In what's generally anticipated to be a tough earnings season for investment banks, Citi has stepped up to the plate and continued the theme of tumbling revenues across both its IBD and trading arms. It beat analyst expectations, but this is predominantly because pay and headcount was cut in response to sliding revenues.
This is what you need to know about Citi's Q1 results.
1. Citi's top-ranked trading division is suffering
Predictably, Citi's markets division suffered in Q1, with both equities and fixed income revenues falling by double digits. Within FICC – which were down by a mere 11%, compared to 13% at J.P. Morgan and 17% at Bank of America Merrill Lynch – Citi's strongest divisions suffered. It's ranked number one in securitised products, according to research firm Coalition, and it's here where revenues suffered in the first quarter. Citi is ranked third in commodities, which has admittedly been suffering for months, and revenues fell here as well.
Like both JPM and BAML, Citi's rates traders enjoyed a better quarter compared to 2015, but its FX traders also did well.
2. Ignore year-on-year comparisons in IBD – think of the pipeline
In M&A it's all about the pipeline. If current revenues are down – as they were in Q1 – investment bankers can at least be reassured that potential clients are queuing up for business. At Citi, M&A advisory revenues dropped 23%, debt underwriting revenues sank 22% and equity underwriting took a steep 49% fall, echoing its competitors.
However, CEO Michael Corbat insists that things are looking up.
"The investment banking backlog is up,” Corbat said. “It’s one of the best backlogs we’ve had in several years.
“If you think of the markets, April is realistically the opening of IPO markets here in the U.S., so if you think about M&A and the equity calendar, assuming a reasonable environment, we’ll have a lot of transactions coming through the pipe there."
3. Cuts are coming, but maybe in the back and middle office
John Gerspach, the chief financial officer of Citi, said that taken together, fixed income, equities and investment banking were down 16%, and that the bank will continue to take action to offset these pressures by actively addressing its structure. That means additional layoffs are likely, although he added that the bank wants to preserve its client-facing capabilities.
4. Equities is particularly vulnerable
Citi's equities team has been beset by shake-outs in the senior ranks over the course of the last 18 months, but things are likely to get worse for those lower down the totem pole. Plummeting revenues in cash equities contributed to a 19% decline in the division. Citi is rumoured to be preparing a round of equities cuts, but Corbat mentioned that the bank’s been making “investment in equities, which should help us over time,” even though “it did not help us this quarter.”
5. The back office did good
Securities services revenues increased 3%, largely reflecting a gain on sale, according to Citi. That was the only part of the ICG to register a profit, which is good news for people with back-office jobs in lower-cost destinations, but it doesn’t help candidates looking for a front-office role on Wall Street.
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