Global Consumer Banking Is Expected To Drive Citigroup’s Revenue Growth In 2019

by Trefis Team
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Per Trefis, Citigroup’s (NYSE: C) stock is worth $78, which is 15% higher than the current market price. Our price estimate is based on a P/E multiple of 10.8x and an earnings estimate of $7.24 for FY 2019. We have summarized our full-year expectations for Citigroup in our interactive dashboard What Can We Expect From Citigroup In 2019? You can modify any of our key drivers to gauge the impact of changes on its valuation. In addition, you will find more Trefis data for Financial Services companies here.

A Quick Look At Citigroup’s Revenue Sources

Citigroup reported $72.85 billion in Total Revenues in FY 2018. This included 3 revenue streams.

  • Global Consumer Banking: $33.8 billion in FY 2018 (46% of Total Revenues) – This segment includes Consumer Banking (traditional banking services like deposits, loans etc.) and Citi Cards (Citi-branded credit and debit cards).
  • Institutional Clients Group: $37.0 billion in FY 2018 (51% of Total Revenues) – It consists of three subdivisions:
    • Sales & Trading – deals in sales, trading and structuring of financial market products like bonds, equities, derivative etc.,
    • Advisory & Underwriting – provides financial advisory and capital raising services in debt and equity capital markets,
    • Treasury & Trade Solutions – delivers commercial banking products and services like Cash Management, Trade Finance, Securities and Fund Services (SFS).
  • Corporate/Other: $2.1 billion in FY 2018 (3% of Total Revenues) – This primarily represents the Citigroup Corporate operations, which provide support functions to the bank’s other operating divisions.

Citigroup’s Key Revenue Drivers

  • Average Card Loans Outstanding: In Q1 2019, Global Consumer Banking (GCB) revenues were mainly driven by growth in the average loan portfolio – especially for Citi Cards. Average Card Loans Outstanding have seen steady growth over the years (CAGR 2015-2018: 6.4%) and we expect it to grow by 4% over 2019.
  • Debt Origination Volume: It is a key driver of underwriting revenues in Institutional Client Group (ICG). In Q1 2019, it grew by 15% y-o-y to $804 million and is likely to continue the same trend in subsequent quarters. We expect it to increase by 10% y-o-y in 2019 as global debt capital market activity improves from the weak levels seen in the second half of 2018. However, a decrease in Fees as % of Debt Origination Volumes could mitigate the impact of higher volumes on Citigroup’s top line.
  • Yield on Fixed Income Trading Securities: Yield on Fixed Income Trading Securities has seen a downward trend in the last couple of years – falling from 7.4% in 2016 to 5.8% in 2018. This trend is expected to continue in 2019, with the key metric shrinking to 5.6% for the year.

Citigroup’s Outlook For Full Year 2019

  • We expect Citigroup to report $74 billion in Total Revenues for 2019, which is 1.5% higher than the figure for 2018.
  • Global Consumer Banking (GCB) is expected to have a 3.3% growth in revenues due to increase in Net Interest Income across both Consumer Banking and Citi Cards segments. However, expected decline of 10% in Corporate/other segment would partially offset the impact on top line.
  • Although Sales & Trading revenues are expected to drop by 1.25% y-o-y in 2019, growth in Advisory & Underwriting revenues (3%) and Treasury & Trade Solution Revenues (2.5%) will help Institutional Client Group (ICG) revenues remain largely at the same level as 2018.
  • Total Expenses are expected to increase by 1.9% y-o-y to $50.3 billion, driven by a 6% jump in loan loss provisions. However, Net Income would remain at the same level as the previous year due to no significant change in expected tax rate and Earnings Before Tax (EBT) as compared to 2018
  • Citigroup should continue to repurchases billions of dollars’ worth of shares over the year. This should help its EPS figure reach $7.24 for FY 2019.
  • EPS of $7.24 coupled with our forward P/E multiple of 10.8x represents a price estimate of $78 – representing a potential upside of 15% for the bank’s stock.

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