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Citigroup’s Earnings: The Impact of a December Rate Hike

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Citigroup’s interest rate sensitivity

Citigroup’s interest rate sensitivity is the lowest among its peers (XLF). A parallel 100 basis point increase in interest rates would add $2.0 billion to Citi’s revenues. This figure compares to a $2.4 billion increase for Wells Fargo, a $7.5 million increase for Bank of America (BAC), and a $3 billion increase for J.P. Morgan. For Wells Fargo (WFC), the net interest margin would rise 5 to 15 basis points if the yield curve shifted upward by 100 basis points. Higher interest rates would be negative for Citigroup, as higher credit costs would likely offset gains in net interest income.

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In its recent 10-Q filing, Citigroup shared projections for simulations of net interest income under different interest rate scenarios. As the table above shows, a parallel 100 basis points increase in short-term and long-term rates would lead to a rise of $1.9 billion in Citi’s net interest income. However, if the yield curve flattens and short-term rates increase by 100 basis points but long-term rates remain constant, net interest income would rise $2.0 billion. But if short-term rates remain constant while long-term rates increase 100 basis points, net interest income would rise by merely $205 million. In contrast, a 100 basis point decline in long-term rates would lead to a $203 million fall in net interest income. Currently, net interest income makes up 60% of Citigroup’s total income

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