Citi expects banking fees, trading revenue to climb despite US tariff "anxiety"

Citigroup's head of banking, Vis Raghavan, anticipates improved performance in banking and trading divisions this quarter, projecting a mid-single digit percentage increase in banking fees and a mid-to-high single digit percentage rise in markets revenue compared to last year. Despite concerns about U.S. tariffs impacting dealmaking, clients are adapting to potential tariff costs, and M&A activity remains robust, particularly in sectors less affected by tariffs, while the IPO market remains somewhat stagnant for companies with manufacturing or supply chain exposure.

Analysis

Citigroup's Head of Banking, Vis Raghavan, projects an improvement in the bank's performance for the current quarter, forecasting a mid-single digit percentage increase in banking fees and a mid-to-high single digit percentage rise in markets revenue year-over-year. This optimism persists despite acknowledged "anxiety" stemming from U.S. tariffs, which reportedly "froze" markets in April. Citigroup's clients are reportedly analyzing scenarios to absorb tariff costs ranging from 10% to 20%, with 10% considered a baseline. Transaction volumes have shown improvement since April, buoyed by a stock market rebound. M&A activity is described as "super active" with significant client engagement, exemplified by Citigroup's advisory roles in Mars' $35.9 billion acquisition of Kellanova and Charter Communications' $21.9 billion merger with Cox Communications. The debt market's performance is anticipated to be linked to M&A financing needs. Conversely, the IPO market remains somewhat stagnant, particularly for companies with manufacturing or supply chain exposure vulnerable to tariffs, although some IPOs, especially for tech or digital asset firms, have performed well. Raghavan's leadership, since joining from JPMorgan Chase, contributed to a 12% year-over-year revenue increase in Citi’s banking division to $2 billion in the first quarter, aligning with CEO Jane Fraser's broader strategy to enhance profitability, efficiency, and address regulatory mandates concerning risk management.

Key Decisions for Investors

• Investors should monitor Citigroup's upcoming second-quarter results for confirmation of the guided mid-single-digit growth in banking fees and mid-to-high single-digit growth in markets revenue.
• Consider the bifurcated nature of the dealmaking environment, with robust M&A activity contrasting a more selective IPO market; opportunities may be more pronounced in sectors like technology less impacted by tariffs, while caution is warranted for tariff-sensitive manufacturing and supply chain-exposed companies.
• Evaluate Citigroup's progress on its comprehensive turnaround plan, including improvements in risk management and controls, as these are critical for sustained profit growth and addressing regulatory concerns.