Efficiency ratio

Citigroup’s (C) efficiency ratio has improved in the past few quarters and is currently hovering around 56% compared to 59% at the beginning of 2017. These numbers reflect strong expense management, operating leverage, and improved asset quality. The bank’s operating efficiency further improved in the third quarter and came in at 56.1%, down from 56.6% in the corresponding quarter last year and 58% in the previous quarter.

Citigroup’s Efficiency Ratio Improved in Q3 on Controlled Spending

Citigroup’s efficiency ratio is the second best among the top US banks (XLF). JPMorgan Chase (JPM) tops the list with a ratio of 56% as of the end of the third quarter. Wells Fargo (WFC) ended the third quarter with an efficiency ratio of 62.7%. Bank of America (BAC), which reported third-quarter results today, had an efficiency ratio of 58.4% at the end of the second quarter.

Banks are investing heavily in technology in a bid to improve their customer relations and operating efficiency. While Citigroup increased its technology spending by 2% in the third quarter, its total non-interest spending declined 1% YoY to $10.3 billion. Analysts expect technology spending will rise as banks attempt to improve offerings and gain a larger share of new assets.

Bank of America has attracted trading assets and asset management flow aided by technology-backed offerings. Last quarter, J.P. Morgan launched its free digital investment platform, You Invest, to improve its customer base and encourage users to use its other services as well.

Fourth-quarter projection

Citigroup’s efficiency ratio is expected to improve further in the fourth quarter via the continuation of its expense management efforts and the strengthening of its net interest margins. This improvement could be partially offset by technology investments. Analysts expect its efficiency ratio to come in at 56.8% in the fourth quarter, down from 59% in the corresponding quarter last year.

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