How Citigroup Is Pushing for an Expanded Balance Sheet



Expanding book

Citigroup’s (C) balance sheet is expanding at a faster pace thanks to rising deposits and trading assets, as well as its asset management business. The bank is aiming to strengthen its ROE (return on equity) by improving its performance and reducing its number of shares outstanding by engaging in repurchases. Its ROE fell to -36.3% in 4Q17 from 6.2% in 4Q16, mainly due to $22 billion in non-cash provisional tax related to the Tax Cuts and Jobs Act.

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Rising deposits

In 4Q17, Citigroup’s deposits and loans grew 3.0% and 7.0%, respectively, to $960 billion and $667 billion. The bank saw higher lending growth than deposit growth, and it had better credit offtake than other major bankers (XLF). Whereas Wells Fargo (WFC) and Goldman Sachs (GS) are struggling to pick up the pace in lending, JPMorgan Chase’s (JPM), and Bank of America’s (BAC) lending has grown in line with their deposit growth.

Citigroup’s Tier 1 equity ratio fell to 12.3% in 4Q17 from 13.0% in 4Q16. The marginal decline was largely due to the Tax Cuts and Jobs Act and partially offset by wider net interest margins, cash flow generation, and higher deposits.

Citigroup’s total assets expanded to ~$1.8 trillion on December 31, 2017, a growth of 3% from the prior year. The bank has deployed reserves with other financial institutions, resulting in 14% investment growth to $157 billion. It is also winding down legacy assets, resulting in a reduction in risk-weighted assets and an improved risk-reward scenario for investors.


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