Fitch: Citi Reports Solid Earnings in 1Q'13, Exceeds Expectations
NEW YORK -- April 15, 2013
Citigroup's (Citi) 1Q'13 results were very solid for the quarter, according to
Adjusting for a few non-core items, Citi's first-quarter return on assets
(ROA) improved to 86 bps in 1Q'13, up significantly from 45 bps last quarter.
Earnings increased sequentially mainly due to seasonally strong results in
fixed income and a healthy loan loss reserve release. Citi also reported lower
legal costs and repositioning charges on a linked-quarter basis.
The excluded one-time items from ROA include DVA/CVA charges reflecting
improvement in Citi's own credit spreads in both 1Q'13 and 4Q'12, while the
last quarter included the large repositioning charge related to the workforce
reductions ($1 billion).
Citi reported both NIM expansion and higher revenues. Excluding CVA/DVA,
revenues increased a strong 12% sequentially mainly due to a significant
increase in fixed income markets following a seasonally weak 4Q'12. Expenses,
excluding the $1 billion repositioning charge last quarter, fell 3% on a
By business line, Global Consumer Banking net income advanced 12% supported by
lower operating and provision expenses, partially offset by slowing mortgage
refinancing activity in North America. Loan loss releases in North America
were offset by some modest reserve builds in International Consumer Banking
reflecting portfolio growth.
Citi's capital markets revenues were up 55% on a sequential basis following
the typical seasonal slowdown in 4Q'12 and were roughly flat from the prior
year period. Most of Citi's Securities & Banking revenues remains comprised
from its solid fixed income markets businesses, which reported better results
in all products.
Transaction Services net income declined 10% on a sequential basis reflecting
revenue declines in Trade and Treasury Services (TTS) as loan and deposit
growth was more than offset by the impact of spread compression globally.
Counter to the last several quarters, Citi released a considerable amount of
loan loss reserves in North America mortgages, supported by home price
appreciation and improving early stage delinquency trends. Citi disclosed that
60% of the NCOs were offset with related reserve releases. Despite the reserve
release, which Fitch expects will continue and likely increase in size, Citi
still holds $7.5 billion of loan loss reserves for North America mortgages or
approximately 8.7% coverage.
Legal and related costs fell approximately 45% on a sequential basis, though
they remain elevated for Citi, with most of the charges within Citi Holdings.
Citi continues to wind down its assets housed in Citi Holdings, though at a
reduced rate. The earnings drag from Citi Holdings fell to approximately $790
million in 1Q'13, down from roughly $1 billion in the prior period and a year
Citi's capital ratios continued to strengthen with further progress on the
Basel III front. Under Basel III, Citi's estimated Tier I common ratio
improved to 9.3%. Fitch notes that Citi performed very well under the
regulatory stress tests, and its capital request was considered both modest
and appropriate. Basel I Tier 1 common declined to an estimated 11.8% (roughly
90bps from the YE12 unadjusted Tier 1 common ratio) following the adoption of
the Federal Reserve's Market Risk Rule.
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Julie Solar, +1-312-368-5472
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