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Citi traders' bonuses might be modified by risk and revenue constraints.

Traders at Citi might want to wonder about their bonuses

Somewhat ominously, Citigroup will be releasing its fourth quarter and full year results on Friday 13th January. When it does, it's also likely to inform employees of their 2022 bonuses. If you're a trader at the bank, there's reason to feel somewhat apprehensive.

Compared to rival firms, Citi's sales and trading revenues weren't all that hot in the first nine months of this year versus 2021. Researchers at Deutsche Bank think they might know why.

In a note released yesterday, Deutsche's banking research team observed that Citi's trading revenues were the worst in its peer group for the third quarter, declining by 9% while rivals' increased 7%. DB's researchers suggested that the reason for this was risk weighted asset (RWA) optimization in the trading business: Citi is pruning its traders' ability to take risk. 

This appears to be happening at a time when other banks, like Goldman Sachs are doubling down. Goldman's traders have made over $100m on more than 85 trading days so far this year, up from 47 in 2021. 

Citi doesn't break out the RWAs allocated to its trading business specifically, so it's difficult to discern the extent of the pullback. However, the reason is clear. In a separate note, Deutsche's analysts point out that Citi is guiding a 5.5% revenue to RWA ratio as it optimizes capital in the investment bank. As RWAs are cut, DB's analysts suggest Citi's trading revenues may be falling. They ask whether the policy is really worth it.

Citi's traders might be asking the same thing. Falling revenues are likely to have a direct impact on their bonuses, particularly as Citi is also under pressure to bring its costs down and has been investing heavily in controls staff and senior investment bankers.

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AUTHORSarah Butcher Global Editor

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