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Can Citigroup Keep the Earnings Streak Alive in Q3 2018?

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Third-quarter expectations

Citigroup (C) is scheduled to report its third-quarter earnings results on October 12. The fourth-largest US bank by market cap has an impressive record of beating earnings estimates. The company has surpassed Wall Street’s estimates in the last six quarters with an average surprise of 6.6%.

For the third quarter, the bank is expected to post EPS of $1.65, implying a rise of 16.2% on a YoY (year-over-year) basis and a rise of 1.2% on a sequential basis. This growth is expected to come from loan book expansion, rate spreads, increases in trading activity, and wealth management, and it’s expected to be partially offset by weaker investment banking fees in line with the industry trend.

Furthermore, analysts expect Citi’s revenue to rise 1.6% on a YoY basis to $18.5 billion due to lending growth, higher net interest margins, and marginal growth in non-interest income.

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Citigroup CFO John Gerspach provided a somewhat decent outlook for the third quarter last month at the Barclays Global Financial Services Brokers Conference. The bank projects its fixed income and equity trading revenue to be flat to slightly high on a YoY basis. Moreover, Gerspach stated strong client engagement during the third quarter, which is likely to continue driving growth in accruals across both the consumer and institutional businesses.

Nonetheless, Gerspach cautioned that the bank’s quarterly results would be negatively impacted by a seasonal slowdown due to the summer months. Also, some deals being pushed to the fourth quarter could result in a YoY fall in third-quarter investment banking revenue.

Banks (XLF) are expected to witness higher net interest margins in the second half of 2018 mainly due to expectations of four rate hikes in 2018. The Fed’s hawkish monetary policy will likely continue to support Citigroup’s bottom line results.

Peers’ expectations

Citigroup’s close peers JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) are expected to report EPS of $2.26, $0.63, and $1.18, respectively, in the third quarter.

In this series, we’ll look at the drivers of Citigroup’s earnings and revenues, analyst expectations, and valuations.

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