What did Wall Street see? Citigroup significantly raised its credit loss provisions

Citibank significantly increased its bad debt provisions as major U.S. banks began preparing for an economic downturn.

On June 10, Citibank's business head and executive vice chairman Vis Raghavan revealed at a conference hosted by Morgan Stanley, “Considering factors such as the macro environment, our credit costs are expected to increase by hundreds of millions of dollars compared to the previous quarter.” He added that this figure is driven by the bank's increase in credit reserves, which fluctuate frequently based on the company's assessment of future economic prospects.

Notably, in the first quarter, the bank's total credit loss provisions amounted to $2.72 billion, but analysts generally predict that this figure will slightly decrease to $2.69 billion in the second quarter. Analysts believe that Citibank's counter-cyclical increase in provisions clearly indicates that its internal assessment is more pessimistic than the market, and it is proactively building a defense against a potential deterioration in economic health.

Although the increase in provisions has sounded the alarm, Raghavan also attempted to reassure market sentiment. Raghavan stated that he feels “extremely comfortable” about the company's overall credit risk exposure, especially its corporate client portfolio. He pointed out:

There are still a few weeks left in this quarter, but I am very confident about the overall credit quality.

Raghavan emphasized that about 80% of the bank's corporate exposure is to high-rated issuers, and this proportion is even higher outside the United States. As of Wednesday's market close, Citigroup's stock price rose slightly by 0.45% to $78.8, indicating that investors are temporarily maintaining a wait-and-see attitude while digesting this complex signal.

Trading and Investment Banking: Divergent Performance Expectations

In other business lines, Citibank's performance expectations show a complex divergence.

Raghavan revealed that the equities and fixed income trading departments are performing very strongly, with expected mid-single-digit year-over-year growth in related revenues for the second quarter. Meanwhile, investment banking fee income is also expected to see moderate single-digit growth.

However, the investment banking business is facing the shadow of “further uncertainty.” Raghavan pointedly noted:

Investment banking thrives on certainty. Whether it's extremely good or extremely bad, just give us a clear message. What truly freezes market activity is that unresolved middle ground.

Citibank's cautious stance is rooted in broader macroeconomic uncertainty.

Economists are closely monitoring the outlook for U.S. consumers, especially under the dual uncertainties brought about by Trump's tariff policies and his upcoming tax legislation (which is currently under review in Congress).

Despite data released earlier on Tuesday showing that the small business confidence index rose for the first time this year in May, this macro fog is far from dissipating

Wall Street's Major Firms Issue Warnings

Citigroup's cautious stance is not an isolated case. Investment banks on Wall Street are sending increasingly consistent warning signals.

Wall Street Journal previously reported that Wall Street giants, including Goldman Sachs' Waldron, Citigroup's business head and executive vice chairman Vis Raghavan, JP Morgan CEO Jamie Dimon, and BlackRock CEO Larry Fink, have all issued warnings about the outlook for the U.S. economy.

Goldman Sachs' Waldron stated:

Reducing the deficit is a top priority for us. The deficit is becoming quite large, and I believe it is unsustainable if we continue at this pace for the foreseeable future.

At the end of May, JP Morgan CEO Jamie Dimon bluntly stated at a forum that the U.S. government's previous "massive over" spending and the Federal Reserve's similarly "massive over" quantitative easing policy have planted a time bomb in the bond market, which could lead to a "collapse" of the bond market.

The most pessimistic voice comes from BlackRock CEO Larry Fink, who claimed in April:

I think we are very close to a recession now, and we may even already be in a recession.

When Wall Street's money managers begin to collectively sing bearish tunes, investors may need to reassess those seemingly optimistic market appearances. After all, these institutions know better than anyone that real risks often lie hidden behind the numbers game