On Friday, there was a more than 10% gain in the shares of Citigroup, after the third largest bank in the US posted a drop of 27% in quarterly profit, which turned out to be lower than expected. This was because its treasury services business showed unusual strength and market volatility helped its trading desks, which helped balance the fall in its investment banking business.

Revenue jump

The crown jewel of Citigroup is its Treasury and Trade Solutions (TTS) business, which recorded a rise of 33% in revenue to reach $3 billion, thanks to higher growth in fees and net interest income. According to the bank, this was its best performance in about a decade.

Meanwhile, there was a 25% jump in market revenue, as it climbed to $5.3 billion because of the volatility in the foreign exchange and commodity markets, which is the bank’s strong segment. According to analysts and investors, the quarter showed that the ambitious restructuring plan of Jane Fraser, the CEO of the bank, was finally paying off.

They said that the turnaround plan seemed to be on track as per the results of the second quarter, as weakness in the investment banking industry was set off by interest and trading income.

Profit decline

There was a fall in the bank’s profit in the quarter that ended on June 30th to $4.5 billion, or $2.19 per share. A year ago, the numbers had been $6.82 billion, or $2.85 per share. Analysts had expected earnings per share to be around $1.68, but they turned out to be $2.30 per share, after excluding items.

The decline in profits also occurred because of an increase of $375 million in loan loss reserves, as the economic outlook turns bleak. The bank had been able to release about $2.4 billion of its reserves a year earlier, thanks to the post-pandemic economic recovery and the government stimulus.

Citi’s credit costs increased to $1.3 billion due to this increase in reserves, even though they had been $1.07 billion a year earlier. If the reserve build is set aside, analysts and investors said that the results show that the bank’s core operating businesses are doing quite well.

So far, they said that Citigroup had turned out to be the highest of the earnings season for banks, as losses from the investment banking segment were insulated by the treasury and trade solutions business.

Buyback pause

However, even though Citi does have strong underlying results, the bank has decided to hit a pause on its share buybacks because the economy is under a great deal of stress. Mark Mason, the Chief Financial Officer, said that they needed to work on a key regulatory capital ratio that is on the rise.

The buyback pause did not come off as a surprise, as it had been predicted by analysts, given that JPMorgan Chase & Co had also made a similar move. But, doing so will cause Citi unusual pain because its shares have been trading at a cheaper price than its peers.