Citigroup Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter ended June 30, 2021; filed August 4, 2021. Citigroup reports Global Consumer Banking (GCB), Institutional Clients Group (ICG), and Corporate/Other. Comparisons below are generally with Q2 2020 unless noted.
Key financial results
| Metric | Q2 2021 | Change / comparison |
|---|---|---|
| Revenue, net of interest expense | $17.474 billion | Down 12% |
| Net interest revenue | $10.199 billion | Down 8%; taxable-equivalent net interest margin was 1.92%, down 25 basis points |
| Net income | $6.193 billion | Versus $1.056 billion |
| Diluted EPS | $2.85 | Versus $0.38 |
| Operating expenses | $11.192 billion | Up 7%; efficiency ratio 64.0%, versus 52.9% |
| Provision for credit losses and benefits/claims | $1.066 billion benefit | Versus $8.197 billion expense; included a $2.4 billion net allowance release |
| Net credit losses | $1.3 billion | Down 39% |
| Return on average assets / RoTCE | 1.06% / 15.2% | Versus 0.19% / 2.2%; RoTCE is a non-GAAP measure |
Year-to-date through June 30, revenue was $36.801 billion, down 9%, and net income was $14.135 billion, versus $3.592 billion. The large earnings increase primarily reflected lower credit provisions, not revenue growth.
Segments and drivers
- GCB: Revenue of $6.820 billion fell 7%; net income was $1.832 billion versus a $705 million loss. Lower card balances and deposit spreads weighed on revenue; reserve releases and lower card losses supported earnings.
- ICG: Revenue of $10.387 billion fell 14%; net income was $3.817 billion versus $1.817 billion. Fixed-income markets revenue fell 43% as activity normalized from a strong prior-year period; equity markets rose 37%, and Banking revenue increased 6% including loan-hedge effects.
- Corporate/Other: Net income was $542 million versus a $58 million loss, including approximately $450 million of tax benefits related to non-U.S. operations and a reserve release.
Balance sheet, capital and liquidity
- Total assets were $2.328 trillion; deposits were $1.310 trillion, up 6% year over year. Loans were $676.8 billion, down 1% reported and 3% excluding foreign-exchange translation.
- Long-term debt was $264.6 billion, down from $279.8 billion a year earlier and up from $256.3 billion at March 31, 2021. Short-term borrowings were $31.5 billion.
- Standardized CET1 capital ratio was 11.83%. Citi reported it remained above regulatory minimums. The SCB requirement was set to rise from 2.5% to 3.0% beginning October 1, 2021, subject to finalization.
- Supplementary Leverage Ratio was 5.84%, down from 6.96% at March 31, primarily reflecting expiration of temporary Federal Reserve relief. The Federal Reserve lifted temporary limits on capital distributions effective July 1, 2021; capital-buffer restrictions remain.
- Average HQLA was $522.6 billion and average LCR was 113%, down from 115% in Q1. Citi reported approximately $972 billion of available liquidity resources. It was compliant with the Net Stable Funding Ratio rule when it took effect July 1, 2021.
- For the first six months, operating cash flow was $23.6 billion, investing cash flow was negative $78.1 billion, and financing cash flow was $44.6 billion. Cash, due from banks and deposits with banks declined $10.4 billion to $299.2 billion. Banking cash flows include substantial balance-sheet and trading activity.
Changes, outlook and risks
- Revenue fell as fixed-income markets normalized, average card loans declined amid higher customer payment rates, and low interest rates compressed deposit spreads. Expenses rose with transformation, risk-and-control infrastructure, and other strategic investment; management expected 2021 expenses to exceed 2020.
- The $2.4 billion quarterly allowance release reflected improved portfolio quality and a better macroeconomic outlook. Management’s forecast assumed strong U.S. GDP growth in 2021 and continued improvement in unemployment. Credit outcomes remain exposed to pandemic developments, the end of assistance programs, and the pace of recovery.
- Citi returned $4.1 billion to common shareholders in Q2: $3.0 billion of repurchases and $1.1 billion of dividends. It reported nearly $7 billion returned year to date. The Q2 dividend was $0.51 per share; management stated an intention to maintain a quarterly dividend of at least $0.51, subject to conditions and board approval.
- Citi plans to exit consumer franchises in 13 Asia and EMEA markets and focus those consumer operations on Singapore, Hong Kong, the UAE and London. As of August 4, 2021, it had not entered definitive sale agreements for those exits. Execution, foreign-currency translation and other exit-related impacts could differ from expectations.
- Risks highlighted include COVID-19 and macroeconomic uncertainty; regulatory and operational-control remediation, including the October 2020 FRB and OCC consent orders; market, credit, funding and interest-rate risks; cybersecurity and technology disruptions; and emerging-market and foreign-exchange exposures. Citi disclosed up to approximately $1.4 billion of reasonably possible unaccrued losses across specified legal, regulatory, tax and other matters; actual outcomes may differ.
- A one-notch downgrade by all three major rating agencies was estimated to create approximately $1.4 billion of aggregate additional cash obligations and collateral requirements. Citi also noted Argentina currency controls and limited hedging liquidity, which could expose earnings to peso devaluation.
- The reported 16% effective tax rate included an approximately $450 million valuation-allowance release for non-U.S. branch foreign tax credit carry-forwards. The release depended on forecasts of future taxable income.
Most important facts for investors to verify
- How much future earnings are supported by core revenue and operating performance versus reserve releases and the one-time tax benefit.
- Whether card balances, customer spending, delinquencies and credit losses normalize as government stimulus and relief programs end.
- Whether revenue stabilizes amid low rates and normalized fixed-income markets, and whether expense growth and transformation spending moderate.
- Progress, sale terms and potential costs or capital effects of the planned consumer-market exits; no definitive agreements were reported as of the filing date.
- CET1 and leverage headroom after the higher SCB takes effect, and the sustainability of dividends and repurchases under regulatory constraints.
- Developments in consent-order remediation, litigation and regulatory matters, including the disclosed unaccrued-loss estimate and the Revlon-related wire-transfer litigation.