Citigroup Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are primarily with the same periods in 2022. Amounts are in U.S. dollars.
Business context
Citi reported under three operating segments: Institutional Clients Group (ICG), Personal Banking and Wealth Management (PBWM), and Legacy Franchises, plus Corporate/Other. The company announced a revised operating model effective in Q4 2023: five new reportable segments—Services, Markets, Banking, Wealth, and U.S. Personal Banking—and two regions. Citi expects simplification-related charges through the first half of 2024.
Key financial and operating metrics
| Metric | Q3 2023 | Comparison |
|---|---|---|
| Revenue, net of interest expense | $20.1 billion | Up 9% year over year; up 10% excluding divestiture-related impacts |
| Net interest income | $13.8 billion | Up 10% year over year |
| Net income attributable to Citi | $3.55 billion | Up 2% from $3.48 billion |
| Diluted EPS | $1.63 | Unchanged year over year; $1.52 excluding current-quarter divestiture impacts (non-GAAP) |
| Operating expenses | $13.5 billion | Up 6%; efficiency ratio was 67.1%, versus 68.9% |
| Provisions for credit losses and benefits/claims | $1.84 billion | Up 35%; net credit losses were $1.64 billion, up 85% |
| Net interest margin | 2.49% | Up 18 basis points year over year on a taxable-equivalent basis |
For the first nine months, revenue was $61.0 billion, up 6%, while net income was $11.1 billion, down 10%. Diluted EPS was $5.14, down 12%. Provisions rose 66% to $5.64 billion. Results include significant divestiture gains and other related impacts, particularly in Legacy Franchises; comparisons excluding such items are non-GAAP.
- Segments: Q3 ICG revenue was $10.6 billion (+12%) and net income $2.4 billion (+12%), supported by Services, Markets and Banking. PBWM revenue was $6.8 billion (+10%) and net income $803 million (+1%); card revenue and balances grew, alongside higher credit losses. Legacy Franchises revenue was $2.2 billion (−13%) and net income $125 million (−60%), reflecting lower sale gains and market exits. Corporate/Other revenue was $500 million, versus $299 million, but net income declined to $189 million.
- Loans and deposits: Period-end loans were $666 billion, up 3% year over year; deposits were $1.274 trillion, down 3%. The deposit decline reflected lower Services balances, customer movement to higher-yielding investments, and fewer institutional certificates of deposit.
- Balance sheet and debt: Total assets were $2.368 trillion, down 1% from September 2022. Long-term debt was $275.8 billion, up 9% year over year.
- Capital: Standardized CET1 ratio was 13.59%, versus 12.26% a year earlier and 13.37% at June 2023. The Q3-end required ratio was 12.0%; it rose to 12.3% on October 1, 2023. Supplementary leverage ratio was 6.04%, versus 5.71% a year earlier.
- Liquidity: Average liquidity coverage ratio (LCR) was 117%, with $84 billion of HQLA above net outflows. Citi reported approximately $937 billion in available liquidity resources at quarter-end.
- Cash flow: For the first nine months, operating cash flow was negative $68.8 billion, investing cash flow was positive $30.0 billion, and financing cash flow was negative $45.0 billion. Cash, due from banks and deposits with banks declined $88.0 billion to $254.0 billion. These bank cash flows reflect substantial movements in trading assets, securities, deposits and funding; they should not be read as a standalone measure of operating profitability.
Material changes and unusual items
- Q3 results included approximately $299 million of pretax divestiture-related impacts, chiefly a gain on the Taiwan consumer-business sale; Citi estimated a $214 million after-tax benefit, or $0.11 per share. Taiwan’s sale closed in August 2023. The Indonesia consumer-business sale was expected to close in Q4; Citi also signed an agreement in October to sell its onshore China consumer wealth business.
- Q3 net credit losses rose as card losses continued to normalize. PBWM card delinquencies and loss rates increased year over year; Citi expected higher Q4 net credit losses and expected card losses to reach pre-pandemic levels by year-end 2023.
- Argentina’s official exchange-rate devaluation reduced Citi’s net investment by approximately $180 million in Q3. Citi warned that further depreciation could cause significant losses and noted limited capacity to hedge Argentine-peso exposure.
- For the nine months, net cash used in operating activities contrasted with positive operating cash flow in the prior-year period; the filing attributes cash movements to balance-sheet activity, including trading positions and funding flows.
Outlook, risks and contingencies
- Management cited elevated interest rates and inflation, recession risk, geopolitical tensions, the Russia–Ukraine war, Middle East conflict, China-related risks, currency volatility and possible U.S. government disruption as potential pressures on clients, credit costs, funding and results.
- Citi expects elevated Q4 expenses, including additional severance related to organizational simplification. It expects further simplification charges through the first half of 2024.
- If adopted as proposed, the FDIC special assessment could result in up to a $1.5 billion pretax operating-expense charge. The final rule was expected before year-end 2023; the amount was not included in the disclosed litigation and other reasonably possible loss estimate.
- The proposed Basel III Endgame capital rules could materially affect Citi’s capital position if finalized as proposed. Citi stated the proposal was under review. The Stress Capital Buffer increased to 4.3% beginning October 1, 2023, raising Citi’s Standardized CET1 requirement to 12.3%.
- Citi disclosed approximately $1.3 billion of aggregate reasonably possible unaccrued losses for litigation, regulatory, tax and other matters. Management said the eventual outcome of disclosed matters was not likely to materially affect consolidated financial condition, but adverse outcomes could materially affect particular periods’ results or cash flows.
- Citi intends to maintain a quarterly common dividend of at least $0.53 per share, subject to conditions and Board approval. It will assess share repurchases quarter by quarter amid regulatory-capital uncertainty. Q3 returns to common shareholders were $1.0 billion in dividends and $0.5 billion in repurchases.
Important facts for investors to verify
- Whether card delinquencies, net credit losses, and provision levels continue to rise, and how closely they track management’s year-end normalization outlook.
- Underlying earnings and revenue trends after separating divestiture gains, currency effects, and other unusual items; review the company’s non-GAAP reconciliations.
- The final FDIC assessment and Basel III Endgame rules, and their effects on expenses, capital ratios, and distributions to shareholders.
- Deposit stability, funding costs, liquidity measures, and the impact of continued customer movement toward higher-yielding products.
- Execution, timing, costs, and proceeds of remaining consumer-business exits and the planned Mexico separation/IPO.
- Potential credit and valuation exposure to commercial real estate, emerging markets, Argentina and Russia; Citi reported $66 billion of CRE exposure, including $8 billion related to office buildings.