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Citigroup (NYSE:C) posted its performance for the third quarter of the current year, which remained below expectations. The table below demonstrates how both revenues and earnings remained below analyst expectations. The bank posted earnings per share of $0.15 against consensus mean expectations of $0.96. The company generated a turnover of $14 billion against estimates of $18.35 billion. While earnings remained 84% below expectations, revenues missed their estimates by 24%. This performance is in contrast to a better-than-expected performance during the second quarter of the current year. While revenues remained 0.9% behind their estimates, earnings surpassed consensus mean expectations by 6.7%. Excluding the impact of onetime items, earnings exceeded expectations by 10%. Both JPMorgan (NYSE:JPM) and Citigroup have benefited from growth in the core business.


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The performance, when compared to prior periods, dropped significantly. Revenues of $14 billion were 25% below the $18.6 billion revenues that it generated during the second quarter of the current year. They also remained 33% below the turnover during the same quarter of the previous year. The bottom line of $468 million fell 84% when compared sequentially, while it plunged a significant 88% when compared to the same period of the previous year.

Despite the fact that the bank's core business demonstrated growth, much of the deterioration in the results was associated with the improvement in Citigroup's credit spreads, which led to a negative impact of $776 million. The results were also negatively affected by an after-tax loss of $2.9 billion from the sale of the bank's interest in the Morgan Stanley Smith Barney (MSSB) joint venture. This was partially offset by a $582 million tax benefit and a 63% YoY boost in the bank's fixed income trading revenues. JPMorgan's third quarter performance was also favorably affected by higher fixed income trading revenues. Looking at the trend, we believe that Goldman Sachs (NYSE:GS) will also benefit from improved revenues from fixed income trading.


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Segmental Review

The top line of $17.6 billion for Citicorp remained 9% below the top line that the bank was able to generate during the same period of the last quarter. Earnings of $4.14 billion from Citicorp declined 4% sequentially, and 18% when compared to the same period of the previous quarter. The segment benefited particularly from an improvement in revenues from fixed income trading, which surged 63% YoY. Within the segment, a negative impact from a CVA/DVA of $799 million was blamed for a drop in earnings. Within the Securities and Banking sub-segment, the impact of the CVA/DVA was $1.9 billion during the same period of the prior year. Excluding the impact of the CVA/DVA, the bottom line of the segment improved 20% YoY.

Citi Holdings posted negative revenues of $3.7 billion, which included a pre-tax loss of $4.7 billion, stemming from the sale of MSSB and partially offset by a $23 million CVA/DVA impact. The segment produced a net loss of $3.6 billion at the end of the third quarter of the current year.

Lower investment yield and the impact of hedging activities drove revenues from the Corporate/Other segment down 10% YoY.

In conclusion, excluding the impact of the CVA/DVA, the bank surpassed consensus mean estimates of both revenues and earnings by posting an EPS of $1.06 on revenues of $19.41 billion. Since JPMorgan and Citigroup have benefited from an improvement in the revenues from fixed income trading, we believe Goldman Sachs will also benefit from higher fixed income trading revenues. Goldman is scheduled to disclose its performance for the third quarter of the current year on October 16, 2012. Like JPMorgan, Citigroup has been able to expand its core business. Therefore, we reiterate our bullish stance on the stock.

Source: Citigroup Remains A Buy Despite The Earnings Miss