February 29, 2024

DealBook: Citigroup’s Profit Down 12%, but Beats Estimates

A Citibank branch in New York.Shannon Stapleton/Reuters A Citibank branch in New York.

2:00 p.m. | Updated

Citigroup on Monday reported that both its revenue and profit fell in the second quarter, underscoring the anemic economic environment financial institutions face both here and abroad.

While the results came in ahead of what analysts had forecast, net income dropped 12 percent while revenues were down 10 percent from the same quarter a year ago.

The bottom line, however, was helped by lower credit losses and tight controls on expenses, which has been a major goal of Citigroup’s chief executive, Vikram Pandit.

Expenses were down 6 percent from the second quarter of 2012 while credit losses fell 31 percent.

“In short, we are on top of the things we can control,” Mr. Pandit said during a call with analysts on Monday. “We are managing our expenses closely and making sure we are right-sized for the environment we anticipate.”

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Citigroup, along with Bank of America, was among the institutions hardest hit by the financial crisis of 2008 and Mr. Pandit has spent the past four years slowly restoring the company to profitability while disposing of weaker assets.

Citi Holdings, the division of the company that includes the problem assets, recorded a loss of $920 million in the quarter. But the division’s assets continue to shrink, falling 28 percent from the same period a year ago.

Citigroup shares remain far below where they were before the financial crisis, but rallied slightly on Monday’s earnings report. Its stock was up 0.75 percent to $26.85 in midday trading.

The bank reported earnings of $2.9 billion, or 95 cents a share, with revenue falling to $18.6 billion. Those earnings include a $219 million gain related to how certain debt of the company is valued, as well as a one-time loss of $424 million on the sale of a stake in Akbank T.A.S., a Turkish bank.

Excluding one-time charges, Citi reported earnings of $1 a share on revenue of $18.8 billion. Analysts had been expecting adjusted earnings of 89 cents a share on revenue of $18.9 billion.

Highlighting how businesses remain more bullish than consumers, lending to mid-to-large companies jumped 22 percent, while borrowing by consumers increased by 2 percent.

Within the more volatile capital markets businesses, results varied sharply by segment. Investment banking fees slumped 21 percent to $854 million, while equity trading revenues fell 29 percent to $550 million.

But thanks to lower expenses and credit losses, income at the securities and banking unit rose 18 percent, to $1.4 billion.

Asked about the Libor scandal now rattling the broader banking industry, Mr. Pandit and John Gerspach, the bank’s chief financial officer, both said Citigroup was cooperating with requests for information from several jurisdictions.

But Mr. Pandit suggested Citigroup might fare better than other institutions facing large penalties in settling Libor-related claims, such as Barclays. Last month, Barclays agreed to pay $450 million to British and American regulators to settle claims that it had manipulated how the widely cited Libor rate is set.

“The only thing I can say is do not infer from the situation of one Libor-submitting bank that every bank is the same,” said Mr. Pandit.

Article source: http://dealbook.nytimes.com/2012/07/16/citigroups-profit-down-12-but-beats-estimates/?partner=rss&emc=rss

DealBook: Citigroup Earnings Rise 74% to $3.8 Billion

Vikram Pandit, chief of Citigroup.Jemal Countess/Getty Images for TimeVikram Pandit, chief of Citigroup.

With a big boost from a one-time accounting gain, Citigroup on Monday squeezed out its seventh-straight quarterly profit, but it faces significant challenges to growth.

Citigroup announced a third quarter profit of $3.8 billion, or $1.23 a share, beating analyst consensus estimates of 81 cents per share. That represented a 74 percent increase from a year ago, when the bank announced a quarterly profit of 2.2 billion, or 72 cents a share.

But a big portion of that increase came from gains that will be difficult to repeat. Citigroup benefited from a paper gain of $1.9 billion, reflecting a sharp increase in the perceived riskiness of its debt — an accounting adjustment that gave JPMorgan Chase a similar earnings boost last week. Citigroup also delivered another $1.4 billion to its bottom line from money it had previously set aside to cover losses on credit cards and other loans. Together, those items accounted for more than 85 percent of the company’s earnings.

“Citi continues to navigate a challenging economic environment and delivered another quarter of solid operating results,” Vikram S. Pandit, Citigroup’s chief executive, said in a statement. In a contrast to the sober overtones when JPMorgan kicked off bank earnings season with its results on Friday, Citi executives were a bit more bullish about the broader economy.

“We are seeing loan growth in every one of our businesses, in every geography,” said John Gerpsach, Citigroup’s chief financial offer, on a conference call with journalists. “There still is a recovery in place. It may not be moving as robustly as we would like it, but it’s there and having an impact.”

Even so, revenue growth remains under pressure.

Excluding the accounting adjustment on its debt, revenue dropped 8 percent to $18.9 billion as the bank contended with the global economic slowdown and some of the most turbulent markets in decades. Like the rest of the banking industry, Citigroup has come under pressure from rising expenses, slim lending margins, and the evaporation of many of the lucrative fees that kept its consumer businesses afloat.

Indeed, Citi shares have fallen sharply since the bank completed a reverse stock split in early May that brought its price to around $45 from $4.50. In early trading Monday, Citi shares were trading up around 1 percent to about $28.65.

For almost four years, Mr. Pandit has been engaged on an ambitious plan to streamline sprawling bank and turn it into a leaner, more nimble lender. But Citi has had to play catch-up in investing in its businesses — it was much slower out of the gate to do things like ratchet up marketing efforts and add new branches and bankers than some of its stronger competitors.

Expenses continue to increase – a result of that investment spending as well as the weakening on the U.S. dollar. Expenses were up 9 percent in the third quarter, even as the bank’s core revenues were down by about the same amount. And that is after a deliberate plan to reduce the total size of its balance sheet.

Today, the pile of assets that Citi plans to sell or shed is about $289 billion, although the pace of reduction has slowed substantially since the beginning of the year. The bank has struggled to find buyers for some of the biggest assets that remain earmarked for sale: CitiFinancial, its large consumer lending franchise, a roughly $115 billion portfolio of U.S. mortgages, and a $42 billion private-label credit card loan business.

On Monday, Citi formally announced that it now planned to retain the retail partner cards business after telegraphing the decision for months. “We have been reworking that portfolio for the last couple of years, changing some of the underwriting criteria” so that it now is more heavily weighted toward borrowers with stronger credit records, Mr. Gerspach said on the conference call. “It’s a markedly different portfolio than what it was in 2008 and 2009.”

Mr. Gerspach said the bank continued to solicit buyers for its mortgage portfolio and consumer lending franchise, which he noted has been profitable for the last three quarters.

On the surface, Citigroup’s investment bank fared better in the third quarter than some of its Wall Street competitors. Profit was up 58 percent, to $2.2 billion. But the bulk of that profit stemmed from the widening of its own credit spreads on its debt, which allowed the bank to book a paper gain since it would theoretically cost less if it was to retire its debt.

But there was sharp fall-off in investment banking fees and trading revenue amid the market turmoil. In particular, the bank’s equities derivatives unit had an extremely bad quarter, while the bank also missed out on revenue from its decision to wind down its proprietary trading unit in light of the new financial rules restricting such activities.

Citigroup’s lending businesses fared better, with profits up 31 percent to $1.6 billion. The strong results reflected the bank’s strength in emerging markets in Latin America and Asia. Meanwhile, its U.S consumer lending businesses were helped by the bank’s decision to release about $1.4 billion of loan loss reserve, largely because of the continued improvement in the performance of its credit card borrowers.

Although JP Morgan Chase elected not to take down its reserves, Mr. Gerspach said Citi officials believed their action was prudent and told reporters that current economic data suggested that the bank had room to release additional funds in future quarters.

Citi officials said they were remaining very attentive to the risks stemming from the running debt crisis in Europe. The bank has about $20 billion in gross exposure to the peripheral countries, like Greece, Ireland, Italy, Portugal and Spain. In addition, it has about $14.4 billion of gross exposure to France and Belgium. But because of decisions to hedge and collateralize many of those loans, its net current funding exposure is about $7.1 billion to the peripheral countries, and another $2 billion to France and Belgium.

“We believe it is manageable at current levels but obviously, it is something we are vigilante about,” Mr. Gerspach said on the conference call.

This post has been revised to reflect the following correction:

Correction: October 17, 2011

An earlier version of this article referred incorrectly to Citigroup’s reverse stock split in early May. The split brought its price to $45 from around $4.50, not the other way around.

Article source: http://feeds.nytimes.com/click.phdo?i=faa368f6d7041ee944ead822d5a6011e