Citigroup Inc. — Third-Quarter 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021; year-to-date comparisons cover the nine months ended September 30, 2021. Citigroup operates Global Consumer Banking (GCB), Institutional Clients Group (ICG), and Corporate/Other.
Financial performance
| Metric | Third quarter 2021 | Comparable period / change |
|---|---|---|
| Revenue, net of interest expense | $17.2 billion | Down 1% year over year; up 3% excluding the Australia sale loss |
| Net interest revenue | $10.4 billion | Down 1% year over year |
| Net income | $4.6 billion; diluted EPS $2.15 | Net income up 48%; diluted EPS was $1.36 a year earlier |
| Operating expenses | $11.5 billion | Up 5%; efficiency ratio 66.9%, versus 63.4% |
| Credit provision | $192 million benefit | Compared with $2.4 billion expense; included a $1.2 billion net allowance release |
| Net credit losses | $1.0 billion | Down 50% year over year |
| Net interest margin | 1.93% | Down 10 basis points year over year; up 1 basis point sequentially |
For the nine months, revenue was $54.0 billion, down 7%; net income was $18.8 billion, versus $6.7 billion; and diluted EPS was $8.65, versus $2.80. Results benefited substantially from lower credit costs and allowance releases, while year-to-date revenue declined.
- GCB: Third-quarter revenue was $6.3 billion, down 13%; net income was $1.3 billion, up 45%. Lower credit costs supported earnings, while lower card loans and deposit spreads weighed on revenue.
- ICG: Revenue was $10.8 billion, up 4%; net income was $3.4 billion, up 21%. Investment banking revenue rose 39% and equity markets revenue rose 40%; fixed-income markets revenue fell 16% as activity normalized.
- Corporate/Other: Net loss was $111 million, compared with a $607 million loss a year earlier, helped by lower expenses and higher investment-portfolio revenue.
Balance sheet, capital and liquidity
- Total assets were $2.36 trillion at September 30, up 6% from September 2020. End-period loans were $664.8 billion, broadly unchanged year over year; deposits were $1.35 trillion, up 7%.
- Long-term debt was $258.3 billion, down from $273.3 billion a year earlier. Short-term borrowings were $29.7 billion. Citi redeemed or repurchased about $5.9 billion of long-term debt during the quarter.
- CET1 capital ratio was 11.65% under the Standardized Approach, versus 11.66% a year earlier; the filing notes the prior-year ratio used the Advanced Approaches framework. Supplementary Leverage Ratio was 5.80%, down from 6.82%, largely reflecting expiration of temporary Federal Reserve relief.
- Average Liquidity Coverage Ratio was 115%, with $546.5 billion of average high-quality liquid assets. Citi reported approximately $994 billion of available liquidity resources at quarter-end.
- Nine-month cash flows were $59.2 billion provided by operating activities, $112.1 billion used in investing activities, and $67.9 billion provided by financing activities. Cash, due from banks and deposits with banks increased $14.2 billion to $323.8 billion. Bank cash flows are significantly affected by trading, securities, loans and deposits.
Material changes, outlook and risks
- The principal earnings improvement was the reversal in credit costs: Citi recorded an allowance release as credit quality and its macroeconomic outlook improved. Management cautioned that future credit performance depends partly on the recovery, unemployment, pandemic developments and the end of government support programs.
- The sale of the Australia consumer banking business generated an approximately $680 million pretax loss ($580 million after tax), principally reflecting a currency translation loss already recorded in accumulated other comprehensive income. The transaction was expected to close in the first half of 2022, subject to approvals and customary conditions.
- Citi is pursuing exits from consumer franchises in 13 Asia and EMEA markets and plans to focus on four wealth centers. On October 25, 2021, Citi announced a wind-down of its Korea consumer bank; it estimated $1.2–$1.5 billion of cash charges, phased through the remainder of 2021 and 2022. These are post-quarter developments disclosed in the filing.
- No specific consolidated revenue or earnings guidance is stated in the supplied filing text. Citi said it intended to maintain planned capital actions, including a quarterly common dividend of at least $0.51 per share, subject to financial and macroeconomic conditions and Board approval. It returned about $4 billion to common shareholders in the quarter, including $3 billion of repurchases.
- Transformation, risk-control and technology investment continued and contributed to higher expenses. Citi had submitted plans to address Federal Reserve and OCC consent orders. The filing identifies execution of remediation and control improvements as significant risks.
- Other notable risks include pandemic and macroeconomic uncertainty, inflation and interest-rate movements, regulatory capital changes (including expected adverse capital-ratio effects from SA-CCR adoption in 2022), deposit and funding pressures, ratings downgrades, foreign-exchange and emerging-market exposures, cybersecurity and operational risks, and litigation or regulatory proceedings. Citi estimated reasonably possible unaccrued losses on contingencies of up to approximately $1.5 billion in aggregate; it stated that outcomes could affect results or cash flows in particular periods.
Most important facts for investors to verify
- How much of the earnings increase reflects recurring business performance versus the $1.2 billion allowance release and other credit-cost normalization.
- Whether revenue and expense trends improve as card balances, deposit spreads, fixed-income activity and transformation spending evolve.
- The closing timing, final adjustments and capital effects of the Australia sale, and the realized costs and execution progress of the Korea wind-down and other market exits.
- Capital headroom after shareholder distributions, SA-CCR implementation and CECL transition phase-in; compare ratios using consistent regulatory approaches.
- Credit quality after stimulus and relief programs expire, including consumer delinquencies, corporate criticized exposures and the adequacy of remaining reserves.
- Liquidity sensitivity to ratings changes, funding-market stress and client deposit behavior, as well as developments in consent-order remediation and material contingencies.