Securities services revenue boost for Citi
20 March 2018 New York
Image: Shutterstock
Securities services revenues at Citi increased by 8 percent in 2017, according to the bank’s 2017 annual report.
Excluding the impact of the prior year’s divestiture of a private equity fund services business, revenues increased 12 percent.
This reflects strength in all regions, driven by growth in client volumes and higher interest revenue due to a more favourable rate environment, the report explained.
Viewed against the group’s performance as a whole, this result has arguably greater significance than in the past.
In his letter to shareholders, Michael Corbat, CEO wrote: “In our markets and securities services segment, a weaker performance in fixed income and equities compared to the more robust trading environment in 2016 was offset by growth in securities services. Once again we demonstrated the value of balance across and within our businesses.”
The report showed that total revenues of $71.5 billion were on the $69.9 billion recorded in 2016, but still down on 2015’s $76.4 billion. As a consequence of the passage of tax reform legislation in the US in Q4 2017, Citi took a one-time, non-cash charge of $22.6 billion, resulting in a net loss on a reporting basis for the year of $6.8 billion.
Commenting on this, Cobart said: “Having put that one-time charge behind us, however, we can now focus on the positive impacts of tax reform for us and our clients.”
He added: “A lower tax rate leads to higher net income, which combined with a multi-billion-dollar reduction in our tangible common equity, will have a powerful positive impact on our returns.”
“We estimate the impact of tax reform should drive our return on tangible common equity up by 200 basis points or more.” A basis point is one-hundredth of a percentage point.
The report also showed that Citi’s fixed income markets revenues decreased 6 percent, with lower revenues in all regions.
The report said that this was primarily due to low volatility as well as the comparison to higher revenues in the prior year from a more robust trading environment following the vote in the UK in favour of its withdrawal from the EU, as well as the US election.
The decline in revenues was driven by lower net interest revenue (decreased 22 percent), largely due to higher funding costs and a change in the mix of trading positions in support of client activity. The decline was partially offset by higher principal transactions revenues and commissions and fees revenues.
Equity markets revenues decreased 2 percent. Excluding an episodic loss in derivatives of approximately $130 million in the fourth quarter of 2017 related to a single client event, revenues increased 2 percent, as continued growth in prime finance and delta one client balances and higher investor client activity (particularly in EMEA and Asia) were partially offset by lower episodic activity with corporate clients in North America.
Cobart said that he is confident that in years to come 2017 will be seen as a year in which Citi decisively emerged from a prolonged period of simplification and restructuring into a new era of sustainable client-led growth, balanced and less exposed to predictable and unpredictable risks than in the past.
“It is not going to come from acquiring competitors, entering new territories, or expanding into ancillary businesses that don’t fit our strategy,” he said. “It is going to come from serving our consumer and institutional clients with distinction.
“It is going to come from earning and keeping clients’ trust and safeguarding their security. And it is going to come from being seen as an indisputably strong and stable company that takes as much justifiable pride in the positive impacts we have on society as in our financial achievements.”
Excluding the impact of the prior year’s divestiture of a private equity fund services business, revenues increased 12 percent.
This reflects strength in all regions, driven by growth in client volumes and higher interest revenue due to a more favourable rate environment, the report explained.
Viewed against the group’s performance as a whole, this result has arguably greater significance than in the past.
In his letter to shareholders, Michael Corbat, CEO wrote: “In our markets and securities services segment, a weaker performance in fixed income and equities compared to the more robust trading environment in 2016 was offset by growth in securities services. Once again we demonstrated the value of balance across and within our businesses.”
The report showed that total revenues of $71.5 billion were on the $69.9 billion recorded in 2016, but still down on 2015’s $76.4 billion. As a consequence of the passage of tax reform legislation in the US in Q4 2017, Citi took a one-time, non-cash charge of $22.6 billion, resulting in a net loss on a reporting basis for the year of $6.8 billion.
Commenting on this, Cobart said: “Having put that one-time charge behind us, however, we can now focus on the positive impacts of tax reform for us and our clients.”
He added: “A lower tax rate leads to higher net income, which combined with a multi-billion-dollar reduction in our tangible common equity, will have a powerful positive impact on our returns.”
“We estimate the impact of tax reform should drive our return on tangible common equity up by 200 basis points or more.” A basis point is one-hundredth of a percentage point.
The report also showed that Citi’s fixed income markets revenues decreased 6 percent, with lower revenues in all regions.
The report said that this was primarily due to low volatility as well as the comparison to higher revenues in the prior year from a more robust trading environment following the vote in the UK in favour of its withdrawal from the EU, as well as the US election.
The decline in revenues was driven by lower net interest revenue (decreased 22 percent), largely due to higher funding costs and a change in the mix of trading positions in support of client activity. The decline was partially offset by higher principal transactions revenues and commissions and fees revenues.
Equity markets revenues decreased 2 percent. Excluding an episodic loss in derivatives of approximately $130 million in the fourth quarter of 2017 related to a single client event, revenues increased 2 percent, as continued growth in prime finance and delta one client balances and higher investor client activity (particularly in EMEA and Asia) were partially offset by lower episodic activity with corporate clients in North America.
Cobart said that he is confident that in years to come 2017 will be seen as a year in which Citi decisively emerged from a prolonged period of simplification and restructuring into a new era of sustainable client-led growth, balanced and less exposed to predictable and unpredictable risks than in the past.
“It is not going to come from acquiring competitors, entering new territories, or expanding into ancillary businesses that don’t fit our strategy,” he said. “It is going to come from serving our consumer and institutional clients with distinction.
“It is going to come from earning and keeping clients’ trust and safeguarding their security. And it is going to come from being seen as an indisputably strong and stable company that takes as much justifiable pride in the positive impacts we have on society as in our financial achievements.”
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