Boston, MA 07/11/2014 (wallstreetpr) – Citigroup Inc (NYSE:C) reports 2Q2014 next week July 14. That will be ahead of rival JPMorgan Chase & Co. (NYSE:JPM) that reports on July 15.
A lot has improved for banks in the U.S. since the end of the financial meltdown about five years ago. However, there are also new challenges that banks are facing in the industry, especially the issue of high interest rates that has reduced mortgage deals.
There are also problems inherited from the financial meltdown, which are some of the major headaches facing Citigroup Inc (NYSE:C) and its peers in the U.S. financial system.
From Wells Fargo & Co. (NYSE:WFC) to Bank of America Corp (NYSE:BAC) to JPMorgan Chase and Citigroup Inc (NYSE:C), ill-fated mortgaged-backed securities have authored untold financial losses, mainly in settlements with the regulator.
As for Citigroup, that is something that is likely to hurt the bottom line in the upcoming report.
The bank has reportedly agreed to pay $7 billion in mortgage settlement. That figure is higher than $3 billion that the bank had was ready to pay for the same settlement, and it had even budgeted for that.
With $7 billion mortgage settlement with the regulator, Citigroup’s 2Q profit is likely to be wiped out entirely. How is that possible?
The company warned in May that 2Q revenue would decline in the range of 20 – 25 percent compared to the revenue realized a year ago. Of course, it can be recalled that the bank sold its consumer operations in Greece and Spain, being part of its slimming efforts.
Citigroup Inc (NYSE:C) earned a profit of $4.2 billion in 2Q2013 on revenue of $20.5 billion.
As such, in view of the anticipated revenue, the bank is likely to report revenue that is below $19 billion. If that is the case, the mortgage settlement will consume all the profits and even lead to a pre-tax charge of $4 billion to cover the settlement.
However, Citigroup Inc (NYSE:C)’s case would not be surprising because JPMorgan Chase faced a similar challenge in 3Q2013 following its $13 billion settlement of mortgage-related issues.