How Citigroup Is Expanding Its Balance Sheet amid Reducing Risk



Expanding book

Citigroup’s (C) balance sheet expansion continued in 1Q18 helped by deposits, growth in assets under management, and credit card lending partially offset by the disposal of legacy assets and repurchases. The bank is targeting higher ROE (return on equity) by improving operating performance and engaging in buybacks. Its return on average equity rose to 9.7% in 1Q18 from 7.4% in 1Q17 mainly due to higher revenues, lower credit costs, and lower taxes.

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Deposits continue to rise

In 1Q18, Citigroup’s deposits and loans grew 5.0% and 7.0%, respectively, to $1.0 trillion and $673 billion. On a sequential basis, deposits grew by 4% and loans by 1%, reflecting the shift of brokerage assets and higher wealth generation.

Among other major bankers (XLF), JPMorgan Chase (JPM), Bank of America (BAC), and U.S. Bancorp (USB) managed strong credit growth during the same period. Banks can expect high growth in deposits in 2018. However, lending will likely remain a challenge amid higher rates and lower taxes.

Reducing risky assets

Citigroup’s Tier 1 equity ratio fell to 12.1% in 1Q18 from 12.8% in 1Q17. The decline was mainly due to higher repurchases reducing base capital partially offset by higher reserve generation through operating performance.

Citigroup’s total assets expanded to ~$1.9 trillion on March 31, 2018, an increase of 6% from the prior year helped by deposits, higher margins, and assets under management. Citigroup has been winding down legacy assets over the past few quarters, which could lead to lower risk-weighted assets on the balance sheet and an improved risk-reward scenario for shareholders.


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