The Strategist

Citigroup and Wells Fargo reduced profit

07/15/2016 - 16:28

In the II quarter, net profit of Citigroup Inc. decreased by 14% compared with the same period last year; at that, net profit of Wells Fargo fell 2.8%. Extremely low interest rates continue to put pressure on profitability of credit institutions.

Mike Mozart via flickr
Mike Mozart via flickr
Net profit of US bank Citigroup Inc. in the II quarter of 2016 was $ 3.998 billion, or $ 1.24 per share, compared with $ 4.65 billion, or $ 1.45 per share, a year earlier.

Citigroup's revenue in April-June decreased by 9.9% - to $ 17.548 billion.

Experts polled by Thomson Reuters, had expected Citigroup’s earnings of $ 1.10 per share on revenue of $ 17.47 billion.

The bank's shares have fallen this year by 14%, while KBW Nasdaq Bank index of fell by only 8% during the same period. 

Net profit of another large US bank - Wells Fargo & Co. - was $ 5.56 billion in the II quarter of 2016, or $ 1.01 per share, compared with $ 5.72 billion, or $ 1.03 per share, for the same period a year earlier.

Wells Fargo's revenue in April-June grew by 4% to $ 22.2 billion, compared with $ 21.3 billion in the II quarter of 2015.

Analysts polled by Thomson Reuters had expected the bank's earnings of $ 1.01 per share on revenue of $ 22.17 billion.

"Wells Fargo’s results for the II quarter demonstrated our ability to generate strong performance for the uncertainty period in the economy, on the capital markets and with respect to the interest rate. As compared to the previous year, we have a solid growth in loans, deposits and customers." - said General Director of Wells Fargo John Stumpf.

Average size of Wells Fargo loan portfolio increased by 9% to $ 950.751 billion, deposit portfolio - by 4%, to $ 1.237 trillion.

The cost of troubled assets in the II quarter fell by $ 433 million in comparison with I quarter of 2016, and numbered $ 13.08 billion.

Previously it was reported that all major US banks have passed new stress test conducted by the USA Federal Reserve System (FRS), and have demonstrated an ability to function normally even in a severe and protracted recession in the country and the world at large. This was reported on June 23 by the Fed's press service. The test invollved 33 credit institutions, which accounted for over 80% of domestic US banking assets.

According to the Fed's official press release, results of this analysis indicate that "the country’s largest bank holding companies continue to increase capital levels (these banks added to their capital more than 700 billion dollars in 2009) and to improve quality of their loans, thus strengthening their ability to lend money to individuals and businesses during a deep recession."

As noted in the document, this is the sixth round of stress tests conducted by the Federal Reserve since 2009. In line with the Fed’s expectations, the most unfavorable hypothetical scenario would bring losses in the amount of 385 billion to 33 systemically important US bank. This scenario assumes appearance of a deep global recession, not only the US but in the world economy as well. Above that, there should be rise in the US unemployment rate to 5%, followed by a period of acute financial stress.
However, as the stress test showed, majority of the 33 tested banks will be able to function and provide services even in the most adverse scenario.