Citigroup (NYSE:C) is a bottom-feeder, right? Wrong.
The 1 core number
I'm talking about net interest margin. This is the difference between what a bank is able to earn from loans (remember these are assets for banks) and what it in turn pays out on deposits and other sources of funding (its liabilities).
For example, if a bank only funded itself with deposits on which it paid 0.25% and earned 4.5% on the loans it wrote, it would have an impressive net interest margin of 4.25%. And while movements here won't grab headline attention, Citigroup has had an impressive stretch over the last five quarters compared to its peers.
The glimmer of hope
As shown in the chart below, Citigroup has managed to actually keep its net interest margin stable while both Bank of America and Wells Fargo have seen theirs drop. In fact, Citigroup cut the gap between its NIM and that posted by Wells Fargo in half, from 0.6% to 0.3%:
You may notice both Citigroup and Wells Fargo have seen net interest income -- the actual difference in dollars between what it pays out versus what it earns -- rise. But this is a function of Wells Fargo increasing its average interest earning assets by more than $125 billion over the last year. Citigroup on the other hand has kept its flat, while Bank of America has actually had its decline by a little over $50 billion.
It too should be noted the dip at Bank of America from 2.36% to 2.29% likely doesn't raise any eyebrows, but if it had been able to earn that difference of just 0.07% on its $1.8 trillion in assets, it would've meant an additional $350 million to its bottom line.
The key takeaways
The growth in earning assets at Wells Fargo should certainly be applauded, as one would hope it is able to deploy those into loans for consumers and companies which will benefit both them and its shareholders.
Yet over the last year, it instead has it has nearly doubled its holdings of Federal Funds -- what the Federal Reserve issues -- to nearly $215 billion, which earn just 0.27%. Keep an eye on what it is doing in the future to learn whether or not this growth in assets will too grow its bottom line.
Yet the biggest takeaway from this should be that Citigroup has been able to maintain the stability of one of its most important drivers of profit -- nearly 60% of its revenue is from net interest income -- in the midst of a difficult and falling interest rate environment. Although there may be many questions still surrounding Citigroup, this should be applauded.