Citigroup CFO Says Wall Street's Deal Frenzy Is Cooling After Record First Half

Citigroup Inc. (NYSE:C) stock traded lower Tuesday despite better-than-expected third-quarter results. Growth in Services, Markets, Wealth and Banking helped offset slower deal activity, weaker sequential trading revenue and higher credit costs.Third-Quarter Earnings Beat EstimatesCitigroup reported revenue, net of interest expense, of $23.85 billion, up 8% year over year and above the analyst estimate of $23.72 billion. Net income surged 40% to $5.25 billion. Earnings of $2.85 per share beat the consensus estimate of $2.67.Net interest income increased 14%, driven by growth across Markets, Services, Wealth and U.S. Consumer Cards.Trading and Services Drive GrowthCitigroup’s fixed-income, currency and commodities trading business generated $4.4 billion in revenue, exceeding the $4.3 billion analyst estimate cited by Bloomberg.The business delivered its strongest third-quarter performance in at least a decade.Overall Markets revenue rose 6% to $6.11 billion. Equities revenue increased 14%, while fixed-income trading revenue grew 4%.However, total trading revenue declined 13% from the second quarter as market conditions became more challenging.Services led growth across Citigroup’s five businesses. Revenue increased 15% to $6.61 billion, while profit jumped 27%.Wealth revenue also rose 15%, supported by a 15% increase in client assets. See More: Top Value Stocks Investment Banking Slows After Strong First HalfBanking revenue increased 6% to $1.74 billion, while investment banking revenue climbed 9% to $1.35 billion.However, investment banking revenue fell 13% from the previous quarter as equity and debt issuance slowed.Chief Financial Officer Gonzalo Luchetti said Citigroup gained market share over the past year. Still, the bank faced an industrywide slowdown following record deal volumes in the first half.Equity underwriting revenue dropped 19% sequentially but remained 77% above year-earlier levels.Higher Interest Rates Weigh on Wall StreetHigher oil prices, persistent inflation and elevated interest rates continue to create challenges for major banks.Brian Mulberry, chief market strategist at Zacks Investment Management, told Reuters that high interest rates and the possibility of further Federal Reserve rate hikes were weighing on trading and investment banking activity.However, Mulberry said growth in Services, Wealth and net interest income could offset near-term trading weakness.He also expects these businesses to support Citigroup’s return on tangible common equity at or above 11% heading into 2027.Citigroup Targets Higher ReturnsCitigroup reported a third-quarter return on tangible common equity of 11.5%. Its year-to-date return reached 12.6%, exceeding its 11% annual target.CEO Jane Fraser said in a statement that Citigroup expects to exceed its 2026 return target while bringing forward investments to achieve its near-term goal of 11% to 13%.The company is ultimately targeting sustainable returns of 14% to 15%.Citigroup returned $4.1 billion to shareholders through dividends and share buybacks during the quarter. Year-to-date repurchases totaled $13.3 billion.Credit Card Profits Face PressureProfit from Citigroup’s credit-card business declined 8% year over year despite a 13% increase in customer spending and 9% growth in loan volumes.Higher rewards expenses, partner payments and credit provisions weighed on results.Provisions for U.S. consumer-card losses reached $1.9 billion, up 4% from a year earlier.Luchetti told Reuters that the higher provisions reflected a cautious approach to managing potential economic risks.Restructuring Nears CompletionCitigroup is approaching the final stages of its multiyear restructuring. The bank has sold several international businesses and simplified its operations.It is also working to address long-standing regulatory requirements while shifting its focus toward growth.Banamex remains its final major divestment. Citigroup currently owns 51% of the Mexican banking unit and expects to remove it from its balance sheet and pursue a public listing in 2027.Meanwhile, Citigroup raised its 2026 outlook for net interest income excluding Markets. The bank now expects growth in the mid-to-high 6% range, compared with its previous forecast of 5% to 6%.C Price Action: Citigroup shares were down 1.74% at $129.63 at the time of publication on Tuesday, according to Benzinga Pro data.Image via Shutterstock Read Also: Wall Street Volatility Becomes Bank of America’s Gold Mine, Trading Revenue Soars 33%