Citi’s Q3: U.S. Consumer Credit Down And Credit Losses Up

It was a beat, for Citigroup, but maybe not as clean a beat as investors might have liked, muddied a bit by the latest credit metrics.

The company said Thursday that its earnings were $1.42, which beat the Street by a dime. Some of that beat was predicated on a reduction in the share count, and cost cuts also helped margins.

Revenues were up two percent year over year to $18.2 billion, better than the $17.9 billion that had been projected. As has been among some of the larger banks on the Street, and as expected, trading in fixed income instruments was down year over year. Citi saw trading in this unit off 11 percent, compared to a slide of 27 percent at JPMorgan in that company’s latest results.

Results in the consumer segment were uneven as international growth, in mid-single digits in Latin America and Asia, for example, showed strength, but the United States slipped. In reference to credit losses, the firm logged loan loss reserves company-wide of $194 million, though CEO Michael Corbat said on the conference call that the credit cycle has been a normal one. A bit more granularly in the U.S., the company’s branded card portfolio top line was down one percent at $2.2 billion. Provisions helped push income down by mid-teens percentage points. Within the North American book of business, net credit losses were up 34 percent – tied to what presentation materials noted as the impacts of the Costco acquisition, as well as some organic volume growth and seasoning of the portfolio.

CFO John Gerspach said on the call that “we still think of cards as being a healthy part of our business, but it’s not the only engine for growth that we have” and “if you take a look at what’s going on in the rest of North America, the launch of the Citigold platform, we now have retail banking revenues” that were up 12 percent. In response to an analyst question over continued card incentives, the CFO said, “In general, the promotional balances – while a range of offers vary – do go up to 21 months … Don’t freak out. It doesn’t mean it’s going to be 21 months before we see growth.”

Management also said that the digital initiatives put forth by Citi were strong in the U.S., as there was a 13 percent boost in total active digital users to 17 million. The company also reported 22 percent growth in its mobile users base as compared to last year’s nine million. Transactions are moving to relatively low-cost digital conduits, the company said.