Citigroup Net Beats Analysts’ Estimates on Reserve Release

Citigroup Inc. (C), the third-largest U.S. bank, reported a 32 percent drop in first-quarter earnings, a smaller decline than analysts estimated, as the bank reduced reserves for future losses and consumer-banking profit rose.

Net income was $3 billion, or 10 cents a share, compared with $4.43 billion, or 15 cents, in the same period last year, the New York-based company said today in a statement. Twenty-one analysts surveyed by Bloomberg estimated per-share earnings of 9 cents.

Chief Executive Officer Vikram Pandit, 54, relied on $3.3 billion taken from reserves for future losses to generate Citigroup’s fifth straight profitable quarter. The rebound enabled Pandit to reinstate a 1-cent dividend starting next month, and analysts surveyed by Bloomberg estimate the bank will post $9.85 billion in adjusted profit for the rest of the year. Citigroup lost a total of $29.3 billion in 2008 and 2009.

“These guys have put up a fairly respectable record of turning this institution around,” said David Knutson, a credit analyst with Legal & General Investment Management, which manages Citigroup bonds worth about $85 million. “It’s another question whether they should be releasing reserves as aggressively as they are.”

Share Performance

Shares of the bank, which rose 43 percent last year after three consecutive annual declines, gained 4 cents to $4.46 at 11:39 a.m. in New York Stock Exchange composite trading. That was the second-best performance among the 24 companies in the KBW Bank Index, behind M&T Bank Corp.

Bank of America Corp. (BAC), the largest U.S. lender by assets, last week reported a $2.05 billion profit for the first quarter, while JPMorgan Chase & Co. (JPM), the second-largest, made $5.56 billion. Wells Fargo & Co. (WFC), the fourth-biggest lender, may report a $3.66 billion profit on April 20, according to a Bloomberg survey of 18 analysts.

Citigroup’s revenue dropped 22 percent to $19.7 billion. Revenue for the Citicorp division, which contains the bank’s trading, consumer and investment-banking units, fell to $16.5 billion from $18.5 billion in last year’s first quarter. The Citi Holdings division, which contains unwanted businesses and assets, had revenue of $3.28 billion, down from $6.55 billion.

‘Core Businesses’

“Citi Holdings losses continued to decrease,” Pandit said in the statement. “We are investing in our core businesses in Citicorp, our capital strength improved and the mix of revenues reflects the diversity of our businesses and our depth in both the emerging and developed markets.”

Total trading revenue declined to $4.87 billion from $6.59 billion in the same period last year, a period that Oppenheimer & Co. analyst Chris Kotowski called “the best quarter in history” in a note last month. New York-based Kotowski had predicted a drop to $5.01 billion.

Trading and investment banking are run from Citigroup’s institutional-clients group, which Pandit overhauled in January when he appointed ICG head John Havens to chief operating officer. James Forese now runs securities and banking, reporting to Havens.

Stock-trading revenue fell to $1.07 billion from $1.21 billion a year earlier, and compared with $596 million in the fourth quarter. Fixed-income trading revenue declined to $3.8 billion from $5.38 billion in the same period last year.

“This was a very solid quarter outside of trading and a strong quarter inside trading,” said Moshe Orenbuch, an analyst with Credit Suisse Group AG who had predicted that fixed-income trading revenue would fall to $2.73 billion.

Consumer Banking

Citigroup’s regional consumer-banking business reported profit rose 58 percent to $1.55 billion profit. Profit at the U.S. bank increased to $551 million from $15 million. Latin American earnings rose to $486 million from $372 million last year. In Asia, the consumer bank earned $461 million, down from $567 million.

Losses from bad loans declined to $6.27 billion from $8.38 billion as fewer Citigroup customers missed payments.

“It’s not a company in decline, it’s a company that’s gradually improving,” said Anton Schutz, the president of Mendon Capital Advisors Corp., an asset manager that specializes in the stocks of financial-services companies and owns Citigroup shares. “In 2012 this company will return a lot of capital to shareholders -- a lot of buybacks, a lot of dividends.”

Emerging Markets

Citigroup may invest as much as $4 billion in consumer banking in the next three years, mainly in emerging markets, Manuel Medina-Mora, head of consumer banking for the Americas, told reporters in Santiago in March.

Citigroup’s investment-banking business, which includes advising on mergers and acquisitions as well as managing sales of equities and bonds, reported revenue slid to $851 million from $1.06 billion in the same quarter last year. The bank dropped to seventh from third among advisers on completed global mergers and acquisitions during the quarter.

Profit at the transaction-services business dropped to $841 million from $930 million last year in the first quarter. The unit, which made about one-third of Citigroup’s $10.6 billion profit in 2010, lost top executive Paul Simpson to Bank of America during the quarter. Pandit has yet to appoint a permanent replacement.

In Citi Holdings, the local consumer-lending division reported a $599 million loss, compared with $1.83 billion in the first quarter of last year. This unit, which contains the CitiFinancial business, also reduced its provision for future loan losses by $1.11 billion.

Asset Pool

Citigroup reclassified $12.7 billion of assets in its “special asset pool” business to trading from held-to-maturity, a move that paves the way for the sale of those assets, the bank said. As a result, the bank took a $709 million pretax charge to revenue.

“Securities-related revenue was a positive surprise and the reserve release was better than expected,” David Trone, an analyst with JMP Securities LLC, said in a note. “On the negative side, like peers, there is no material momentum on the traditional banking side, which we view as key to getting the stock out of its range.”

To contact the reporter on this story: Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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