Earnings Season Recap #22

Stay up to date with the latest trends in the world economy by reading our gathered highlights from the recent earnings calls from Citigroup, Bank of America, Wells Fargo, Morgan Stanley, and Goldman Sachs. Additionally, Elon Musk describes what he considers to be the potentially biggest asset value increase in history.

Observations on the banking system and recent events, operating performance for Citi’s core business segments, and predictions for a shallow recession.

Revenue +12%
Net Income +7%
*margin 21% (22)
ROE 9.5% (9)
ROTCE 10.9% (10.5)

-> “The U.S. financial system remains unmatched globally”: Well, 2023 is shaping up to be another interesting year. Given the tumultuous events of the last few weeks, I'm going to share some observations, and then we'll turn to what was a good quarter. First, our banking system as a whole is very strong. While a small handful of institutions still have challenges to overcome, the U.S. financial system remains unmatched globally. And I feel confident saying that as someone who has worked in many different systems around the world. The U.S. system comprises a healthy mix of community banks, regional banks and larger global banks, including Citi. We all have important but different roles to play, serving different clients with different needs and on different scale. I would also point to the rapid response by state, federal and international regulators, that help reinforce confidence in the system at a very critical juncture. I'm pleased that Citi has been a source of stability for the financial system and a source of strength for our clients. That's not an accident. We are in a position to play this role because our strategy is delivering a simpler, more focused bank. We benefit from a diversified earnings base and resilient business model. This is reinforced by our robust balance sheet management, liquidity position and strong risk management frameworks. We are disciplined in how we run the firm, from client selection to capital planning. – Jane Fraser, CEO & Director (01:28)

-> Observations on the banking system and recent events: And it's also thanks to our people, and I want to express my pride in our colleagues around the world who worked tirelessly last month to serve clients as they turned to Citi as a port in the storm. Recent events have shown that prudent asset and liability management is absolutely paramount. While Mark is going to walk you through our approach and our focus on interest rate risk, liquidity and capital, I do want to mention a few things myself. In terms of assets, our loans are high quality and short duration. We have highly liquid investment securities and a significant amount of cash. We have over $1 trillion worth of available liquidity resources, including $584 billion of HQLA and an LCR of 120%. And we maintain a diverse set of funding sources, including over $1.3 trillion of deposits across corporates, consumers, industries and regions, many of which are operational in nature. Indeed, the cornerstone is our institutional deposit base, which comprises about 60% of our deposits. Most of these deposits are particularly sticky because they sit in operating accounts that are fully integrated into how our multinational clients run their businesses around the world from their payroll to their supply chains to their cash and liquidity management. – Jane Fraser, CEO & Director (02:58)

-> Expect a shallow recession later this year: We operate a strong risk framework that looks at both assets and liability concentrations across client segments, industry and region. And we're confident in the size and nature of our exposures, given our very rigorous stress testing. We also diligently manage counterparty risk, which is critical given the interconnectedness of financial institutions. We are in a strong position to navigate whatever environment we face, which is particularly relevant given the degree of uncertainty today. The Fed continues to use rate policy to battle inflation, which has been more than stubborn in services even as we see signs of cooling in labor and manufacturing. We expect the recent event to be disinflationary and credit to contract. We believe it's now more likely that the U.S. will enter into a shallow recession later this year. That could be exacerbated in depth and duration in a more severe credit crunch. – Jane Fraser, CEO & Director (05:15)