Citi CFO Says Markets to Be Closer to Normal for Traders in 2021

(Bloomberg) -- As a banner year for Citigroup Inc.’s traders approaches an end, things are starting to get back to normal.

While the bank still expects its fixed-income and equity trading revenue to climb by a percentage in the mid-teens this quarter -- a continuation of the stellar performance experienced throughout the year -- there are signs markets are beginning to stabilize, Chief Financial Officer Mark Mason said at an investor conference Wednesday.

“We foresee some continued normalization around trading activity through 2021,” he said. “Ultimately, I would imagine it goes back to pre-Covid-crisis levels. It’s hard to call when exactly that happens.”

Traders have benefited as the pandemic and ensuing economic volatility have roiled markets throughout much of the year. Lenders remain on pace to notch their first $100 billion year for trading revenue in more than a decade.

“We’ve had an extraordinary year,” Mason said. “We’ve grown share, so we feel good about that.”

The heads of the two largest U.S. lenders, JPMorgan Chase & Co. and Bank of America Corp., said earlier at the conference that their investment-banking and trading divisions would notch a strong performance in the fourth quarter as economic activity stayed fairly resilient in the face of the pandemic.

Read more: Bank CEOs See Banner Year for Wall Street Units on Trading Surge

At Citigroup, the bank will have to spend more in the coming months to satisfy a pair of consent orders that the Federal Reserve and the Office of the Comptroller of the Currency issued in October. The firm now expects overall expenses for the year to rise 2% from 2019, which would bring costs to about $42.8 billion for 2020.

With extra spending on improving data governance and underlying risk management and controls to satisfy regulators, the bank expects costs to rise another couple percentage points in 2021, Mason said, which would bring expenses to about $43.7 billion for the year.

“Candidly, we would be doing these things, I would say, regardless of the consent order,” he said. “These are that important to the safety and soundness, but also the competitiveness, of the franchise. These are investments we want to be making.”

Other highlights from Mason’s remarks at the Goldman Sachs Group Inc. conference:

• Despite strong performance from Citigroup’s equity underwriters, revenue from the firm’s investment-banking franchise in the fourth quarter is likely to be down by a percentage in the “low double digits” compared with a year ago.
• Net credit losses will probably fall this quarter from the previous three months, which means the bank is more likely to begin releasing credit reserves rather than continuing to build them up.
• On a full-year basis, firmwide revenue is likely to be flat compared with 2019.

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