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Citigroup sees lower trading revenue, expects capital returns above income

Citigroup Inc. CEO Michael Corbat said the bank's second-quarter trading revenue was in line with competitors and that the bank hopes to return more capital than it earns in the near term.

Speaking on June 1 at Sanford C. Bernstein's Annual Strategic Decisions Conference, Corbat said the bank's trading revenue was "right in line with" competitor comments. Earlier this week, executives at JPMorgan Chase & Co. and Bank of America Corp. said second-quarter trading revenue will likely be down relative to the year-ago quarter due to lower volatility, pushing down their stocks. Corbat offered a similar assessment, saying the environment was "OK but low volatility," according to a transcript of his remarks at the conference.

Much of the back-and-forth between Corbat and Bernstein analyst John McDonald focused on the bank's plans for the upcoming Comprehensive Capital Analysis and Review, a stress-testing and capital request exercise required by the Federal Reserve. Corbat said the bank will need to increase its capital requests beyond its net profits so that it can report higher returns on tangible common equity. With a capital return request below the net profit level, the bank's equity levels increase, depressing returns.

"We've got to get to that position of capital return above net income generation as quickly as we can," Corbat said, according to the transcript.

The bank returned roughly $1 billion of capital three years ago, $6.8 billion of capital two years ago and $12.2 billion the last year, and Corbat implied this year's return will continue the trend of larger returns. As for how the bank expects to return capital, Corbat said the bank remains mindful of dividend yields but will take advantage of stock buybacks "as long as our stock trades below tangible book."