2016-10-14

Citi’s build out of its equity trading division hasn’t been going to plan. Equity trading revenues are expected to be hit across most investment banks during this Q3 reporting season, but Citi’s 34% year on year drop in Q3 – to $663m – seems a particularly harsh fall.

Citi, of course, is in the unfortunate position of reporting on the same day as J.P. Morgan, which produced exceptional results across the board. Its equities division was down by 12% year on year for Q3 and by 1% for the first nine months of 2016.

Citi’s equities decline is more vexing because its an area it’s been building in over the past few months. While Citigroup cut headcount from its European equities sales and trading team in early 2015, the bank’s co-head of equities Murray Roos began building it up again – particularly in equity derivatives – later that year and even toward the beginning of this one.

Speaking on the 3Q earnings call, John Gerspach, the CFO of Citi, blamed the 34% year-over-year equity markets revenue decrease on a reversal of a charge to revenues of approximately $140m for valuation adjustments related to certain financing transactions. Excluding this adjustment, equities revenues still decreased 23% driven by lower market activity as well as the comparison to strong performance in Asia in the prior year.

That said, the desired results haven’t materialized yet for Citi’s equities business. For the full-year 2015 and the first half of 2016, Citi’s equities business has been ranked between 10th and 12th in the research from Coalition.

At many banks, not just Citi, the cost-cutting in the equities business hasn’t kept pace with falling revenues, meaning that more job cuts are likely.

Fixed income, currencies and commodities (FICC) trading, which have been flattered by ongoing increases in rates revenues largely since the UK’s Brexit vote, was a notable bright spot. Revenues were up 35% year-over year in 3Q. That said, J.P. Morgan reported that its FICC trading revenues were up 48% year-over-year in 3Q.

“The strong client demand for FICC trading started back in June, with client activity that we dealt with and saw rising as a result of Brexit situation, and the debate about which way rates were going kept a lot of conversations going with clients,” Gerspach said. “We saw a lot of strength in our rates and currencies business driven by engaged corporate clients last quarter, while the rate debate in 3Q drove engagement among investor clients, with spread products up significantly year-over-year.”

Citi’s investment banking revenues were $1.1bn, an increase of 15%, driven mostly by more industry-wide debt underwriting activity during the third quarter of this year. Advisory revenues of $239m were flat, and equity underwriting fell 16% to $146m, while debt underwriting revenues increased 32% to $701m.

Follow @danbutchrwrites

Related articles:

Five things you need to know about Citi’s Q1 results

Predictably, Citi's Q1 results revealed that its markets division suffered, with both equities and fixed income revenues falling by double digits.

Who’s winning in equities: Citi or J.P.Morgan?

Both Citi and J.P. Morgan are investing in their equities team. Is it paying off?

Equities salespeople and traders in the front line for cost cutting

First they came for fixed income. Now, it seems they may be coming for cash equities. With equities sales and trading revenues down 18% in the first half of 2016

Â

Show more