Citi US sales plunge, Asian option stands out

Citigroup Global Markets Holdings, the issuance entity of Citigroup in the US, saw its sales of structured notes dive in the final quarter of 2023.

 In Markets, our fourth quarter fixed income results were disappointing as we saw a significant slowdown in December - Jane Fraser

There were 865 SEC-registered structured notes sold at US$1.7 billion in Q4 2023, which was halved year-on-year (YoY), or down 46.5% quarter-on-quarter (QoQ).

Accordingly, the full-year sales volume dropped 18.6% to US$11.6 billion YoY, which accounted for 11.5% of the market. Despite the scaledown, Citigroup was the second largest issuer trailed closely by Goldman Sachs’ US$11.4 billion while J.P. Morgan outpaced by a large margin on the back of US$16.9 billion.

Citigroup started the year with a strong first quarter with US$3.6 billion principal amount booked, up 5.1% YoY, before it slightly slowed down, delivering US$3.1 billion and US$3.2 billion in the following two quarters, respectively.

Citigroup Global Markets Inc (CGMI) is the lead underwriter for these SEC-registered structured notes.

By sales volume, the Callable Equity Linked Securities - Worst of Option took the crown during the year on US$99.8m. With a one-year tenor, the note was traded in mid-August, and is linked to the Nasdaq 100, Russell 2000 and S&P 500. It offers a fixed monthly coupon of 9.52% pa. and has a trigger barrier of 70% of the initial underlying level.

Next in line include two five-year principal-protected notes linked to single stocks Walt Disney as well as Halliburton and one autocallable note on the Nasdaq 100.

The Buffered Digital Notes - S&P 500 takes the fifth place with J.P. Morgan Securities and J.P. Morgan Chase Bank acting as third-party distributors. With principal amount of US$62.7 billion, the one-year note features an Asian option – its final underlying level is the average closing level of the S&P 500 on each of the five final valuation dates between 2 February 2024 and 8 February 2024. The final buffer level is 80% of the initial index level, which leads to a buffer rate of 125%.

Asian options differ from European and American options in that the payoff depends on the average price of the underlying asset over a certain period of time.

Of the bank’s total 4,337 issuance in 2023, only 70 are deployed with an Asian option to calculate their final underlying performance, but they generated noticeable notional at US$539.9m. These products were all sold to J.P. Morgan Securities and J.P. Morgan Chase Bank, which paid CGML a typical underwriting fee of US$5 to US$10 per security. Majority of them are autocallable linked to the S&P 500 or single stocks.  

The top best-seller on the shelf of Citigroup is less concentrated on the S&P 500 compared with its rival Goldman Sachs, which sold US$108.2m from a gearing autocallble note. 

Besides structured notes, the US investment bank issued 132 callable fixed coupon notes on the paper of Citigroup in 2023, bringing US$2.2 billion.

SRP also registers 19 market-linked certificates of deposit (MLCDs) with US$29.7m principal amount issued on the paper of Citibank in 2023, which were also underwritten by CGMI. Majority of the products are tied to the Citi Dynamic Asset Selector 5 ER Index or S&P 500 Daily Risk Control 10% ER.

There are additional seven structured notes issued by Citigroup Global Markets Funding Luxembourg or CGMI, which are offered outside of US through Regulation S under the US Securities Act of 1993. Six of them are phoenix autocallable notes with memory coupon and one is deployed with a digital option.

Earnings

Citigroup reported net loss of US$1.8 billion for Q4 2023, or US$(1.16) per diluted share, on revenue of US$17.4 billion. This compares to net income of US$2.5 billion, or US$1.16 per diluted share, on revenues of US$18.0 billion YoY, according to the bank’s 2023 annual report.

Among other notable items attributed to the loss, Citigroup noted expenses associated with the Federal Deposit Insurance Corporation (FDIC) special assessment of around US$1.7 billion pre-tax and a reserve build of US$1.3 billion associated with transfer risk in Russia and Argentina.

For the full year 2023, net income fell 37.8% to US$9.2 billion, though revenues rose 4.2% to which US$78.5 billion.

‘Services revenues were up 16% for the year driven by share gains and client wins. In Markets, our fourth quarter fixed income results were disappointing as we saw a significant slowdown in December,’ said CEO Jane Fraser (pictured).

She added that Q4 2023 was a decent quarter in equities, particularly in derivatives, and prime balances. Investment banking revenue ‘continued to be impacted by a weak wallet globally’ while activity edged up in the quarter with revenue up 27%.

‘While investment activity in Asia rebounded during the quarter, up 21%, wealth revenues were down in 2023 and we fully recognize that this business isn’t where it needs to be,’ said Fraser. ‘US personal banking (USPB) was a bright spot with every product up double-digits in the quarter and up 14% overall for the year.’