Citigroup Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. Comparisons are primarily with the same 2021 periods; balance-sheet comparisons are with December 31, 2021 unless noted. Amounts are U.S. dollars.
Business context and reporting period
Citigroup reported through three operating segments—Institutional Clients Group (ICG), Personal Banking and Wealth Management (PBWM), and Legacy Franchises—with remaining activities in Corporate/Other. The company continued its strategic exits from consumer markets in Asia and EMEA, Mexico, and Russia. Segment presentation changed in 2022; prior-period figures were recast to conform.
Financial performance and condition
| Metric | Q2 2022 | Change vs. Q2 2021 |
|---|---|---|
| Revenue, net of interest expense | $19.64 billion | Up 11% |
| Net interest income | $11.96 billion | Up 14% |
| Operating expenses | $12.39 billion | Up 8% |
| Provisions for credit losses and benefits/claims | $1.27 billion expense | Compared with a $1.07 billion benefit |
| Net income attributable to Citigroup | $4.55 billion | Down 27% |
| Diluted EPS | $2.19 | Down 23% |
| Efficiency ratio | 63.1% | Compared with 64.6% |
| Net interest margin (taxable-equivalent basis) | 2.24% | Compared with 1.97% |
Higher rates and stronger volumes supported net interest income. Markets and Services also contributed to revenue growth, while investment banking activity and wealth investment fees weakened. Higher credit costs and expenses more than offset revenue growth. The prior-year quarter included a $450 million release of a valuation allowance on foreign tax credit carry-forwards; the Q2 2022 effective tax rate was 19.8%, versus 15.7%.
- Segments: ICG revenue was $11.42 billion, up 20%, and net income was $3.98 billion, up 16%. PBWM revenue was $6.03 billion, up 6%, but net income fell 69% to $553 million, reflecting higher provisions and expenses. Legacy Franchises revenue declined 15% to $1.94 billion and recorded a $17 million net loss, versus $494 million income a year earlier. Corporate/Other net income was $50 million, versus $473 million.
- Credit: Net credit losses were about $850 million, down 36%. Citi recorded an approximately $400 million net allowance build, mainly reflecting greater macroeconomic uncertainty, partly offset by reduced Russia-related risk. Total allowance for credit losses on loans and unfunded commitments was $18.1 billion at quarter-end.
- Six-month results: Revenue was $38.82 billion, up 4%; operating expenses were $25.56 billion, up 12%; provisions were $2.03 billion, versus a $3.12 billion benefit in the first half of 2021. Net income was $8.85 billion, down 37%, and diluted EPS was $4.20, down 35%.
Cash flow, capital, debt and liquidity
- Total assets were $2.38 trillion; deposits were $1.32 trillion, up 1% year over year. End-of-period loans were $657 billion, down 3% year over year, substantially reflecting loans moved to held-for-sale as divestitures progressed.
- Long-term debt was $257.4 billion, down 3% year over year. Short-term borrowings were $40.1 billion, up 27% year over year. The filing reports total stockholders’ equity of $199.0 billion and common stockholders’ equity of $180.0 billion.
- For the first six months, operating cash flow from continuing operations was negative $3.27 billion, investing cash flow was negative $43.30 billion, and financing cash flow was positive $70.45 billion. Cash, due from banks and deposits with banks totaled $284.0 billion at period-end. Operating cash flows are affected by significant trading and other balance-sheet movements.
- Average high-quality liquid assets were $531.2 billion and the average liquidity coverage ratio was 115%, with $71.0 billion of HQLA above net outflows. Citi reported approximately $964 billion of available liquidity resources at June 30.
- The Standardized Approach CET1 ratio was 11.9%, up from 11.4% at March 31 and 11.8% a year earlier; the supplementary leverage ratio was 5.63%. Citi said it was pausing common-share repurchases while building capital. The minimum CET1 requirement was expected to rise to 11.5% on October 1, 2022 and 12.0% on January 1, 2023 under the Standardized Approach.
Material changes, outlook and risks
- Citi completed the sale of its Australia consumer business on June 1, recording an approximately $800 million pretax sale loss, primarily related to currency translation adjustments, and an estimated $1.4 billion regulatory capital benefit. It completed the Philippines sale on August 1, 2022, after the quarter, with an estimated $700 million regulatory capital benefit. Other signed exits remained subject to approvals and closing conditions; Citi continued winding down its Korea consumer business.
- Expenses rose as Citi invested in transformation, risk and control improvements, technology, and business capabilities. Management expected expenses to remain higher during the rest of 2022 than in the prior-year period. Citi also expected investment banking revenue to continue facing lower capital-markets and M&A activity.
- Management cited elevated inflation and interest rates, recession risk, the war in Ukraine, supply-chain disruption, China’s economic and property-sector pressures, and market volatility as risks to customers, credit, funding costs and results.
- Citi reported $8.4 billion of total Russia exposure, including $2.5 billion of cash on deposit and placements. It intended to substantially reduce its Russian activities but said the process could take time and face sanctions, approval and execution risks. Loss of control of its Russian subsidiary could trigger a write-off of approximately $1.2 billion of net investment and recognition of about $0.9 billion of CTA loss, plus about $0.4 billion of losses on intercompany liabilities.
- Other unusual items included a $535 million goodwill impairment in Asia Consumer in Q1 and a Q2 release of legacy U.K. CTA losses that contributed to discontinued-operations losses. An interim impairment test of ICG Banking found fair value only modestly above carrying value, at 102%; no Q2 impairment was recorded.
- Management estimated reasonably possible unaccrued litigation, regulatory and tax losses of up to approximately $1.2 billion. The filing states that outcomes could materially affect results or cash flows in particular periods, although management did not expect the matters described to materially adversely affect consolidated financial condition.
Important facts for investors to verify
- Whether revenue growth from higher rates and Markets/Services can offset rising funding costs, expenses and weaker investment banking and wealth fees.
- Whether consumer credit performance and the allowance remain adequate as inflation, higher rates and recession risks evolve; assess that reported delinquency trends are affected by government support and loans reclassified as held-for-sale.
- Progress, timing, sale proceeds and capital effects of remaining divestitures and the Korea wind-down, including any further CTA or sale losses.
- Capital headroom against the scheduled CET1 requirement increases and the duration of the share-repurchase pause.
- Cash-flow volatility, liquidity measures, debt funding costs, and the potential impact of ratings downgrades or market stress.
- Russia-related sanctions, exit and deconsolidation exposures, plus the outcomes of legal and regulatory matters and the disclosed unaccrued loss range.