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CitiGroup Trading Earnings Exceed Expectations

Jul 14 2014

citigroup center

citigroup center (Photo credit: Peter Guthrie)

Citigroup's Trading Revenue Earnings Better Than Expected is Good News For Bank Stocks

It seems a bit odd that good news from a big bank to the banking sector would come on the day it announced that it signed an agreement for $7 billion to settle an investigation of mortgage securities sales by the government, and that helped sustain the latest financial crisis. But the release of second quarter earnings from Citigroup C+3.13% is a good sign for big banks that have been embattled in recent months.

After adjusting for the high cost of Citigroup and the Federal Government's large-scale mortgage settlement, its earnings for the second quarter surpassed expectations. Although analysts expected earnings of $1.05 per share, Citigroup reported actual earnings of $1.24 a share, or $3.93 billion.

In trading for Monday morning, Citigroup's shares opened 3.7% higher after it had fallen 10% during the year.

Even so, Citigroup's best news for the banking sector was that the drop in its trading revenue was not as great as some feared. Concerns that trading revenue for the second quarter would take a catastrophic drop was increased by Citigroup's precarious situation, that would affect the key trading revenue of Wall Street, which boosts the fortunes in this era, of the investment banks. Citigroup's chief financial officer, John Gerspach, was quoted in May as saying that the capital markets revenue of Citigroup would drop by 20% to 25% in the second quarter. However, it fell only 16%, which was not as bad as Gerspach predicted. Both its equity trading segment and its fixed-income segment decreased, but when the second quarter ended, trading operations had improved.

A report from other big banks will soon be available concerning their second quarter performance. Goldman Sachs shares increased by 1.24% in Monday's trading, and Morgan Stanley rose by 1.75%, which is all good news for the banking sector.

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