Citigroup (C) projects revenue and expense growth for 2022 – March 3, 2022

Yesterday, during its investor day, Citigroup Inc. (VS Free Report) presented its medium-term strategy which focused on streamlining operations to improve the banking mix, investing in technology to modernize operations and strengthen the company’s global presence.

Importantly, the bank aims to increase its return on average tangible common shareholders’ equity, through medium-term revenue growth and improved business mix. It targets a return on average tangible common equity (RoTCE) of 11-12% over the next three to five years.

For the first quarter of 2022, C expects a mid-single-digit decline in total revenue, excluding divestment impacts. The bank expects to see a 10% year-over-year decline in revenue from its Markets segment in the first quarter. For 2022, he forecasts low single-digit growth in total revenue, excluding divestments. This is due to higher interest rates, modest growth in loans and deposits, higher fees and stable market income.

Over the medium term, revenues are expected to grow at a compound annual growth rate (CAGR) of 4-5%. This is expected to be supported by single-digit revenue CAGR growth in segments such as Treasury and Commerce Solutions, Securities Services and Personal Banking in the US. High single-digit or even sub-single digit growth is expected in the global wealth management segment. In contrast, the Banking and Markets segments are set to grow in the low-single-digit and mid-single-digit ranges, respectively.

Its first-quarter expense growth is expected to increase 10-12%, excluding 2022 divestiture impacts. With that, 2022 expense is expected to increase 5-6%, excluding similar impacts. Primarily, business-led transformations and investments are expected to drive up costs. Spending for 2022 is expected to increase 7% to 8%, excluding 2021 disposal costs of $1.2 billion.

C also plans to increase “transformation investment” spending to $3-3.5 billion in 2022 from $1.7 billion in 2021. Investments relate to, among other things, consent orders and technological upgrades.

In the short term, the cost of credit should begin to normalize.

On the capital front, the company expects to achieve a CET1 ratio of 12% in the near term. In the first quarter of 2022, the same proportion is expected to be 11.7%, assuming dividend distributions of $1 billion.

The company also reaffirmed its strategy of exiting 14 consumer businesses in Asia, EMEA and Mexico, and focusing on the highest growth areas of US consumer, heritage in Asia and payments to consumers. The shares will likely help the company achieve its ROTCE. Also, the efforts will simplify the business and help it focus on its core business.

The bank’s shares have lost 16.3% over the past six months, underperforming the 0.7% decline for the industry.

Image source: Zacks Investment Research

C currently carries a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Actions to consider

Some top-ranked stocks in the banking space are First business financial services (FBIZ free report), Bancolombia S.A. (IPC free report) and BPC Bancorp (pcb free report). Currently, CIB carries a Zacks rank of 1, while FBIZ and PCB each carry a Zacks rank of #2 (buy).

Over the past year, shares of First Business have jumped 35.8%, while shares of CIB and PCB have risen 13.6% and 55% respectively.

Over the past 30 days, the Zacks consensus estimate for current-year earnings for First Business has been revised up 7.4%, while the same for CIB has risen 14, 8% to the north. Additionally, PCB Bancorp’s earnings estimates for the current year have risen 14.4% over the past month.

Sallie R. Loera