Citigroup May Have Elevated Expenses for Some Time, but That's Okay

Expenses have become a major theme in the second quarter of the year for the larger banks, and it was on the docket once again when Citigroup (NYSE: C) reported higher expenses in the second quarter and issued new guidance on full-year expenses. Banks are in a weird limbo right now as the economy recovers and they try to shed COVID-related expenses and get back to their normal run rates.

Citigroup also faces some unique cost challenges related to regulatory issues the bank must address and investments to complete a strategy overhaul. While expenses are high and could stay that way for the next several quarters, I would rather see the bank invest right now and think about the longer-term horizon. Here's why.

In the second quarter of the year, Citigroup reported total operating expenses of nearly $11.2 billion, which is up roughly 1% from the first quarter of the year and up about 7% from the second quarter of 2020. The bank also reported a 64% efficiency ratio in the second quarter, which is a measure of a bank's expenses expressed as a percentage of revenue (so lower is better). That's up about 7% from the first quarter and not considered very good -- Citigroup has, in the past, reported a sub-60% efficiency ratio.

Source Fool.com