Citi +3.7% as Q2 helped by better than expected fixed income trading

Citigroup (NYSE:C) +3.7% premarket as Q2 results solidly beat analyst expectations while investors show relief that the bank reached a settlement with the Justice Department over mortgage securities it sold in the run-up to the financial crisis.

Citi took a Q2 pretax charge of $3.8B tied to the deal, which sent Q2 earnings falling 96% Y/Y to $181M but adjusted net income, which excludes the settlement charge, was $3.93B, or $1.24/share, vs. $3.89B, or $1.25/share a year earlier and analyst expectations of ~$1.05.

The 12% drop in adjusted revenue from fixed income markets and the 15% fall in trading revenue were much better results than CFO John Gerspach had warned earlier.

After stripping out the settlement charge, Q2 operating expenses fell ~3% from both the year-ago quarter and Q1 to $11.77B.

Mortgage originations fell 64% Y/Y but were 19% higher Q/Q, as the refinancing boom continues to wane amid higher interest rates; overall revenue in consumer banking, which includes mortgage banking, fell 3.5% Y/Y but rose 0.9% Q/Q to $9.38B.

Cost of credit fell 15% Y/Y to $1.73B.

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