Citigroup Inc.'s (C) first-quarter earnings are drawing a mixed reaction from the market on Monday morning.
The banking giant reported earnings per share of $1.87, besting estimates set at $1.80 per share, and posted revenue that came nearly in line with the FactSet consensus.
Despite the largely positive headline results, the stock slid on the initial release before building back up to a flat open on Monday.
The volatile move comes after the JPMorgan Chase & Co. (JPM) results set a high standard for banking stocks, especially for Citigroup, which has registered a nearly 30% gain year to date and ran strongly on Friday following the JPM report.
"We cautioned club members during our Friday conference call that Citigroup is not as good as JPM, and we have considered downgrading our rating," the Action Alerts PLUS team said on Friday, anticipating more tepid results from JPM's peer. (Citigroup and JPMorgan Chase are holdings of Jim Cramer's Action Alerts PLUS charitable trust.)
Parsing the results, there are some red flags as well.
Citigroup's net in the first quarter increased about 2%, but that largely was driven by a lower effective tax rate, which was reported at 21% in the current quarter compared to 24% in the first quarter of 2018. In addition, revenues decreased 2% year over year; the decline was blamed on lower revenues in equity markets, losses in the institutional clients group and the wind-down of legacy assets.
Equity-trading revenue was a notable sore spot, marking a 24% decline in the first quarter due to lower market volumes and client financing balances.
Still, the mixed results also have a good degree of encouraging figures, including an improved efficiency ratio, better expense control, higher-than-expected fixed-income revenue and strong results from the Mexico and Latin America business.
"Our earnings reflect the progress we are making to improve our return on and return of capital. Both our consumer and institutional businesses performed well and we saw good momentum in those areas where we have been investing, such as U.S. Branded Cards, Treasury and Trade Solutions, and Investment Banking," CEO Michael Corbat said. "Importantly, our strategy in North America consumer banking is showing good early results as we introduce new products and engage with a broader range of customers, through digital channels."
Corbat noted that the company also has been focused on returning capital to shareholders so far in 2019.
"We returned over $5 billion to our shareholders during the quarter, contributing to the 11% increase in our earnings per share from a year ago," Corbat said. "We further reduced our common shares outstanding, down 9% from a year ago, while maintaining our Common Equity Tier 1 Capital Ratio at 11.9%."
The bank repurchased 66 million shares totaling about $4.06 billion in the first quarter and returned $1.08 billion to shareholders through dividends.
Among the big banks that have reported thus far only Wells Fargo & Co. (WFC) , a bank dealing with a myriad of its own issues, has fallen on its earnings release. Wells Fargo stock is actually in negative territory year to date, which contrasts its situation starkly not only with Citi but with the 12% year-to-date gain for JPMorgan, a more than 20% gain for Bank of America Corp. (BAC) , a more than 15% gain for Morgan Stanley MS, and a more than 20% gain for Goldman Sachs Group Inc. (GS) as of Friday's close. (Goldman Sachs also is a holding of the Action Alerts PLUS charitable trust.)
The mixed results from both Citigroup and Goldman Sachs set somewhat uncertain footing for the Bank of America and Morgan Stanley results still to come this week, especially as JPMorgan's blockbuster earnings seem to be setting the expectations.
An earnings call for Citi is scheduled for 10 a.m. ET and will likely give some clarity on the stock's trajectory for the full day's trading.
"No specific guidance in the slide deck," Credit Suisse analyst Susan Katzke noted. "We would expect management to leave full-year targets unchanged at present."
The conference call webcast will be available here.
