Citi Misses Across The Board On Plunge In Mortgage Banking, Trading Revenues Despite $675MM Reserve Release

Tyler Durden's picture

First we had JPM confirming what we all knew about the third quarter: it was a disaster for anyone who originates mortgages, whose balance sheet relies on Net Interest Margin, and whose income statement is dependent on trading volumes. Now, it is Citi's turn. Moments ago the bank reported uberadjusted EPS of $1.02 missing expectations of $1.04, unchanged from a year ago, and revenues, ex CVA/DVA, of $18.2 billion, down 5% from Q3 2012, and missing expectations $18.71 billion, by over $500 million. Citi EPS also included the now traditional fudge factor of $675MM in loan loss reserve releases, although well below the $1.502BN from a year ago, offset by $204MM in benefit and claims provisions and some $635MM in incremental mortgage charge offs.

Looking specifically at the factors for this miss, we see the same ones as in the case of JPM: a mortgage origination plunge, a drop in the Net Interest Margin as well as a crunch in securities and banking (trading):

To wit on mortgages:

  • Global Consumer Banking revenues of $9.2 billion declined 7% from the prior year period, as significantly lower U.S. mortgage refinancing activity and continued spread compression globally more than offset the ongoing volume growth in most international businesses.  Revenues declined 12% in North America GCB to $4.7 billion, while international GCB revenues declined 1% to $4.5 billion on a reported basis (grew 2% on a constant dollar basis).
  • North America GCB revenues declined 12% to $4.7 billion versus the prior year period driven mainly by the lower retail banking revenues, with total cards revenues (Citi-branded cards and Citi retail services) remaining roughly flat.   Retail banking revenues are expected to continue to be negatively impacted by lower mortgage origination revenues and spread compression.

And then securities and banking, which as Jefferies prewarned everyone, would be a disaster. Sure enough:

  • Investment Banking revenues of $839 million were 10% below the prior year period, driven primarily by declines in debt underwriting and advisory revenues, partially offset by growth in equity underwriting.
  • Fixed Income revenues of $2.8 billion in the third quarter 2013 (excluding a negative $287 million of CVA/DVA) decreased 26% from the prior year period, reflecting lower volumes and a more uncertain macro environment.
  • Securities and Banking net income was $989 million in the third quarter 2013, down 16% from the prior year period. Excluding CVA/DVA, net income declined 29% to $1.2 billion from the prior year period, primarily reflecting the lower revenues and higher credit costs, driven by loan loss reserve builds, partially offset by a 3% decline in operating expenses, reflecting the impact of headcount reductions and lower performance-based compensation.

The variances visually:

Just securities and banking: the collapse in Fixed Income Markets sticks out like a sore thumb:

So much for yet another bank's expectations of a NIM bounce:

Citi's fake earnings, aka Loan Loss Reserve Releases:

The reason why Citi did not build any Reps and Warrants reserves in Q3: it believes it is out of the woods when it comes to future R&W claims:

the message is clear: with banks, that 20% component of the S&P500 total earnings a big disappointment in Q3 (and likely Q4), one thing is certain: the time to slash 2013 forward earnings is here.

Full Q3 earnings supplement below:

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mvsjcl's picture

Market...TO THE MOON!!!!!!

GetZeeGold's picture



When we unleash the buying potential of 29.5 hour wage earners.....the result will be orgasmic.


All Boehner has to do is sign off on it.....and we're good to go.

Max Damage's picture

And they can all rush out and pay $70,000 for a Tesla with their zero hour contract wages!!!


Wedbush just upgraded Tesla to $240 in their ramptastic note

Leopold B. Scotch's picture

Or rush ou to buy their "eternal" $20 energy efficient light bulbs. 

Going Long Candles and Oil Lamps.

max2205's picture

Long live mark to market accounting. ....oh wait

WarHorse's picture

$70k for a TSLA?  Try $90k

Headbanger's picture

I look forward to the day when the financial collapse turns all these banksters into 29.5 hour minimum wage earners!

So go ahead and "just do it"  Boehner and get it over with then stand back and watch Treasury yields spike the whole mess into the pile of shit it really is.

Almost forgot to add that it looks like 10 year Treasury yield is starting to do just that this monring:

BudFox2012's picture

Wall Street doesn't care, all they want is moar QE.  Algos don't care, plenty of good debt ceiling headlines to buy on.  People don't care, Miley Cyrus is shaking her white-trash ass again.  So I guess no one cares about earnings..

Oldballplayer's picture

Leo.  Baby.  Are you the ONLY one who has not seen that ass?  Clearly, you haven't tapped it yet.  Because what has been seen, cannot be unseen. 


And remember, if you speak to a white trash gal from the have to talk to their mom too. 


And that is just unhealthy.

EscapeKey's picture

Marketwatch 101: When a company beats, post it front-page.

When they don't, neglect to mention it:

Shares lower after Citigroup reports $3.2 billion profit »

B2u's picture

Nice.  My short position in C is gonna to great today !!!

PaperBear's picture

How’s the property bubble looking now, eh ?

WarHorse's picture

Where's Barney Frank when you need him ?

Rainman's picture

Correction : ...."the time to slash 2014 forward earnings is here". 

involuntarilybirthed's picture

Citi makes a profit of $3.2 Billion, J&J makes $2.98 Billion?  Profit is profit.

Are we watching analysts or watching companies?  How did we ever get into investing in analysts opinions?  

yogibear's picture

Bove has been the useless, a mouthpiece for the banksters. 

Frostfan1's picture

The article seems a bit dramatic in relation to the results.  Citi stock up from mid to high 30s last year to near 50 at this time.  All they did was show that they're a more solid bank with better capital ratios at the cost of higher profits.  There was a time ZH writers would bring that up but no more.

Tsar Pointless's picture

Citi should be somewhere lying with Jimmy Hoffa. It was dead, yet we - the people - were forced AGAINST OUR WISHES to bail it out and resurrect it.

Was that dramatic enough for you?

Frostfan1's picture

I understand where you're coming from Tsar but we can now look back and see that Citi has paid back the gov.  That doesn't mean the bailout was right, though.

Son of Loki's picture

I told ya so. Walk by any Big Bank and the loan officer is snoozing. Almost no loans since most of them now require 25% down and an actual verifiable job. opposed to builders where you can still grab a zero down or near zero down overpriced brand new house usually in a high property tax area.

All Out Of Bubblegum's picture

Any money they lose is our money and they get to keep the money they don't lose. And then we have to pay them back for our lost money with the money they lend to us.

Who would be stupid enough to fall for a plan like that?

Randoom Thought's picture

Now more than ever we need Glass-Steagall. When massive hedge funds can simply declare themselves banks and thereby give themselves the ability to create money out of thin air and give it to themselves for the purposes of manipulating markets and defrauding others, the system is unrecoverably corrupt. When those self-same hedge funds calling themselves banks can use derivatives to steal profits from the future because of a corrupt piece of legislation called the Commodity Futures Modernization Act of 2000, then we are twice doomed.

The US, the US Republic and the US people do not have a chance when faced with SUCH a criminal element that has stolen the country and corrupted the country's people, using them to execute its crimes.

yogibear's picture

It's not what we need, it's what the corrupt system will allow.

"Thereby give themselves the ability to create money out of thin air"

The banksters and Wall Street love it. It won't change until it crashes the system.

In 2008 we avoided the pain. 

moonstears's picture

1st off, BULLSHIT! Second off, like when a young NFL player pisses away all his bucks on Crystal and whores, "so fuckin what?"! TARP, remember?