Citigroup Inc., the third-biggest U.S. bank, rose in New York trading after first-quarter profit and revenue from fixed-income trading and investment banking exceeded analysts’ estimates.
The shares climbed 0.2 percent to $44.87 at 4:15 p.m. in New York, the only gain on the 24-company KBW Bank Index, after gaining 3.4 percent earlier today. Net income jumped 30 percent to $3.81 billion and per-share profit excluding an accounting adjustment was $1.29, beating the $1.17 average estimate of analysts in a Bloomberg survey.
Chief Executive Officer Michael Corbat, 52, who oversaw his first full quarter since replacing Vikram Pandit in October, is firing workers and closing branches as he seeks to make Citigroup more efficient. Bond-trading and investment-banking revenue was aided by a decline in reserves for loan losses and a $700 million tax benefit, which bolstered earnings.
“You can’t say it wasn’t a good quarter,” said Charles Peabody, an analyst at Portales Partners LLC in New York. Peabody cited revenue gains, the release of loan-loss reserves and the use of deferred tax assets to trim the New York-based bank’s tax bill. “Those three things are what people are focused on in a positive way.”
Revenue climbed to $20.5 billion from $19.4 billion in the same quarter last year and was $20.8 billion excluding accounting adjustments. The average estimate of analysts in a Bloomberg survey was $20.2 billion. Expenses rose 1 percent to $12.4 billion, “mainly reflecting an increase in legal and related costs and repositioning charges,” the bank said.
JPMorgan Chase & Co., the biggest U.S. bank, last week reported a 33 percent jump in first-quarter net income to $6.53 billion. Wells Fargo & Co., the fourth-biggest, said profit rose 22 percent to $5.17 billion. Both lenders used expense cuts to boost their earnings as revenue fell.
The division that contains Citigroup’s trading and investment-banking units, overseen by co-President Jamie Forese, reported a $2.31 billion profit, compared with $1.28 billion a year earlier.
The unit’s revenue climbed by $570 million, or 8 percent, to $7.29 billion, excluding adjustments. Much of the increase came from an improvement in hedges, or bets the bank makes to protect against potential losses on its loans.
Lower losses on one batch of the hedges, tied to Citigroup’s corporate-lending business, caused that unit’s revenue to jump to $309 million from $12 million a year earlier. Another reporting line called “other securities and banking” had losses of $162 million, a 65 percent improvement on the previous year. That figure also contains hedges, Chief Financial Officer John Gerspach told reporters on a conference call.
Revenue from trading bonds declined 3 percent to $4.6 billion, excluding adjustments, from the same period last year, Citigroup said. David Trone, an analyst with with JMP Securities LLC, had estimated $3.2 billion. Moshe Orenbuch, a Credit Suisse Group AG analyst, predicted $4.2 billion.
The bank cited growth in “securitized products” for the performance in fixed-income trading. The unit, run by Jeffrey Perlowitz and Mark Tsesarsky, deals in products such as mortgage-backed securities. Revenue from interest-rates trading and currencies declined, the bank said.
Investors “looking for yield” helped drive gains in that business during the quarter, especially for mortgage-related products, Gerspach said.
Citigroup’s fixed-income trading business was the second-biggest in the world in 2012, according to research from analytics firm Coalition Ltd. The division employs Andy Morton, interest-rates trading head, Carey Lathrop, head of credit-trading, and Howard Marsh, who leads municipal bond trading.
Corbat oversaw a loan-loss reserve release of $652 million, allowing his bank to boost profit with funds that had been designated to cover future costs on bad loans. Trone had expected a $420 million release while Richard Staite, an analyst in London with Atlantic Equities LLP, had predicted $175 million.
Citi Holdings, the part of the bank that contains distressed and unwanted assets, posted a $794 million loss, down from $1.02 billion a year earlier. Assets at the division, overseen by Eugene “Gene” McQuade, 64, fell 29 percent to $149 billion.
The bank had a loan-loss reserve release of $351 million in Citi Holdings, helping to reduce losses at the unit.
“We believe investors are responding to the emergence of two long-awaited trends,” Jason Goldberg, an analyst with Barclays Capital Inc. in New York, said in an e-mail, referring to deferred tax assets and the mortgage loan-loss reserve release.
Investment banking, which includes advising clients on mergers and acquisitions and helping them sell shares and bonds to the public, posted revenue of $1.1 billion, a 22 percent increase. Staite at Atlantic Equities had estimated revenue of $920 million.
Citigroup’s underwriting unit, run by Tyler Dickson, benefited as investors bought more junk bonds and shares through public offerings. The bank helped clients sell $12.3 billion of junk bonds in the quarter, compared with $10.6 billion a year earlier, according to data compiled by Bloomberg.
The firm underwrote $14.2 billion of global share sales, 23 percent more than the same quarter in 2012, the data show.
Citigroup’s advisory unit, overseen by Raymond J. McGuire, garnered $204 million in fees from advising clients on M&A in the quarter, compared with $110 million a year earlier.
The consumer bank, run by co-President Manuel Medina-Mora, 62, posted a $1.95 billion profit, compared with $2.18 billion in the same quarter last year. Staite had predicted $2.1 billion.
Revenue at the division, which had operations in almost 40 countries last year, was almost unchanged at $10 billion. Staite had estimated $10.3 billion. While revenue and profit increased for the business in Latin America, net income in Asia tumbled 17 percent to $417 million as sales slid 2 percent.
“The issue for us remains Asia,” Gerspach said, citing regulatory constraints in South Korea and Taiwan. “Korea is just a drag on us right now and it’s one we have to work our way through.”
Citigroup increased its net interest margin by one basis point to 2.94 percent. While Gerspach said he expected the metric, which measures the difference between what a firm pays in deposits and charges for loans, to remain above 2.88 percent, it will probably fall in the second quarter by “a few basis points,” he told analysts.
“The ongoing low-rate environment, new regulation, and cost of putting certain legacy issues behind us will continue to put pressure on our earnings,” Corbat said on a call with analysts. “But I am confident we’re on the right course.”