Quick update on Citi

Citi results were mildly positive, NII is doing better, this is now an industry wide thesis, and all the banks are enjoying higher NII, especially BAC (oh the good old days when it is fashionable to beat BAC, but as I have been saying BAC is going to earn higher NII and has a nice runway).

They are making meaningful progress on exiting the countries they have identified, and soon some capital may be returned; while we are talking about capital their CET1 ratio is 12.2, they achieved this mainly on the back of reducing risk weighted assets (same theme on other banks too, when banks want to lend and earn higher interest income, they are forced to cut down lending, US FED/ Monetary system is bonkers) they will be much higher by end of the year. But the management wanted to have 1% buffer over 12% statutory limit, so they have some work to do, but if they want they can forgo management buffer and use some of that excess capital to buyback… one can always wish/ dream. Also, Citi has a best in class reserves vs loans, so the reserve requirements on next year if the recession is mild may be light, if there is recession still they will be able to handle it.

JPM, BAC, C, WFC all reported consumer doing good, credit is good. So if we end up with mild recession ( I am thinking we are already in recession) and FED decides to pause because they realize interest rate hike hammer is not going to reduce food prices (which are big component of CPI) we could get a break. Alternatively, we could continue to experience higher inflation and higher rates and many who wished for 15 PE on SPY may get to see that.


Often one of the risks highlighted against Citi is the foreign exchange risk, especially currency volatility, as they are very international. The last few months have experienced a significant currency volatility and so far, touch wood, looks like Citi managed it okay, we haven’t seen any losses or reserve build. We will come to know more on 4Q. Sometimes, a risk on paper and a realized risks are very different.

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