Citigroup had a terrible quarter in almost every way in the securities and investment banking business last quarter -- but its hedges against the rough markets that caused the troubles helped hold up profits.
With J.P. Morgan's chief investment office giving hedging a bad name, Citi showed how it can work like it's supposed to.
Revenue from key sources like underwriting and trading was hammered in the second quarter.
Citi's investment banking revenues slid 21 per cent, as debt underwriting slumped 21 per cent and equity underwriting slid 39 per cent. That was partly offset by a slight gain in revenue from advising clients on transactions.
Stock trading revenue fell 26 per cent while fixed income trading held in.
But all that was cancelled out in large part by a 70 per cent gain in revenue on the division's lending book -- thanks to gains on hedges as credit spreads widened, the bank said.
Because Citi is long loans in the lending book, it would have set itself up to be protected if the value of those loans declined, and that's exactly what happened.