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Citigroup Earnings Show the Bank’s Turnaround Is on Track

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Citigroup shares are down 26% this year, more than most other banks.

Stefani Reynolds/AFP/Getty Images

In a challenging quarter for banks,


Citigroup

(ticker: C) has been one of the few bright spots, posting second-quarter results that topped analysts’ expectations as the bank continues to execute on its turnaround plan.

The bank earned $2.19 a share on revenue of $19.6 billion — both figures far exceeded projections by analysts surveyed by FactSet who expected Citigroup to earn $1.68 a share on revenue of $18.4 billion. Net income totaled $4.5 billion, marking a 27% decline from last year. In the year-ago quarter, Citigroup earned $2.85 a share on $17.5 billion in revenue.

Citigroup’s results were positively impacted by a 33% jump in revenue in its treasury and trade solutions group as well as a 25% year-over-year gain in trading revenue. Those gains offset some weakness in investment banking, which saw a 46% drop in revenue, mirroring declines seen at


JPMorgan Chase

(JPM) and


Morgan Stanley

(


MS

).

“Treasury and trade solutions fired on all cylinders as clients took advantage of our global network, leading to the best quarter this business has had in a decade,” Jane Fraser, chief executive at Citigroup, said Friday.

Citigroup is one of the few banks that still trades below book value, reflecting its difficulty in meeting financial targets as well as regulatory actions the bank faced for weaknesses in its internal controls. The bank hosted an investor day in March in which it outlined plans to improve its operations and boost its returns. Wall Street understands Citigroup’s plans but has been hesitant to endorse the stock.

Citigroup shares have fallen 26% this year, eclipsing the 20% decline in the


SPDR S&P Bank ETF

(KBE).

While it counts as one of the large banks, Citigroup doesn’t have many clear competitors. It offers investment banking but isn’t quite a close peer to


Morgan Sta

nley (MS) and


Goldman Sachs

(GS). It’s a lender, but not at the same scale as


JPMorgan Chase

(JPM),


Bank of America

(BAC), and


Wells Fargo

(WFC). While its results will be held up against other banks, investors will also want to know how the bank is doing with its turnaround plans.

As part of its turnaround efforts, Citigroup is looking to develop its wealth management and treasury and trade solutions businesses while shedding non-core assets. Friday’s results indicated that the bank may be on the right track.

Over the last year, the bank announced plans to exit 14 international markets and has made progress on either closing sales or winding down 10 of those businesses. The bank said Friday that it was weighing all options of its Russia business after previously seeking a sale.

So far, bank earnings have been weak. Wells Fargo, JPMorgan and Morgan Stanley all missed earnings forecasts due to a mix of slowing capital markets activity and worries over a weakening economy.

Bank of America and Goldman Sachs will release their second-quarter results Monday.

Write to Carleton English at carleton.english@dowjones.com

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