This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Citigroup 'Faces Pressure' for Q3 Revenue: JPMorgan

NEW YORK ( TheStreet) -- Citigroup (C - Get Report) faces "pressures on several revenue sources, international credit costs, and high legal expenses," according to JPMorgan Chase analyst Vivek Juneja.

In his early preview of third-quarter earnings for the large-cap banks covered by his firm, Juneja on Wednesday wrote that the group would be facing significant revenue pains, including a major decline in mortgage loan originations and a decline in gain-on-sale spreads for newly originated loans sold to Fannie Mae and Freddie Mac, "which worsened in September."

In addition to the mortgage decline, which has been widely signaled to investors through an array of economic reports and projections from the Mortgage Bankers Association, Juneja expects a "Larger than normal seasonal decline in capital markets," along with "weak loan growth" and a narrowing of net interest margins "for some."

That last comment may surprise some investors, since the market yield on 10-year Treasury bonds has soared by over 110 basis points since the end of April, in anticipation of a decline in bond purchases by the Federal Reserve. The Federal Open Market Committee will finish its two-day policy meeting Wednesday, after which the committee is expected to announce a modest tapering of the central bank's long-term bond purchases, which have been running at a net $85 billion per month since last September, as part of the "QE3" effort to hold down long-term interest rates.

But for most banks, a parallel rise in interest rates is needed to significantly boost net interest margins and net interest income, and some assets are continuing to reprice at lower rates.

The short-term federal funds rate has been locked in a historically low range of zero to 0.25% since late 2008, and the FOMC has repeatedly said it was unlikely to raise the target rate at least until the national unemployment rate drops below 6.5%. The August unemployment rate was 7.3%, improving slightly from 7.4% in July.

Federal Reserve chairman Ben Bernanke is scheduled to hold a press conference at 2:30 p.m. ET Wednesday.

According to Juneja, a 20% to 30% drop in mortgage revenue for the big banks will be partially offset by higher servicing revenue. He added that "investment banking volumes slowed in 3Q, most notably in debt underwriting, which was hurt by the impact of rising interest rates in August," and also wrote that "3Q trading revenues are likely down double digits on both a [quarter-over-quarter and year-over-year] basis reflecting a greater than normal seasonal drop in activity levels."
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
C $51.38 0.00%
JPM $61.93 0.00%
AAPL $112.12 0.00%
FB $93.24 0.00%
GOOG $643.61 0.00%


Chart of I:DJI
DOW 17,084.49 +33.74 0.20%
S&P 500 2,014.89 +15.91 0.80%
NASDAQ 4,830.47 +19.6820 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs