C Projects Higher Q2 IB & Markets Revenues: Fee Income to Benefit?

Citigroup anticipates mid-to-high single-digit growth in Q2 markets revenue and mid-single-digit growth in investment banking revenue, driven by strong equities and fixed-income trading and a recovery in deal-making activity. Despite tariff-related headwinds and an expected sequential increase in credit costs, the bank expects improved performance in its Markets and Banking segments, leading to a rise in fee income, which constitutes roughly 33% of total revenues. This outlook aligns with commentary from Morgan Stanley and Moelis & Company, who also foresee a rebounding deal-making environment.

Analysis

Citigroup projects higher Q2 revenues, with markets revenue expected to grow in the mid-to-high single digits and investment banking (IB) revenue up by mid-single digits year-over-year, as disclosed by Viswas Raghavan, head of Banking. This anticipated improvement is driven by robust momentum in equities and fixed-income trading, coupled with a recovery in deal-making and IPO activity, particularly in tech and digital assets, after a temporary market pause in April attributed to tariff ambiguity. Consequently, fee income, constituting approximately 33% of Citigroup's total revenues, is poised for an increase. This optimistic sentiment is shared by competitors such as Morgan Stanley and Moelis & Company, who also report a rebound in deal-making and strong pipelines. However, Citigroup also expects its cost of credit to rise sequentially by "a few hundred million" due to increased credit reserve builds. Year-to-date, Citigroup's stock has appreciated 11.3%, outperforming Morgan Stanley (+4.8%) and Moelis & Company (-21.5%). The company trades at a forward price-to-earnings ratio of 9.60, which is below the industry average of 13.80. Analyst consensus estimates for Citigroup's 2025 and 2026 earnings indicate significant year-over-year growth of 23% and 25.9%, respectively, with these estimates having seen upward revisions in the past 30 days.

Key Decisions for Investors

• Citigroup's positive Q2 revenue guidance for its Markets and Investment Banking divisions, coupled with a forward P/E ratio of 9.60 that is below the industry average, may indicate an attractive valuation.
• Investors should closely monitor the projected sequential increase in Citigroup's cost of credit, as higher credit reserve builds could partially offset the benefits from revenue growth and impact net earnings.
• The general rebound in M&A and capital markets activity, supported by Citigroup's outlook and peer commentary, along with upward revisions to C's 2025 and 2026 earnings estimates, suggests a constructive view, although potential impacts from tariffs on specific sectors warrant continued attention.