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Fixed Income Trading Rebound Drove Citigroup’s 2Q16 Earnings

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Jul. 19 2016, Published 12:35 p.m. ET

Trading revenues surpassed forecasts

In 2Q16, Citigroup’s fixed income, currencies, and commodities trading revenues rose 14% to $3.5 billion. Its equity trading revenues were up 21% YoY (year-over-year) to $788 million.

Citigroup’s earnings forecast at an investor conference in June proved conservative for Citigroup’s investment bank. The bank predicted that total trading and investment-banking revenue would be “up slightly” compared to the first quarter. It rose 17% from that period. Analysts at Deutsche Bank (DB) predicted declines of 4% in fixed income and 6% in equity. Similarly, Bank of America (BAC) and JPMorgan Chase (JPM) also reported healthy trading revenues in the second quarter. This expected growth follows a weak quarter of trading revenues for the banking industry (XLF) (VFH) as a whole. Banks have rebounded after a challenging first quarter. In the second quarter, financial markets improved and trading volumes picked up after the Brexit vote. Traders reshuffled their portfolios to adjust their exposure to the United Kingdom.

“There was some increased volatility around Brexit that we were probably positioned for,” John Gerspach, Citigroup’s CFO said. The performance can’t be extrapolated to coming quarters. He noted that each trading period “has its story.”

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Investment banking remains sluggish

However, deal making and underwriting businesses haven’t recovered from the weakness in 1Q16. Citigroup’s investment banking revenues fell 6% in the second quarter to $1.22 billion. However, it beat consensus estimates of $972 million. The Brexit vote has a negative impact on mergers and acquisition activity in the Eurozone.

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