Citigroup Inc. (NYSE:C) demonstrated a notable balance of strength and challenges in Q3 2023 earnings. The bank reported a steady net income, consistent with the previous year’s results, and managed to maintain stable earnings per share. Given the intricate operational landscape, this accomplishment was remarkable and was supported by a significant boost in revenue. The growth was primarily driven by solid performances in the Services and Markets divisions of the Institutional Clients Group (ICG) and effective results in U.S. Personal Banking. This article extends the discussion initiated in the previous piece, delving into the earnings results for Q3 2023. It also presents a technical analysis to unearth potential investment opportunities. Notably, the stock price is witnessing a rebound from robust support levels, indicating a possible trend toward higher prices.

Stability and Growth Amidst Economic Complexity

Citigroup reported a steady net income of $3.5 billion, the same numbers observed in the previous year, with earnings per share also consistent at $1.63. This stability in profitability came despite a complex operational environment and was bolstered by a 9% increase in revenues, which rose to $20.1 billion from $18.5 billion in Q3 2022. The revenue growth was primarily driven by robust performance in critical areas such as Services and Markets within the ICG and U.S. Personal Banking in the Personal Banking and Wealth Management (PBWM) segment. Additionally, the Banking sector in ICG also contributed to this positive trajectory. However, these gains were somewhat offset by revenue reductions due to the closed exits and wind-downs within the Legacy Franchises.

Citigroup’s operating expenses showed an upward trend, rising 6% to $13.5 billion. This increase was primarily attributed to investments in risk and controls, severance, and the impact of inflation. However, productivity savings and expense reductions from wind-down activities partially offset this. The company’s cost of credit also increased from $1.4 billion in Q3 2022 to $1.8 billion, reflecting normalization in net credit losses and an increase in card volume growth in PBWM.

Moreover, the bank’s effective tax rate increased to 25%, up from 20% in Q3 2022. This rise was mainly due to a different geographic mix of pre-tax earnings. From a balance sheet perspective, Citigroup’s allowance for credit losses on loans was approximately $17.6 billion at the quarter’s end, an increase from $16.3 billion in the previous year. This uptick reflects a more cautious approach amidst changing economic conditions.

The ICG and PBWM segments specifically showed healthy revenue growth. Services, Markets, and Banking drove ICG’s revenue increase, while PBWM benefited from strong loan growth in U.S. Personal Banking and higher non-interest revenue. However, Legacy Franchises saw a revenue drop of 13% to $2.2 billion, mainly due to the absence of previous one-time gains from the Asia consumer business sale, offset by increases in Mexico. In comparison, expenses decreased by 3% to $1.8 billion, mainly due to closed exits, counterbalanced by costs in Mexico, leading to a net income of $125 million, a decrease from the previous year’s $316 million, primarily due to lower revenues and higher credit costs, though somewhat mitigated by reduced expenses.

Overall, Citigroup’s financial results reflect stability and adjustment in a challenging economic landscape. The steady net income of $3.5 billion, supported by significant revenue growth in key segments, is balanced against increased operating expenses and a higher cost of credit. These dynamics, coupled with the mixed performance of the Legacy Franchises and a cautious approach to credit losses, paint a picture of a bank navigating through a complex and evolving financial environment with resilience.

Exploring Bullish Price Action

Recap

The previous article provided a historical context for Citigroup and a technical examination of the stock price. This analysis revealed a bullish outlook following the downturn experienced during the Great Recession. Citigroup’s stock was observed to be on a bullish trajectory, with particular emphasis on the support level as an opportune moment for buy. The article also delved into the bullish solid signals in the weekly and daily charts, pinpointing $52 as a critical threshold. It was highlighted that surpassing the $52 mark may pave the way for further price increases.

The Next Move In Citigroup

The stock’s price has firmly consolidated within the same range, showing potential for an upward breakout. This is emphasized by the robust consolidation observed over the past few months, with the strong performance in November 2023 further underscoring a bullish stance in price trends. The updated monthly chart below clearly shows that the November 2023 closing price was notably higher, and the RSI surpassing the 50 midpoint suggests an impending price rally. The 2009 price bottom, followed by sustained consolidation, paints an overall bullish scenario. Additionally, the illustrated blue trend line shows a recurring pattern where each time the price touches this line, it swiftly reverses upwards, forming the double bottom pattern. Notably, the robust recovery in November 2023 also signifies a double-bottom formation at $37.80 and $37.68.

This double bottom pattern is more distinctly observed in the weekly chart, which aligns the neckline at $52, as previously discussed. The robust upward trend in recent weeks is eyeing the $52 level, and surpassing this threshold may trigger a significant upward surge. The RSI’s movement past the midpoint aligns with this potential rally.

The short-term daily chart also reveals significant market fluctuations, with the recent rally surpassing the $43 level, hinting at a robust impending market surge. Considering these bullish price actions, especially the November surge, it could be wise for investors to consider increasing long-term holdings since this price action strengthens a positive perspective on Citigroup.

Market Risk

Citigroup’s financial stability contrasts with the escalating operating costs and increasing credit expenses. The 6% increase in operating expenses, attributed to investments in risk and controls, inflation, and severance costs, poses a significant risk. Although partially offset by productivity savings, this increase could pressure profit margins if revenue growth does not keep pace. Moreover, the rise in the cost of credit, from $1.4 billion to $1.8 billion, indicates a potential increase in default risks, particularly in the Personal Banking and Wealth Management (PBWM) segment due to higher card volume growth. These factors, combined with the increased effective tax rate and higher provisions for credit losses, suggest potential challenges in maintaining profitability in the face of economic uncertainties.

The technical analysis of Citigroup’s stock indicates a positive trend, with a stable consolidation pattern and the likelihood of an upward trajectory. Nonetheless, significant volatility in the market heightens the associated risks. Should the stock price close below $27 monthly, this would reverse the optimistic forecast and could substantially drop the price.

Bottom Line

In conclusion, Citigroup’s Q3 2023 earnings report presents a complex but promising picture of the bank’s financial health and market position. Despite a challenging economic environment, Citigroup has shown commendable resilience, maintaining steady net income and achieving significant revenue growth in its ICG and PBWM segments. This success is tempered by increased operating expenses and a higher cost of credit, highlighting the nuanced balance the bank is navigating between growth and risk management.

The technical analysis of Citigroup’s stock reveals an optimistic outlook. The stock price demonstrates a potential for an upward breakout above $52, supported by the formation of a double-bottom pattern and a bullish trend. This bullish sentiment, particularly evidenced by the November 2023 rally, suggests that the stock may be gearing up for further price increases, significantly if it surpasses the critical $52 level. Investors may consider increasing the long positions at current rates, while looking for upside momentum.