Citigroup Net Income Falls 38%, Beating Analysts' Estimates
Citigroup Inc chief executive officer Vikram Pandit. Photographer: Daniel Acker/Bloomberg
July 16 (Bloomberg) -- Charles Peabody, analyst at Portales Partners LLC, talks about second-quarter earnings for Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. and the outlook for the second half of the year. Peabody speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Citigroup Inc., the third-biggest U.S. bank, said profit dropped 38 percent, beating analysts’ estimates even as stock and bond trading revenue fell. An improving credit outlook allowed the company to reduce reserves against future losses.
Second-quarter net income was $2.73 billion, down from $4.39 billion in the same period a year earlier, when the New York-based company had a $6.7 billion gain from the sale of a stake in Smith Barney. The per-share profit was 9 cents, Citigroup said today in a statement, exceeding the 5-cent average estimate of 18 analysts in a Bloomberg survey.
“Citigroup, despite the turbulence in the markets, appears to have turned the corner and its plan is on track,” said James Ellman, a former Merrill Lynch & Co. bank-stock portfolio manager who is now president of San Francisco-based hedge fund Seacliff Capital. “We’ve seen problem credit-card loans come down for the industry, which Citi is heavily into.”
Stock and bond trading revenue tumbled as Greece’s debt crisis and a stalled U.S. economy snapped the streak of profitable trading days that pushed Citigroup’s first-quarter results to the highest in almost three years. Chief Executive Officer Vikram Pandit signaled in April that results at the bank, which lost a combined $29 billion in 2008 and 2009, would “continue to reflect the pace of economic recovery and the level of activity in capital markets.”
Shares Decline
The stock fell 26 cents, or 6.3 percent, to $3.90 in New York Stock Exchange composite trading at 4:15 p.m. Citigroup surged to a six-month high of $4.97 in April, only to plunge in following months as investors bet the market turmoil would hamper the bank’s recovery.
Citigroup’s second-quarter revenue was $22.1 billion, down 33 percent from a year earlier. Fixed-income trading revenue declined 31 percent to $3.7 billion from the first quarter, the bank said. Stock-trading revenue tumbled 46 percent to $652 million.
Investment-banking revenue fell 36 percent to $674 million. The bank underwrote 62 percent fewer U.S. bond offerings and had a 16 percent drop in the dollar value of Citigroup-advised acquisitions and divestitures, according to data compiled by Bloomberg.
Loan losses in the quarter fell 31 percent to $8 billion. The company recorded a gain from releasing $1.5 billion from its reserves for future loan losses.
Improving Credit
“Credit improved for the fourth consecutive quarter,” Pandit said in the statement.
The bank booked a charge of about $400 million during the quarter to cover the cost of a bonus tax in the U.K. Last year, the country imposed the one-time, 50 percent tax on banker bonuses of more than 25,000 pounds ($40,700).
The quarter’s results included a $447 million gain from the bank writing down the value of its own debt, under an accounting rule that allows companies to profit when their creditworthiness declines. The rules reflect the possibility that a company could buy back its own liabilities at a discount, which under traditional accounting methods would result in a profit.
Prices for Citigroup’s credit-default swaps -- used by investors to bet on the likelihood a company won’t be able to repay its debts -- increased by 26 percent during the quarter to $194,180 per year for $10 million of coverage for five years, according to data compiled by Bloomberg.
Double Dip
“The whole key is, can the economy avoid a second dip?” said Gary Townsend, a former Friedman Billings Ramsey bank analyst who’s now CEO of Hill-Townsend Capital LLC in Chevy Chase, Maryland, which oversees $45 million including 150,000 Citigroup shares.
Pandit, 53, has said he wants 2010 to show the “earnings potential of the new Citi” after two straight annual losses. Following a $45 billion bailout in 2008, the CEO pledged to take a $1-a-year salary until the bank turns consistently profitable.
Citigroup, which repaid $20 billion of the bailout money in December, is still 18 percent owned by the U.S. Treasury Department. The government this year has sold 2.2 billion of the 7.7 billion shares it got from converting $25 billion of the bailout money into common stock. The U.S. plans to sell the remaining shares by the end of 2010.
To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.
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