By Tatiana Bautzer
NEW YORK, July 15 (Reuters) - Analysts revised estimates for Citigroup on Wednesday after the bank's management surprised investors and forecast higher expenses in the second half of the year.
Despite beating analysts' estimates in the second quarter with a 45% rise in net income, Citigroup shares tanked 5.3% on Tuesday.
"The culprit was a combination of high expectations and muddled messaging on the second half outlook during the earnings call," Bank of America analyst Ebrahim Poonawala
said in a report to clients on Wednesday. Before the earnings call, Citi shares were up 2%.
The bank reported a return on tangible common equity of 13.1% in the first half of the year, but decided to stick with guidance of 10% to 11% return for the year. "This inspired half a dozen questions on the order of, 'You're saying the second half of 2026 will be dreadful?'" wrote Oppenheimer analyst Chris Kotowski in his Wednesday report, "The Problem with Giving Guidance."
CEO Jane Fraser and CFO Gonzalo Luchetti told analysts during the earnings call that the bank decided to pull forward some of the $5 billion in additional investments the bank projected as needed to increase market share during the investor day. The bank also expects to spend more than the $800 million initially predicted to lay off employees.
Responding to a question, Fraser said the investments would be for the "offense" and not catching up.
"This is not restructuring, but offensive moves to better gain share and compete in a more competitive environment, such as in credit cards," said Wells Fargo analyst Mike Mayo, who still expects the bank to exceed its 11% profitability target in 2026.
Kotowski said the outlook for higher expenses prevented raising estimates by more than he did.
Poonawala said the strategy is a "tactical blip" that does not change his target price or buy rating. But he raised the estimates for the efficiency ratio at the bank to 60.3% from a previous estimate of 59.6%. BofA also changed its earnings-per-share estimate for 2026, raising it to $11.09 from $10.79 before the second quarter.
Jefferies' David Chiaverini lowered earnings-per-share estimates for 2026 and 2027 to $10.65 to $12.60 from $10.95 to $12.75. But the analyst also maintained its buy rating.
KBW's Chris McGratty was among the most optimistic, saying the expense pull forward was used as an excuse to take gains with the stock. KBW raised by 1% its EPS estimate for the full year from $11 to $11.15, less than would be possible considering the second-quarter beat.
Citigroup declined to comment on the reports.
(Reporting by Tatiana Bautzer; Editing by Mark Porter)
