Citigroup Inc: A Notch Above Peers in Commodities

Citigroup Ranks Itself Up In Commodity Trading Amid Declining Commodity Prices

Citigroup ranks itself up in commodity trading amid declining commodity prices. Citigroup Inc. (NYSE:C) has proudly announced to bank on trading raw materials, as opposed to peers that have been hesitant amid declining commodity prices. The bank’s gross profit from commodity trading increased 50% year-over-year (YoY) in 2015, according to the Financial Times (FT).

Citigroup generated a gross profit of $850 million in commodities last year, despite a slump in oil prices and turbulent markets. According to Coalition, Citigroup is ranked second for trading in commodities in terms of revenue, alongside JP Morgan. The financial institution was also among top three banks in 2014 for trading in commodities. Goldman Sachs has been the most-experienced entity in commodity trading and has consolidated its top spot over the years.

Citigroup has not disclosed the exact commodity revenue from fees and trading for 2015, but confirmed in the earnings release that it has seen a stronger year in commodities. Fixed income revenues were down 11% YoY, to $3.1 billion. Rates in currencies grew 5% YoY, particularly pumped by the improved markets conditions in March after a terrible start in 2016.Total market and securities services revenue was down $4.1 billion in 2015, against comparable year. Consequently, growth was offset by lower trading activity as the environment was less favorable for securitized products and commodities. Citigroup was still able to squeeze and increase profits in raw materials. According to Coalition, FICC revenues dropped to $65 billion at the 10 largest global investment banks, the lowest level seen since 2008 financial crisis.

Stuart Staley, global head of commodities stated: “A volatile commodity price environment during 2015 led to increased client activity and strong returns for our business…for 2016, we are expecting that range-bound markets will result in a more challenging revenue environment.”

Citigroup has cautioned investors that 2016 is already shaping up to be a very difficult one. The first-quarter results have been the poorest since the financial crisis, adding to the uncertainty for corporations amid declining oil prices. Oil prices have been a huge theme for banks in the past quarters, for several years, as the majority of them have exposed loans to the energy sector. Along with oil prices, commodity prices have also slumped creating trading opportunities for investment bankers

The industry performance, owing to trading issues, has been well below par. Market sensitive products suffered the most as investor sentiments deteriorated. Lower client activity went against the typical trends of 1QFY16. Banks such as JP Morgan and Morgan Stanley have scaled back its commodities’ business due to higher capital requirements and increasing regulations. Citigroup, on the contrary, has been expanding its London-based unit. It has around 230 employees in commodities as it has grown its operations to expand trading in precious metal, natural gas, oil, industrial, coal and iron ore.

Citigroup was amongst the first to post its earnings in the ongoing quarterly season, beating estimates. The profits were still down 28% YoY. Extreme volatility seen in the first two months of the quarter weighed on capital market activities that fell 15% YoY. The trading revenue clocked in low and so were the efficiency ratios.

Citigroup anticipates its operating efficiency ratio to be around 58%, as the bank expects fixed-income markets to generate flat revenue with decline in the last quarters of this year. It is worth noting that Citigroup claims to have identified greater efficiencies in various regional models. In the past three years, the bank has exited from different markets, such as Columbia, Brazil, and Argentina, the latter in 2022. The shifting and derailing of staff is expected to drive the total headcount at the bank, claims CEO Mike Corbat.

Recall that Citigroup had the cleanest pass in 2015 stress test and was the only SIFI bank to pass requirements. Investors remain optimistic about Citigroup’s stress test results that are expected to be announced by the Fed in June.

Post-quarterly earnings release results from the comprehensive capital analysis and review (CCAR) are expected to be the biggest catalysts. Secondly, the central bank is also likely to introduce two rate hikes in 2016 – this is also projected to be the biggest tailwind for bank stocks and their financial results. Business Finance News believes that Citigroup will be the biggest beneficiary; boosting its net interest income and margin. The bank continues to hold a sound financial position despite lower earnings.

Citigroup stock has rallied since the rebound from mid-February this year. However, the stock is still down 10% year-to-date (YTD).

We have studied investments from Netflix, new contracts signed by Orbital, SolarCity earnings report and their negotiation with Tesla for the acquisition of the Powerball battery, the problems that ARCH coal is facing, how IBM is investing in the treatment of the Zika virus, how Moon Express is planning to mine minerals in the moon, and how Citigroup is engaged in commodity trading.

We follow a lot Tesla here, from the fundamental analysis and from the technical as well. See how the Chevy Bolt and the Tesla 3 are dimensioning the evolution of the price of this shares and how this could affect technical analysis, and how the Autopilot functionality is working: the evolution of the Autopilot software has always influenced the prices of their stocks. Tesla Model S 70D is considered the “car of the century”, not by us of course, but we are interested to see how these awards affect the evolution of the stocks. Tesla and other companies signed an agreement so that autobraking became the standard in 2022. A trend in the automobile industry started by Mercedes Benz and Tesla, is having a platform to sell pre-owned vehicles: now General Motors is joining that trend as well.

We have studies how the stock slump of GoPro should be considered not only from the view of technical analysis. Also, check the functionality from Facebook, the “login approval” and if it really protects users or other interests. The reports from Volkswagen about their very low injury claims, how now other companies in China can use the name “IPhone” apart from Apple. We continue in China to learn about the Marketplace Alliance Program from Alibaba, and the joint investment in CloudFlare from Google Inc, Microsoft Corporation, Qualcomm, and Baidu.

About Google, a company we follow a lot here, I want to see how they have entered in the batteries market and how this will affect their current projects and the evolution of the stocks. Interesting are the Chrome updates to decrease CPU usage.

We analyze the effects of the position of Disney in the dispute between Netflix and Time Warner, so we can understand how Disney is shifting its business after selling its stake in Fusion.

We discuss briefly how Oracle adressed the changes in the cloud-computing industry, why Morgan Stanley is optimistic after the pandemic and the Brexit, the divestment in Dell regarding Perot Systems, and the effects of the huge minimum wage rise in Costco. Chipotle is cutting the executive compensation, the issues that BP is facing, what happens with Macy´s earnings and how fundamental analysis can be done in those cases. About Apple, we analyze the effect of the launch of this product Apple Watch where sales performed very irregularly.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *