Citigroup estimates revised after bank flags higher expenses, stock tanks

By Tatiana Bautzer

NEW YORK, July 15 (Reuters) - ‌Analysts revised estimates ​for Citigroup ​on Wednesday after the bank's management surprised investors and forecast higher expenses in the second half of the year.

Despite beating analysts' estimates in the second quarter with a ‌45% rise in net income, Citigroup shares tanked 5.3% on Tuesday.

"The culprit was a ⁠combination of high expectations and muddled messaging on the second half outlook during the earnings call," Bank of America analyst ‌Ebrahim Poonawala said in a report ‌to clients on Wednesday. Before the earnings call, Citi shares were up 2%.

The bank reported a return on tangible common equity of 13.1% in the first half of the year, but decided ​to stick with guidance of 10% to 11% return for the year. "This inspired half a dozen questions on the order of, 'You're saying the second half of 2026 will be dreadful?'" wrote Oppenheimer ⁠analyst Chris Kotowski in his Wednesday report, "The Problem with Giving Guidance."

CEO Jane Fraser and CFO Gonzalo Luchetti told analysts during the earnings ​call that the bank decided to pull forward some of the $5 billion in additional investments the bank projected as needed to increase market share during the ​investor day. The bank also expects to spend more than ‌the $800 million initially predicted to lay off employees.

Responding to a question, Fraser said the investments would be for the "offense" and not catching up.

"This is not restructuring, ⁠but offensive moves to better gain share and compete in a more competitive environment, such as in credit cards," said Wells Fargo analyst Mike Mayo, who still expects the bank to exceed its 11% profitability target in 2026.

Kotowski ⁠said the outlook for higher expenses prevented raising estimates by more than he did.

Poonawala said the strategy is a "tactical blip" ​that does not change his target price or buy rating. But he raised the estimates for the efficiency ratio at the bank to 60.3% from a previous estimate of 59.6%. BofA also changed its earnings-per-share estimate for 2026, ‌raising it to $11.09 from $10.79 before the second quarter.

Jefferies' David Chiaverini lowered earnings-per-share estimates for 2026 and 2027 to $10.65 to $12.60 from $10.95 to $12.75. But the analyst also maintained ‌its buy rating.

KBW's Chris McGratty was among the most optimistic, saying the expense pull forward was used as ⁠an excuse to take gains with the ‌stock. KBW raised by 1% ​its EPS estimate for the full year from $11 to $11.15, less than would be possible considering the second-quarter beat.

Citigroup declined to comment on the reports.

(Reporting by Tatiana Bautzer; Editing by ‌Mark Porter)

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