Earnings preview: Will Citigroup (C) be able to beat interest rate woes in Q4?

While announcing the September-quarter results, Citigroup Inc. (NYSE: C) had reiterated its commitment to improving shareholder returns, despite the volatile market conditions. The banking giant will publish its fourth-quarter results on January 14 before the opening bell, kicking off the earnings season for the financial services sector.

Citigroup is estimated to have recorded higher earnings and revenues for the final three months of the fiscal year. Taking a cue from the drop in interest rates, the management had earlier reduced its guidance for full-year interest income. However, the impact will likely be offset by higher non-interest revenues.

Analysts see a 15% increase in earnings to $1.85 per share for the December-quarter on revenues of $17.9 billion, which is up 5% from last year. It needs to be noted that the estimated top-line growth is stronger than the 1% gain reported in the previous quarter.

Cost Pressure

Higher expenses, especially the cost of credit, and the interest rate cuts will remain a drag on the bank’s profitability in the to-be-reported quarter. Meanwhile, the top-line is set to benefit from the continuing growth in loans and deposits, both in the institutional and consumer segments, despite a decline in deposit spreads.

Also see: JPMorgan tames interest rate woes in Q3

Another positive factor is the favorable year-over-year comparison this time, as revenue performance in the prior-year quarter was negatively impacted by the challenging trading scenario. After a series of rate-cuts last year, the Federal Reserve is expected to maintain its dovish policy stance in the near future, in view of the slowdown in corporate lending and tariff-related uncertainties.

Looking Back

In the third quarter, an increase in the interest income realized from institutional clients pushed up the top-line to about $19 billion, even as the consumer banking segment registered flat revenues. Softness in the Americas was more than offset by strong performance in the other markets. Consequently, earnings rose by 20% to $2.07 per share and topped the expectations.

Mixed Trend

The other major banks reporting their quarterly results next week include JP Morgan Chase (JPM) and Wells Fargo (WFC). Analysts expect Wells Fargo to record a 4% decline in its fourth-quarter revenues, while JP Morgan’s revenue is forecast to grow by 3%. Earlier, the companies had lowered their interest income outlook.

Related: Citigroup Q3 2019 Earnings Conference Call Transcript

Citigroup shares had an impressive start to 2020 and climbed to a multi-year high in the early days of the year. In the past twelve months, the stock gained about 40%.

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