Citi Says Volatility ‘Our Friend’ as Trading Revenue Up 25%

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(Bloomberg) — Citigroup Inc.’s trading revenue is likely to climb more than 25% this quarter as the firm benefits from a surge in volatility across commodities and foreign-exchange markets. 

The New York-based company also has seen “decent” performance in equities trading, Andrew Morton, Citigroup’s global head of markets, said Wednesday. A 25% increase from a year earlier would trounce the 2.4% gain in trading revenue that analysts are expecting, according to a Bloomberg survey.

“Volatility is basically our friend,” Morton said. “You’ve had commodities volatility, you’ve had foreign-exchange volatility,” he said at Morgan Stanley’s US financials conference Wednesday, adding that “some of those things, particularly commodities and foreign exchange, link into our platform — what we believe we’re pretty good at.”

Wall Street’s trading desks have been dealing with wild market swings in the aftermath of Russia’s invasion of Ukraine, which has disrupted supply chains and led to uncertainty around the world. Fears of an economic slowdown, persistently high inflation and rising interest rates around the world have also caused investors to make changes to their portfolios. 

Citigroup shares surged as much as 3.5% after Morton made his remarks, their biggest intraday increase since May 23. 

The improvement in trading revenue should help counter the impact of an investment-banking decline. In that business, Citigroup is expecting revenue to fall as much as 55% in the quarter, in line with broader industry dropoffs, Morton said. 

Citigroup is hoping to expand its business of trading carbon offsets, Morton said, offering an example of a recent program in which the bank worked with a corporate client to give away free stoves in Vietnam to customers who agreed to shut down wood fires. 

“The carbon credits they generated are enough to fund the whole project,” he said. “Carbon offsets is a trading business where you’re originating the carbon-offsets credits and you’re distributing them. There’s huge demand for both, and many of the projects where you’re creating the credits are really quite good projects for the company to do.” 

Citigroup has long earned a greater percentage of its trading revenue from corporate clients compared with peers, Morton said. Those customers have been especially active in recent months, with corporate-client activity surging by more than a third from a year earlier. 

“Investor activity is sometimes tough to manage — you’re dealing with some of the smartest hedge funds in the world,” Morton said. “Corporate activity is steady.”

(Updates with trading details starting in second paragraph.)

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