Citigroup (NYSE:C) is due to release its 3Q'2016 earnings report before the bell tomorrow, Friday the 14th. It is likely to be a reasonably clean quarter - I don't expect any material one-offs or nasty, unexpected adjustments.
With Citigroup these days, what you see is what you get. The earnings are quality, stable and annuity-like. Much credit should be given to Mr. Corbat and management team for turning around this poster child of bad banking to a much smaller and focused bank.
Many S.A. readers requested me to publish my financial model ahead of the earnings release - and of course, happy to do so.
But first let us check consensus earnings:
Looks like the street is looking for $1.16.
North America Consumer
Citi's N.A. consumer businesses are only marginally benefiting from the acquisition of Costco (NASDAQ:COST) - this is primarily due to acquisition accounting of Credit Cards portfolios which require the firm to build up credit provisions in the first 12 months following acquisition. However, Citi is also likely to benefit from prior-period investment in its organic Credit Card portfolio - as such, I still expect substantial operating leverage sequentially.
|North America Consumer||$M|
|Core Op Expense||(2,504)|
As per guidance from CFO, expect a modest positive operating leverage in its international consumer operations (excluding one-off gains in prior periods).
Institutional Clients Group (NYSE:ICG)
Citi is benefiting from market share gains in the FICC space - Citi's CFO guides to a mid digit revenue growth year on year in the Markets business. This is somewhat offset by lackluster debt advisory fees as well as loan hedges losses due to tightening of spreads.
|Institutional Client Group (ICG)||$M|
|Treasury & Trade||2,052|
|Total Revenue (ICG)||8,257|
|Gain/(Loss) on hedges||(200)|
|Legal & Repositioning||(50)|
Corporate/Other & Holdings
I expect Citi Holdings to post a marginal profit whereas Corporate is adversely impacted by larger dilutive preferred dividends distributions.
|ICG/GCB Net Income||3,689|
My financial model suggests Citi will deliver EPS of $1.23 compared with street consensus of $1.16 - a handy 7 cents beat.
As always, I will caveat that trying to accurately predicting the earnings results of the large U.S. banks, is most certainly a fool's game!
On a side point, I am very much looking forward to the earnings call and will certainly focus on commentary provided on the proposed new CCAR capital rules by the Fed. Stay tuned if of interest!
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Disclosure: I am/we are long C.
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