Big Bank Stocks in Trouble: Citigroup (C)
Citigroup Inc (NYSE:C) shares are down 0.5% as I write this, recovering from an opening tick drop that took shares down 2.2%. C reported earnings of $1.28 per share — 7 cents ahead of estimates — on a 2% rise in revenues. That seems good, but it represents a 3% decline from last year as higher revenues were more than offset by a higher cost of credit and increased operating expenses.
The cost of credit, which jumped 22% from last year, was driven by an increase in net credit losses of $94 million. This is classic late-cycle behavior (a rise in non-performing loans and defaults) and could further pressure Citigroup earnings should it continue and force an accumulation of loan loss reserves. The post-recession release of loan loss reverses, as default rates improved, was a massive tailwind for financial sector earnings in recent years.