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Citigroup confidence outshines Goldman grind

Goldman Sachs’ transition into a bank serving more than Wall Street and the wealthy can’t come soon enough

Its shares traded sharply down for most of Monday’s session. Despite above-forecast earnings, these were still 20% lower, whilst revenues in almost all key businesses fell. The total was down 13% to $18.81bn, more than the 10% fall Wall Street expected. Advisory sales doubled, but their backlog declined, indicating that even that bright spot could fade.

Results quality was an issue. GS bought back 6.3 million shares in Q1, artificially boosting EPS. The biggest profit driver was an 11% expenses fall.

All told, GS is barely getting started on its 2017 plan to boost annual revenue by $5bn. The overhaul will lift retail deposits by at least $10bn and improve GS’s efficiency ratio by a percentage point. But a strategic review won’t be completed till 2020. It’s “the right time period and the right approach for us” said new CEO David Solomon. With shares down 3%, shareholders disagree. Disappointment looks higher after the stock rose 24% in 2019 by Friday.

Only Citigroup shares are doing better among big rivals. The stock had advanced 29.5% by Friday, partly as investors pile into Citi’s belated recovery. The stock also fell the least on Monday after Citi’s quarterly results. The highlight was a net interest margin expansion of 8 basis points. Like GS, Citi also fell back on cost cuts. One key difference though was that Citi’s investment bank revenues grew.

Overall revenues were weaker than forecast at $18.58bn after Citi’s biggest segment, consumer banking, was flat, and equity market sales tumbled 24%. Still, Citi’s CFO, Mark Mason, echoed JPMorgan’s confidence in the year ahead, despite a less favourable rates environment. He spotlighted the U.S. card business, which is key for reigniting growth. Card revenues rose 5% to $2.2bn, “even better than what we were expecting”. It keeps hopes for 3% revenue growth in the current quarter aloft. As such, Citi stock could continue to outperform close rivals.

Even so, the sense that the easiest phase of Big Bank turnarounds is complete is difficult to shake. Further share price progress could be more difficult for all, in coming quarters. Bank of America and Morgan Stanley report earnings on 16th and 17th April respectively.

Normalised chart: large U.S. bank shares – year to date

Source: Refinitiv/City Index

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