DBRS: Citi 2Q Results Show Continued Strategic Momentum; On Track to Meet 2015 Financial Targets

Summary:
• Solid 2Q15 net income of $4.8 billion, largely flat sequentially, supported by momentum in institutional client franchise.
• On track to meet 2015 financial targets, including a Citicorp efficiency ratio of 55% in 2Q15 and continued run-down of Citi Holdings with average assets down 20% YoY
• DBRS rates Citigroup Inc. Issuer & Senior debt at A (low) with a Positive trend

DBRS, Inc. (DBRS) views Citigroup Inc.’s (Citigroup, Citi or the Company) 2Q15 financial results as solid, with net income of $4.8 billion on net revenues of $19.5 billion. The Company delivered positive operating leverage in its core businesses included within Citicorp, with an increase in net revenues of 2% year-over-year (YoY) while expenses declined 6% over the same time frame. The quarter further demonstrated Citi’s progress in its repositioning efforts, an important factor underlying the Positive trend.

Momentum was evident in certain Institutional Clients Group (ICG) businesses, including macro-focused Fixed Income Markets businesses such as rates and currencies, Treasury and Trade Solutions, the Private Bank, and Securities Services. DBRS notes that, outside of the Markets businesses, these three businesses provide Citi with a stable and growing revenue base, totaling a significant $3.3 billion in 2Q15, or 38% of ICG revenues in the quarter. ICG revenue totaled $8.9 billion in the quarter which was off 2% from a strong 1Q15 but was up 6% from 2Q14. While the Markets businesses also generated substantial revenues in the quarter, totaling $3.7 billion (ex-CVA/DVA), these revenues are more dependent upon market conditions and can be more volatile. The momentum in ICG partially offset lower consumer net income, with net income in Global Consumer Banking (GCB) down 6% sequentially. Net revenues in GCB were a sizable $8.5 billion, largely flat to 1Q15 and down 4% from the prior year.

The Company continues to deliver tangible results on its strategic objectives. Citicorp reported an efficiency ratio of 55% in the quarter, in line with its target in the mid-50% range. Efficiency continues to be pressured by the low interest rate environment and investments in technology and regulatory compliance. DBRS views these investments as a long-term positive and remains tolerant of some increase in the efficiency ratio as a result. Citi Holdings continues to reduce its balance sheet, with average assets declining to $118 billion in 2Q15, down from $148 billion in 2Q14. This trend will likely continue over the next few quarters with the sale of some non-core businesses.

A strong balance sheet leaves Citi well-positioned to cope with future regulatory change, including a potential increase to the G-SIFI buffer, as well as to gain wallet share where it sees opportunity. With regulatory capital ratios at the upper end of the international peer group, DBRS views Citi as having a potential advantage when competing for future opportunities. Citi reported a fully-loaded Common Equity Tier 1 (CET1) ratio under the advanced approach of 11.4% and a supplementary leverage ratio 6.7% at 2Q15.

DBRS rates Citigroup Inc.’s Issuer & Senior debt at A (low) and changed the trend to Positive on March 19, 2015.

Note:
All figures are in U.S. dollars unless otherwise noted.