| 2016-10-13 14:53:23|
C, COST… 14:53 10/13 10/13/16
On The Fly: What to watch in Citigroup earnings report
Citigroup (C) is scheduled to report results of its third fiscal quarter before the market open on October 14, with a conference call scheduled for 11:30 am EDT. What to watch for: 1. STREET LOWERING EXPECTATIONS: On Tuesday, Compass Point analyst Charles Peabody initiated Citi with a Sell, saying earnings continue to look weak combined with soft international and capital markets. On September 13, research firm Societe Generale also downgraded Citi to Sell, citing an increased negative stance on cards. A few days later, Goldman analyst Richard Ramsden downgraded the stock to Neutral, saying Citi's expected earnings inflection has failed to materialize and return on equities are at 7.7%, well below management's 10% target. Further, he believes growth in higher return businesses, such as credit cards and wealth management, and expense discipline will not be enough to increase return on equity all the way to its target. 2. OUTLOOK MET?: During the company's last earnings call on July 15, Citi said it sees net interest margin recovering to 290 bps for rest of the year and stable underlying credit quality in its consumer bank. Additionally, the bank expects international consumer revenues to grow sequentially and investment banking revenues to be "stable" in the third quarter. Further, it sees core expenses at Citi Corp being down in the third quarter, with Citi Holdings breaking-even for the quarter. 3. CO-BRANDED COSTCO CARD: On July 15, Citi said it is targeting a 225-235 basis points return on assets on branded cards, and 250 basis points return on assets on co-branded cards. The bank also noted that it has put resources toward Costco (COST), anticipating good volume growth, but not as much as from the start of the investment program. Commenting on Costco's new co-branded credit card, which is a partnership with Visa (V), Oppenheimer analyst Brian Nagel said that new and existing members seem to be embracing it. Although the analyst acknowledged that initial data is limited, he estimated that since the launch of the new Costco-branded credit card, sign-ups have tracked as much as 250,000-290,000 higher than prior run rates, when Costco was partnered with American Express (AXP). 4. CLEARXCHANGE: Late last month, The Wall Street Journal reported that Citi was set to join its rivals in building a peer-to-peer payments app in an attempt to fend off fintech upstarts like PayPal's (PYPL) Venmo. To accomplish this, Citi will become a member of clearXchange, a real-time money movement network that includes Wells Fargo (WFC), J.P. Morgan. (JPM), Bank of America (BAC), U.S. Bancorp (USB) and others, the report added.