How Costco and Capital Deployment Are Driving Citi Earnings

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Citigroup Inc. (NYSE: C) released its third-quarter financial results before the markets opened on Friday. At a glance, this bank is performing the best out of its peer group on Friday morning. Part of the driving force of this run is a recent partnership with Costco, but beating estimates on the top and bottom lines doesn’t hurt either.

The company posted $1.24 in earnings per share (EPS) and $17.8 billion in revenue. The third quarter of last year reportedly had $1.35 in EPS on $18.07 billion in revenue. The consensus estimates from Thomson Reuters called for $1.16 in EPS on $17.34 billion in revenue.

Loans totaled $638 billion at the end of the quarter, up 2% from the prior year period, and up 3% in constant dollars. In constant dollars, 7% growth in Citicorp loans was somewhat offset by continued declines in Citi Holdings, driven primarily by continued reductions in the North America mortgage portfolio.

At the same time, deposits totaled $940 billion as of quarter end, up 4% both on a reported basis and in constant dollars. In constant dollars, Citicorp deposits increased 5%, driven by a 4% increase in Institutional Clients Group deposits and a 5% increase in Global Consumer Banking deposits. In constant dollars, Citi Holdings deposits declined 37%, driven by divestiture activity.

Book value per share was $74.51 and tangible book value per share was $64.71, both representing 8% increases from last year. At quarter end, Citigroup’s Common Equity Tier 1 Capital ratio was 12.6%, up from 11.7%.

North America Global Consumer Banking revenues of $5.2 billion increased 7%, with higher revenues in Citi-branded cards, Citi retail services and retail banking. Citi-branded cards revenues of $2.2 billion increased 15%, reflecting the addition of the Costco portfolio, as well as modest organic growth driven by higher volumes.

CEO Michael Corbat commented:

I am very encouraged by the underlying momentum across our franchise, notably in several areas where we have been investing. In the quarter, both our Global Consumer Bank and Institutional Clients Group had solid year-over-year revenue increases in nearly every business line and geography. We also continued to grow core loans and deposits while reducing non-core assets to just 3% of our balance sheet.

He added:

We remain intensely focused on shareholder returns. The acquisition of the Costco portfolio and the recently announced sales of our retail operations in Argentina and Brazil are the latest examples of how we are shifting resources to the areas we believe will generate the best returns for our shareholders.

Shares of Citigroup closed Thursday down 0.5% at $48.47, with a consensus analyst price target of $54.26 and a 52-week trading range of $34.52 to $56.46. Following the release of the earnings report, the stock was up 1.6% at $49.25 in early trading indications.

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