to a two-year low in December. The shares bounced back in the beginning of 2019 and gained about 33% since then.

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