Citigroup's Q3'2016 EPS Forecast

| About: Citigroup Inc. (C)


Citigroup will publish its 3rd quarter earnings before the bell tomorrow.

The street is looking for $1.15 EPS.

My financial model suggests a beat.

Will Citi surprise to the upside?

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:

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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
N.A. Consumer 5,113
Core Op Expense (2,504)
Legal (20)
Credit Cost (1,100)
EBT 1,489
Tax rate 35%
Net Income 968
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International Consumer

As per guidance from CFO, expect a modest positive operating leverage in its international consumer operations (excluding one-off gains in prior periods).

International Consumer $M
LATAM 1,298
ASIA 1,764
Core Operating (1,883)
Legal (20)
Credit Costs (415)
EBT 744
Tax Rate 32%
Net Income 506
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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
Investment Banking 940
Private Bank 740
Corporate Lending 398
Total Banking 4,130
FICC 2,706
Equity 1,000
Security Services 558
Other (137)
Total Markets 4,127
Total Revenue (ICG) 8,257
Gain/(Loss) on hedges (200)
Core Operating (4,620)
Legal & Repositioning (50)
Credit Costs (80)
EBT 3,307
Tax rate 33.0%
Net Income 2,216
Click to enlarge

Corporate/Other & Holdings

I expect Citi Holdings to post a marginal profit whereas Corporate is adversely impacted by larger dilutive preferred dividends distributions.

Totals $M
ICG/GCB Net Income 3,689
Corporate/Other (230)
Citi Holdings 87
Total 3,546
Average shares 2,885
EPS $ 1.23
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Final thoughts

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!

I provide quality and completely independent research on the large U.S., European, Canadian and Asian banks. I will be continuously updating developments with large U.S. and European banks; if interested in this topic, do subscribe as a "real-time follower" at the top of this article.

Disclosure: I am/we are long C.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.