Fitch: Citi's Results Reflect Reduced Drag from Citi Holdings
CHICAGO -- July 15, 2013
Citigroup's (Citi) 2Q'13 results were in line with expectations for the
quarter, according to Fitch Ratings. Net income, excluding CVA/DVA gains and
losses from both quarters, declined 3% sequentially from a solid 1Q'13.
Positively, the drag from Citi Holding was considerably lower on a sequential
basis, and expenses were also well-controlled, though legal expenses remained
The CVA/DVA gain of $477 million was the only large non-core item excluded
from results. Excluding this gain, Citi's estimated ROAA was still a
reasonably decent 82bps during the quarter. Although this is below other large
bank peers that have reported to date, it still reflects an overall improving
trend for the company. Excluding CVA/DVA from both quarters, revenues fell
approximately 3% on a sequential basis, but were 8% higher from a year ago.
By business line, Global Consumer Banking net income was slightly higher on a
sequential basis mainly driven by improvement in the international franchise,
particularly the EMEA and Asia regions. North America Consumer Banking
earnings were up slightly reflecting lower expenses, offset by lower mortgage
origination revenues and spread compression.
Citi's capital markets revenues were down 18% on a sequential basis reflecting
the quarter's volatility. Most of Citi's Securities & Banking revenues remains
comprised from its solid fixed income markets businesses. Performance in FICC
fell 27% sequentially from a strong 1Q13, while Citi's equity markets improved
14% due to improved derivatives performance.
Transaction Services net income improved 5% on a sequential basis reflecting
broad-based revenue improvements. Assets under custody are up 10% from a year
Citi continues to wind down its assets housed in Citi Holdings, which fell to
$131 billion or 7% of consolidated assets. The earnings drag from Citi
Holdings fell to approximately $580 million in 2Q'13, down from roughly $790
million last quarter and $920 million a year ago. The improvement mainly
reflects improving credit costs. Company-wide nonaccrual assets and net
charge-offs both declined 9% on a sequential basis, reflecting improvement in
the housing market. As a result, reserve releases totalled $781 million in
2Q13, up from $664 million last quarter.
Counter to credit trends in the U.S., NCOs in international consumer banking
increased 13% from a year ago, most reflecting Latam portfolio growth and
seasoning. Citi disclosed year-over-year growth in Mexico was a significant
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 10%. The impact of unrealized losses on the available-for-sale
securities was roughly 17bps, considered manageable in light of the rapid
increase in the 10 year during the quarter.
Citi executed on several other repositioning activities during the quarter,
including the completion of the sale of the remaining stake in the Morgan
Stanley Smith Barney joint venture, which contributed 47bps to Tier 1 common
capital ratio under Basel III at June 30, 2013.
Citi also disclosed that its estimated Basel III supplemental leverage ratio
was very close to the 5% threshold at 4.9% (on average) at June 30, 2013,
while the bank-level ratio was estimated to be 'right around' the 6%
bank-level requirement for the month of March 2013.
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70 West Madison Street
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Brian Bertsch, +1-212-908-0549 (New York)
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