The big multinational bank Citigroup (VS 3.12%) Overall, the bank delivered strong results in the third quarter as the bank took advantage of the higher interest rate environment and continued to make progress on a multi-year transformation plan.

But one of the weak spots in the quarter was the bank’s investment banking business, which saw revenue fall year-over-year after a dramatic performance in 2021.

Yes, the entire investment banking industry is struggling, but Citigroup seems to be struggling more than its peers right now. Let’s take a look at why this might be and if investors should be concerned.

Portfolio size has decreased

Within investment banking, there are three main sub-activities: mergers and acquisitions (M&A) advisory, equity underwriting, and debt underwriting.

M&A advisory is pretty much what it sounds like: helping companies that are buying another company or selling to another company. Equity subscription is about helping companies raise capital through events such as initial public offerings (IPOS). Debt underwriting helps companies raise capital through various debt instruments such as bonds or certain types of financial notes.

This has been a difficult year for all of these companies, not only because of a tough comparison to 2021, but also because volatile market conditions have really hurt these companies. (You may have noticed that IPOs are down a lot this year.)

Interesting way, JPMorgan Chase COO Daniel Pinto noted at a conference in September that portfolio size in investment banking (total amount of investment banking fees available) has also been very volatile in recent years. Pinto noted that in 2019 the portfolio size was $79 billion, which was within the normal range over the previous decade. Then the portfolio size increased to $95 billion in 2020 and then to $123 billion in 2021. This year, however, Pinto only expects around $69 or $70 billion.

Citigroup saw bigger declines

Looking at some of Citigroup’s major competitors, it’s clear the bank has seen a bigger decline in investment banking in 2022 compared to 2021.

Bank Mergers and Acquisitions Advisory Share subscription Debt underwriting Total investment banking
Citigroup -27% -79% -82% -64%
JPMorgan Chase -31% -72% -40% -47%
Bank of America -35% -80% -32% -44%
Morgan Stanley -46% -78% -35% -55%
Goldman Sachs -41% -79% -55% -57%

Source: Bank Financial Statements.

Citigroup actually saw the smallest drop among its peers in M&A advisory, but it saw the biggest combined drop in equity and debt underwriting.

Asked by an analyst about this underperformance during the bank’s recent earnings conference call, Citigroup Chief Financial Officer Mark Mason said the decline in debt underwriting activity “is really more a function of low trading volume in just about every area. And there really isn’t “there isn’t much more than that.”

Should investors be worried?

Investment banking revenues can be both difficult to predict and volatile, and Citigroup has a smaller investment banking business than most of its peers, making it potentially slightly more volatile.

But Mason said investment banking would be part of the bank’s strategy going forward. He also said the bank has in fact been hiring in the division and that management appreciates the progress they are seeing with new hires.

While it’s not great to see Citigroup following its peers into investment banking, especially if it’s going to be part of the bank’s strategy for years to come, I’m not too worried at the moment given the depressed and volatile environment. However, this is worth watching over the coming quarters to see if Citigroup continues to underperform its industry peers.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has positions in Bank of America and Citigroup and has the following options: long January 2024 $80 calls on Citigroup. The Motley Fool holds positions and recommends Goldman Sachs and JPMorgan Chase. The Motley Fool has a disclosure policy.