Citigroup Inc. (NYSE: C). Within a weaker environment for lending, revenues fell in 3Q, partially offset by strong performance in Fixed Income Markets, Investment Banking, Equity Markets and the Private Bank. However, loss provisions sharply decreased in the third quarter. We believe that stronger capital levels built in recent years will enable the company to weather the coronavirus downturn while maintaining the cash dividend.
Citigroup shares while expenses increased 5%. The cost of credit was $2.3 billion, up 8% year-over-year, but down 71% from the second quarter of 2020. Pretax income fell 32%.
EARNINGS & GROWTH ANALYSIS
Expenses were down 3%, following a $1.6 billion cost of credit, down 20% from a year earlier. The segment had a net income of $1.1 billion, down 30% year-over-year, due to lower revenues, partially offset by lower cost of credit and lower expenses.
As strong performance in Fixed Income Markets, Investment Banking, Equity Markets and the Private Bank was partially offset by lower revenues in Corporate Lending, Treasury and Trade Solutions and Securities Services. Expenses rose 3%, and after an $838 million cost of credit, versus $132 million the prior year, net income fell 10% to $2.9 billion.
However, in 3Q20, the efficiency ratio increased to 63.4%, due to lower revenues and higher non-interest expenses. The first three quarters of 2020 were an exception, as ROE was hurt by the coronavirus impact.
FINANCIAL STRENGTH & DIVIDEND
In 1Q20, Citi repurchased 41 million shares before suspending buybacks in March.
We believe that Citi’s strong capital levels will enable the company to maintain the dividend despite earnings challenges from the coronavirus.
MANAGEMENT & RISKS
Mr. Corbat has generally been given credit for improving financial performance at the bank, as the company dealt with post-crisis problem loans and needed to strengthen regulatory capital. In September, 2020, Citigroup announced that Mr. Corbat will be resigning as CEO and will step down from the Board of Directors, effective February 2021. The Board of Directors selected Jane Fraser to succeed Mr. Corbat.
C shares trade at 11.6-times our 2020 EPS estimate.