Citigroup Inc (C) Shines While Goldman Sachs Group Inc (GS) and JPMorgan Chase & Co. (JPM) Disappoint

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JPMorgan Chase & Co. (NYSE:JPM) kicked off the third quarter earnings season for big banks with a 7% drop in revenue. Goldman Sachs Group Inc (NYSE:GS), poor show continued as the effects of a slowdown in the global economy became evident. Amidst the uncertainty and global economy concerns, Citigroup Inc (NYSE:C) seems to be enjoying a fine run having delivered better than expected third quarter profits.

Citigroup Inc (NYSE:C) prospects in the sector are finally looking up compared to those of the other two banks. A drop in operating, legal, and repositioning costs made up for lower revenue in other divisions. A drop in legal expenses and revenue growth in areas like stock trading all but helped offset a slowdown in credit cards and other parts of the consumer bank.

Citigroup’s Stellar Performance

A 51% jump in profit continues to affirm sentiments that CEO, Michael Corbat is on track to meet financial goals set in 2013. Citigroup Inc (NYSE:C) is, however, struggling with a decline in trading revenue as interest rates remain low. Revenue slipped to $18.69 billion better than analysts’ estimates of $18.5 billion but lower than last year.

Investors had entered the week not expecting such a stellar performance especially on concerns about Citigroup’s international business. A profit of $4.29 billion is not something that many investors expected. Last year, Citigroup posted earnings of $2.84 billion or 88 cents a share. Expenses were down by 18% partly because of a decline in legal and related costs.

Citigroup Inc (NYSE:C)’s cost cutting efforts are finally paying off. During the quarter the bank was able to reduce spending on compensation, equipment and marketing. It is currently in the process of closing additional branches having closed 9% in the quarter. The move is part of an overall plan that seeks to grow a smaller and less risky business.

JPMorgan Disappoints

JPMorgan Chase & Co. (NYSE:JPM) is getting smaller because of new capital surcharges, posted a net profit of $6.8 billion, up from $5.57 billion posted last year. The earnings, however, disappointed investors as assets under management shrunk by $160 billion to $2.42 trillion. The last time the bank experienced such a drop was during the financial crisis.

The largest US bank is trying to shed enough trading assets, derivatives, and investment securities in a bid to boost profitability while playing safe to Fed regulations. For the first nine months of the year JPMorgan Chase & Co. (NYSE:JPM) returned $150 billion of deposits to customers. Executives believe they have done more than enough to reduce surcharge from 4.5% to 4%.

JPMorgan posted earnings of $1.32 a share against analysts’ estimates of $1.37 a share. Revenue was also down by 6.9% to $22.87 billion.

Goldman Sachs Woes

Goldman Sachs Group Inc (NYSE:GS) did not have an impressive run in the third quarter as its profit plunged 38% to $1.43 billion. A meltdown in the global economy is taking a toll on the prices of assets as a steep decline in bond trading revenue continues to pile more pressure on earnings. Poor showing in the quarter all but reminded investors of how the bank is highly dependent on buying and selling stocks, bonds, and commodities.

Revenue in fixed currencies and commodities were down by 33% in contrast to a 10 to 22% decline at the other two banks. Trading revenue fell to $1.46 billion as weaknesses in trading mortgages, currencies, and interest rate products continued to pound.

JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc (NYSE:C) also reported falling revenue on bond trading but being more of deposit-taking banks means they are less impacted. Goldman Sachs Group Inc (NYSE:GS) may after all have to rethink its investment strategy as regulators move to install tougher capital rules.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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