Aug 4, 2019

Citi's earnings return to pre-crisis levels, but shareholders aren't satisfied

Citi has been unwieldy, impossible to manage and too big to fail for well over 30 years. Post-crisis, however, it has effected an impressive transformation.

Data: FactSet; Chart: Axios Visuals

The big picture: Its earnings, unjuiced by the excess leverage of the early 2000s, have largely regained their pre-crisis levels — an impressive enough achievement even before you realize that the bank has shrunk considerably over the past decade.

  • Citigroup has 204,000 employees today, down from 374,000 in 2007, and it operates in fewer than half of the countries it did pre-crisis. A bank that once wanted to dominate the planet, Citi is now trying to make a virtue out of the fact that it has many fewer branches than its rivals.

The bottom line: Given Citi's status as an accident-prone and highly regulated central part of America's financial plumbing, the bank's first job is to be safe and boring. Citi's profitability is high enough that it should comfortably be able to weather a downturn, but not quite so high as to be a warning signal that the bank is taking on too much risk.

  • To see how well CEO Michael Corbat has done his job, just compare Citi with Deutsche Bank. The two have a lot in common, but Deutsche is a basket case, while Citi gets stronger every quarter.

The bank's shareholders are restive, however. The FT's Robert Armstrong came out with a 2,000-word "big read" this week devoted to the proposition that Citi is underperforming and needs a "strategic shift."

  • What they're saying: "Slow-and-steady improvement is not enough," writes Armstrong, channeling a growing consensus. "Mr Corbat and Citi’s board need to be bolder."

Be worried: The last time we saw headlines like this was in 2007, when Fortune described Citi's artificially inflated prior-year earnings as "less than stellar" at $21.5 billion, and when CEO Chuck Prince desperately told the FT that "when the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance."

Our thought bubble: Citigroup's profits are already huge, at roughly $2 billion per month. Shareholders want the bank to try to boost them further. The rest of us, not so much.

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Central banking's brave new world

Illustration: Aïda Amer/Axios

The European Central Bank is leading the charge in the next wave of central bank stimulus measures, but experts and former central bankers argue it will be insufficient to deal with the looming global downturn.

Why it matters: Central banks see that the global economy is in trouble and they are stepping in to act, but are responding to new problems with old solutions. The eurozone already has negative interest rates and the ECB already has spent trillions buying bonds in an attempt to stimulate the economy. In spite of these efforts, major European economies have been unable to generate inflation or growth that's even close to their targets for years.

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A great day for safe-haven assets

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The stock market rebounded Wednesday, with major U.S. indexes finishing the day slightly higher or little moved from where they opened, but prices on safe-haven assets like gold, the Japanese yen and U.S. government debt continued to rise.

What happened: Gold prices rose to a 6-year high, above $1,500 per troy ounce, while the yen broke through 106 per dollar, nearing a 5-month high, and U.S. Treasury prices rose, taking down yields on the benchmark 10-year note below 1.6% in early trading.

Go deeperArrowAug 8, 2019

Deutsche Bank has Trump's tax records sought by House Democrats

President Donald Trump speaks to reporters at the White House in Washington, D.C. Photo: Mandel Ngan/ AFP/Getty Images

Deutsche Bank confirmed in a letter Tuesday that it has tax returns subpoenad by House Democrats seeking financial information on President Trump and his family.

The big picture: The disclosure was filed in response to an appeals court order amid a legal battle between Congress and the president over access to Trump’s business records, per the Washington Post. The court is considering a request by Trump to block access to financial records at the German bank and Capital One Financial Corp., Bloomberg notes. The bank’s public redacted response does not identify its client by name.