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Citigroup's (C -2%) Q2 results were solid across the board. The investment and financial services behemoth delivered top- and bottom-line beats, albeit modest compared to last quarter, on firm growth across each of its segments, a pleasant change from Q2, when a few businesses continued to endure yr/yr declines. Citigroup also reiterated its FY24 and medium-term financial goals.

So why are shares lower today? Mirroring what unfolded last quarter, Citigroup's +15% run since April lows incorporated upbeat Q2 numbers. As a result, while there were no obvious red flags, the moderate headline numbers compared to Q1 were enough to trigger profit-taking today.

• Citigroup seldom misses earnings estimates, and Q2 was no exception, registering EPS of $1.52. For the past several quarters, the company has been cutting costs, most recently finishing its latest round of layoffs and divestiture of its India consumer business. As a leaner organization, Citigroup continued to generate positive operating leverage, even though revenue inched just 3.6% higher yr/yr to $20.14 bln.
  • Citigroup's modest revenue increase was more than enough to please investors following two straight quarters of yr/yr compression. Although, the previous declines were primarily due to M&A-related impacts.
• Every segment pulled its weight in Q2, a welcome reversal from last quarter when Markets and Wealth revenue edged lower yr/yr. In fact, Markets performed a complete 180, expanding revs by 6% compared to a 7% drop last quarter, lifted by growth across Equity market revenue, which offset lower Fixed Income market revenue, the inverse of what unfolded in Q1.
  • Meanwhile, Wealth ticked 2% higher, almost entirely due to non-interest income, as Citigroup welcomed a wave of new client investment assets and benefited from rising market valuations. These tailwinds were partially offset by a 4% drop in NII due to higher mortgage funding costs.
• Banking again shone the brightest in Q2, boasting a 38% jump in revenue supported by investment banking and corporate lending growth. Conversely, after six consecutive quarters of double-digit growth, USPB growth finally cooled off, expanding revs by just 6%. Still, management remains optimistic about the positive momentum across its proprietary and partner card businesses.
  • Similarly, Services also slowed, delivering a 3% bump in revs. Argentina remained a drag, largely pushing NII down by 1%. However, strength in Securities Services and momentum in Treasury and Trade Solutions dwarfed this rough patch.
• Looking ahead, Citigroup left its FY24 guidance unchanged, projecting revs of $80-81 bln and expenses of $53.5-53.8 bln, excluding the FDIC special assessment. Citigroup also reiterated its medium-term goals, including a +4-5% revenue CAGR.

Citigroup's Q2 performance reflected a company that is now in the better part of its multi-year transformation plan. The past few quarters were headlined by overall lumpiness as the company was amid cost-cutting and productivity initiatives. As we mentioned at the start of the year, the goal of these moving pieces was stronger profits as FY24 progressed; Q2 results highlight benefits unfolding quicker than perhaps management could have expected. However, a solid run heading into Q2 likely already priced this in.