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Citigroup Earnings Will Put CEO's Fight Against Costs in the Spotlight


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Mike Corbat, CEO of Citigroup (ticker: C) has promised to increase revenue while containing costs. The bank's third-quarter earnings report, set to be released on Friday before the market opens, will show investors whether he is delivering.

Citigroup stock is up about 6.4% since the bank reported earnings in July, falling short of analysts' expectations for revenue but earning more per share than anticipated. Earnings were helped by the bank's effective tax rate dropping to 24% from 32% as a result of the Trump administration's tax cuts.

Yet expenses in the second quarter were 58% of revenue, far from the target of the "low 50's" Corbat has set for the bank to hit by 2020.

This quarter, analysts expect the bank to report $1.68 in adjusted earnings per share, up 18.4% from a year ago, according to Bloomberg. The bank's revenue is expected to rise 1.6% to $18.45 billion.

The bank's management will inevitably be asked how rising rates and an escalating trade war with China will affect the bank and its clients. On the former point, Credit Suisse's Susan Roth Katzke estimates that a decline of 0.05 percentage point in Citi's net interest margin and a 1 percentage-point decline in loan growth would shave 5% off of total estimated 2018 earnings.

However, she says, those numbers don't include the potential benefits of cost reductions, and cutting expenses has been a long-term focus of the bank.

As a result, it is likely that basic banking issues like cost control will drive the market's reaction to Citi's third-quarter earnings. And those are metrics that depend much more on the competence of management than macroeconomic developments.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , US Markets



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