Media headlines, far and wide, trashed Citigroup (C) and its CEO, Michael Corbat, for failing the Federal Reserve’s recent “stress test.” But this massive financial institution had something else in store for the naysayers. As the old adage goes, “Success is the sweetest revenge.” And Citigroup took this principle to heart – quieting the critics with a good old-fashioned earnings beat.
In spite of the grief from embarrassing media headlines and a slight revenue dip, Citi managed to drastically minimize its losses in its troubled-asset-handling unit – Citi Holdings. This is something that should reestablish confidence in shaken investors.
Glenn Schorr, an ISI analyst, says, “We think the quarter was solid and speaks to Citi’s true earnings power and hopefully puts some of the ‘they can’t make their targets’ fears on the back burner.”
Like JPMorgan (JPM), Citi saw disappointing revenues from fixed income trading – partly as a result of the low interest rate environment. What’s more, its mortgage refinancing declined in the United States, just as it did for Wells Fargo (WFC).
Citi didn’t address the damaging news in its earnings statement, such as the $400-million fraud in its Mexican unit or the Fed’s rejection to a dividend hike and share buyback. The statement disclosed a 33% increase in legal expenses, however, but that’s it.
Separately, John Gerspach, the firm’s CFO, revealed a $150-million credit cost for Mexican loan receivables. Furthermore, Gerspach assured the public that though the Fed is reviewing its failed capital plan, the business model has received no criticism.
Citi’s stock is down 12% this year, but better-than-expected quarterly earnings should give the share price a tailwind.