Citigroup Inc (C): Getting the House in Order

The bank also reported a nearly 4% surge in its loans portfolio, while it also reported the lowest loan losses since the second quarter of 2006. A combination of these reflects signs of an improving economy. Wells Fargo was also able to report higher mortgage originations despite expectations of a slowdown. However, the future of its mortgage banking will face rough times as its mortgage application pipeline declined 15%.

Apparently, JPMorgan Chase & Co. (NYSE:JPM)’s results also remained impressive. However, the bank was not able to extract all the benefit of the rising interest rates as imagined. The bank’s CEO declared that its positioned to grow the top line by $2 billion if the yield on 10-year Treasury increased 100 basis points. While the 10-year Treasury yield jumped 66 basis points during the quarter, the bank was only able to generate $110 million in additional revenue.

Besides, its net interest margin plunged 17 basis points over the prior quarter, which is much higher than the decline in Wells Fargo’s net interest margin. On the positive side, the bank increased its mortgage originations by 7%, while investment banking profit jumped 9% over the same time period.

Conclusion

Improvement in mortgage origination volumes, growth in the loans portfolio and an improvement in the loan losses all signal towards a healthy economy. I believe unwinding of the QE is in sight if the Fed picks up these healthy signals. In such a scenario, the rate will rise further, while volatility in rates will also increase. Therefore, the future is rough for the aforementioned banks. However, I believe Citigroup Inc (NYSE:C) has been able to resolve its long standing management issues and would be focused to produce core business growth in the coming quarters. Therefore, I am bullish on Citigroup.

The article Citigroup: Getting the House in Order originally appeared on Fool.com and is written by Adnan Khan.

Adnan Khan has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Citigroup Inc, JPMorgan Chase & Co (NYSE:JPM), and Wells Fargo. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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