Are Compensation Expenses 30%, 50% or 70% Of Citigroup’s Revenues?

Citigroup (NYSE:C) is a geographically diversified bank with offices in over 160 countries. Notably, the banking giant spent just under 77% of its total revenues of $72.9 billion in 2018 under different expense categories, with Compensation & Benefits being the single biggest expense category. Trefis has analyzed the bank’s major expense components in detail in an interactive dashboard – How Does Citigroup Spend Its Money? – parts of which are summarized below. We find that Citigroup’s spends nearly 30% of its revenues each year on employee compensation and benefits.

An Overview Of Citigroup’s Total Expenses

• Citigroup’s total revenues grew at an average annual rate of 2.1% from $69.9 billion in 2016 to $72.9 billion in 2018, and we expect them to grow at an average annual rate of 1.2% between 2018 and 2020.
• Additional details about Citigroup’s Revenues can be found in a related interactive dashboard.
• The company reported an expense figure of $54.8 billion in 2016, before jumping to $77.5 billion in 2017 due to impact of U.S Tax Act. It again came down to the 2016 level of $54.8 billion in 2018. Further, expenses will likely grow at 0.8% on average to $55.7 billion by 2020.
• Citigroup’s total expenses as percentage of revenue have been on a decline over the last few years (baring 2017). The jump in 2017 was due to the one-time impact of newly implemented U.S Tax Reform.
• The trend can be attributed to an increase in expenses at a slower pace due to automation and focus on operational efficiency, when compared to the company’s revenues.

Breaking Down Citigroup’s Total Expenses

Compensation & Benefits

• Compensation & Benefits, which accounted for 39% of the company’s total expense in 2018, includes employee related costs, and service cost component of net benefits expense.
• Compensation & Benefits as % of revenue has declined over the years from 30% in 2016 to 29% in 2018. Trefis estimates the metric to hover around the 28.5% mark in the near term. This decrease is a result of focus on automation and operational efficiency.

Loan Provisions

To understand how Citigroup’s Loan Provisions have trended and what the outlook is, view our interactive dashboard analysis

Technology/Communication

• Technology/Communication cost accounted for 13% of the company’s total expenses in 2018.
• The figure has seen a steady increase over the last three years from 9.6% of revenues in 2016 to 9.9% in 2018. Further, it is expected to continue its current trend in the near term and cross 10.3% by 2020.
• Citigroup is focused on improving its overall operational efficiency to maintain its competitive edge. As a result, it has made huge investments in Technology & communications projects.

Income Taxes

• Income Tax figure saw a sharp increase in 2017, due to the impact of the tax reform. The effective tax rate for Citigroup stood at 22.8% in 2018; however we estimate it to decrease to 21% in the near term.

Additional details about trends in Citigroup’s Premises & Equipment and Advertising & Marketing expenses over the years are available in our interactive dashboard.

Trefis has a price estimate of $82 for Citigroup’s stock (shows cash and valuation analysis) which is 10% higher than its current market price. Our price estimate is supported by Citigroup’s strong earnings performance in the third quarter.

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