Citi Sees Further Hit on Trading Revenue -- Update

By Dow Jones Business News, 
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By Saabira Chaudhuri and Christina Rexrode

Citigroup Inc. Chief Financial Officer John Gerspach warned Tuesday that the slump it has been experiencing in trading revenue could deepen sharply in the second quarter.

Citigroup's trading revenue, adjusted for the accounting treatment of the firm's own debt-price moves, will likely drop between 20% and 25% in the second quarter from the year earlier, he said.

It was the latest sign that Wall Street's trading businesses, a major source of profits for big banks, are still muddling through a difficult slump. J.P. Morgan Chase & Co. earlier this month said revenue from its markets businesses would drop about 20% in the second quarter from a year earlier.

Like rivals, Citigroup has seen lower volatility, which continues to pressure trading revenue. "People lack direction," said Mr. Gerspach, speaking about investor behavior. "People are uncertain. There just isn't a lot of movement."

Citigroup also expects its trading revenue to be lower than the results it reported for the first quarter. In the first period, Citigroup reported its combined adjusted markets revenue, which includes fixed-income and equities trading, fell 13% from a year earlier to $4.73 billion, driven mostly by an 18% slump in fixed-income revenue.

Tuesday, Mr. Gerspach said the bank has been seeing lower volumes, an uncertain global macroeconomic environment and geopolitical events that have all combined to drive trading volumes lower, particularly in May. How final results turn out depends largely on the remaining five weeks left before the quarter ends, said Mr. Gerspach. He noted that Citigroup's trading results last June dropped following chatter about the Federal Reserve starting to scale back its massive bond-buying effort.

Mr. Gerspach said Citigroup expects its investment banking revenue to be "somewhat higher" than the first quarter's results. In the first quarter, adjusted investment banking revenue fell 10% from a year earlier and 8% from the fourth quarter to $1.1 billion.

The Citigroup CFO also touched on the firm's issues with the Federal Reserve stress tests, which this year resulted in the bank putting off its dividend and share-buyback plans.

He said that the Federal Reserve's rejection of the bank's capital plan, in which it had asked for permission to raise its dividend and expand its buyback program, was "deeply disappointing." He declined to give specifics about the bank's communications with the Fed, which has expressed concerns about Citigroup's ability to assess risk across its operations. "We remain confident that we know what needs to be fixed," Mr. Gerspach said.

The bank is waiting until next year to submit a new capital plan to the Fed, rather than trying to get a higher dividend or buyback plan later this year. Mr. Gerspach said shareholders would be better served if the bank focused on improving the stress-test process.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Christina Rexrode at christina.rexrode@wsj.com

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  (END) Dow Jones Newswires
  05-27-141528ET
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