NEW YORK (Reuters) -Citigroup beat Wall Street estimates for first-quarter profit on Tuesday and moved closer to its profitability target as its traders reaped a windfall from volatile markets that fueled client activity.
The third-largest U.S. lender's earnings echoed those of Wall Street rivals, including JPMorgan Chase, Bank of America, and Morgan Stanley, whose results were also lifted by stronger equities trading. While industry profits rose, executives warned that U.S. tariff policies cast a shadow over the economic outlook.
Citigroup's return on tangible common equity, a closely watched profitability gauge, reached 9% in the first quarter, moving closer to its goal of 10% to 11% next year.
Shares were up 2.7% in early afternoon trading. They have declined 10.2% this year as of Monday's close.
The bank maintained its revenue and expense guidance for this year despite the uncertainty about growth.
"We continue to help our clients navigate an uncertain environment," CEO Jane Fraser said in a statement. "When all is said and done, and long-standing trade imbalances and other structural shifts are behind us, the U.S. will still be the world's leading economy, and the dollar will remain the reserve currency."
Stock trading revenue jumped 23% in the first three months of the year, as investors rejigged their portfolios during a period of heightened uncertainty over President Donald Trump's tariffs and the emergence of Chinese startup DeepSeek's low-cost AI model.
Citi's net income climbed 21% to $4.1 billion, or $1.96 per share, in the three months ended March 31, above estimates of $1.85 per share compiled by LSEG.
Investment banking revenue increased 12% in the first quarter, mainly from advising on mergers and acquisitions. But uncertainty is reducing activity in the second quarter, Fraser told analysts in a conference call.
"Most clients are pausing their plans and no one is taking a bet in the market right now," Fraser said.
CEOs across Wall Street have warned about the potential fallout of the U.S. tariffs, which have clouded the economic outlook and prompted recession fears. Bank stocks were pummeled when sweeping U.S. tariffs were announced this month, a stark turnaround from the optimism at the start of the year for Trump's pro-business agenda.
Tariffs could reignite inflation and constrain economic growth, curbing companies' appetites for dealmaking and borrowing. Weakening consumer sentiment could also weigh on spending and loan demand.
"There's obviously a great deal of uncertainty around tariffs and trade policy and how that will evolve, but also uncertainty around the broader agenda, deregulation, tax policy, etc. That is putting kind of downward pressure on the outlook for growth," Chief Financial Officer Mark Mason told reporters on a call.
The bank increased its provisions for loan losses as the growth outlook worsened, but so far, borrowers' delinquencies are within expectations, Mason added. Citi's cost of credit was $2.72 billion in the quarter, compared with $2.37 billion a year earlier, as the bank increased its unemployment estimates.
BUYBACKS, REGULATORY PROGRESS
The bank bought back $1.75 billion in shares in the first quarter, higher than the $1.5 billion expected, and plans to buy back a similar volume in the second quarter, the CFO said, adding that there are no regulatory restrictions on that volume.
Fraser told analysts the bank is making progress on complying with regulators' orders to reduce risk dating back to 2020. Mason, though, declined to set a target date for resolving its regulatory consent orders, citing issues that take longer to fix, such as data integrity.
The bank cut bonuses paid in 2024 to top executives for not making enough progress on the compliance issues after it received additional fines last year. Mason said Citi will increase spending on addressing the regulatory orders from $3 billion spent in 2024.
Citi plans to slash its reliance on information technology contractors and hire thousands of employees for IT as it grapples with regulatory punishments, Reuters reported last month.
Fraser praised the Trump administration for considering changes to bank regulations. "We welcome changes being discussed in our industry to place more focus on material financial risks and to make it easier for banks to contribute to economic growth."
Preparations are still on track for an IPO of Citi's Mexican unit, Banamex, by the end of the year, but regulatory considerations and market conditions could push it into 2026, Mason said.
Two divisions recently revamped by Fraser showed improvement in the first quarter. Banking, led by former JPMorgan executive Viswas Raghavan, increased revenue by 12% to $2 billion.
The bank advised on several notable transactions during the quarter, including Johnson & Johnson's $14.6-billion deal for neurological drug maker Intra-Cellular Therapies.
The wealth management unit run by former Bank of America executive Andy Sieg had record revenue of $2.1 billion, up 24% from a year earlier.
(Reporting by Arasu Kannagi Basil in Bengaluru and Tatiana Bautzer in New York; editing by Lananh Nguyen, Sriraj Kaluvila and Rod Nickel)
