All of the big four U.S. banks have reported earnings, giving us greater insight into the overall health of the U.S. banking industry. While many have been worried about an imminent recession and a flattening yield curve, underlying bank operating performances remained strong. We have been paying close attention to management commentary on the economy, loan growth, and credit metrics to gauge how healthy the economy actually is. So far, commentary has been largely positive, core loan growth is still decent for most of the banks, with several even highlighting middle-market strength, and the credit environment remains benign. Yield curve aside, many of the fundamentals still look OK.
For Citigroup, results were mixed. The bank contained costs well and is already getting close to hitting their full-year return on tangible equity target; however, the bank is lagging from a growth perspective. While growth isn't perfect, even moderate growth combined with continued expense control should reasonably have Citi meeting or getting very close to its profitability goals, which is a welcome development for a franchise that has historically struggled here, and shares look relatively cheap to us.
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Eric Compton does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.