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Will Citigroup’s Operating Efficiency Continue to Improve?


Jan. 9 2019, Updated 1:00 p.m. ET

Operating leverage to drive efficiency

Citigroup (C) managed to improve its efficiency ratio in the first three quarters. During the last reported quarter, Citigroup’s efficiency ratio was 56.1%—down from 56.6% in the same quarter the previous year. Citigroup’s efficiency ratio was 57.3% at the end of the third quarter on a year-to-date basis. The improvement reflects operating leverage, better expense management, and improved asset quality.

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Citigroup’s management expects the cost of credit to remain stable during the fourth quarter and increase the efficiency ratio by 100 basis points. Management expects the fiscal efficiency ratio to be 57.3%. Although the fourth-quarter revenues are expected to remain pressured, the expenses are projected to decline.

Balance sheet 

Citigroup’s continued focus on expanding its quality loan portfolio and deposits could strengthen its balance sheet. During the last reported quarter, Citigroup’s total assets rose 2% year-over-year to ~$1.93 trillion due to higher deposits, increased lending, and new assets. However, getting rid of some legacy assets partially offset the growth.

An improving macro backdrop, like a healthy job market and increased wages, could boost banks’ (XLF) deposits. Rate spreads are expected to drive lending. JPMorgan Chase (JPM) and Bank of America (BAC) also reported increased loans and deposits.


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