April 14 (Bloomberg) -- Citigroup Inc. rose as much as 4.6 percent, the most in more than 15 months, after the bank posted a surprise increase in first-quarter profit and revenue that beat analysts’ estimates.
Citigroup advanced 3.8 percent to $47.40 at 1:37 p.m. in New York, after reaching $47.80 earlier today. Net income climbed 3.5 percent to $3.94 billion, the New York-based company said today in a statement. Profit was $1.30 a share excluding accounting charges and a tax item, surpassing the $1.14 average estimate of 27 analysts surveyed by Bloomberg.
Chief Executive Officer Michael Corbat, 53, has tried to win back investors after two prior quarters missed estimates and the Federal Reserve rejected the bank’s capital plan, contributing to a 12 percent drop this year through last week for the bank’s shares. Citigroup in the first quarter released $673 million in loan-loss reserves set aside in earlier years, and cut losses at a division holding unwanted assets by about two-thirds.
“Citi’s beleaguered shareholders needed some good news and got it,” Chris Kotowski, an analyst at Oppenheimer & Co., wrote in a note. “The beat came mainly on better revenues, though expenses and better-than-expected loan losses also assisted.”
Losses in the Citi Holdings unit narrowed to $284 million in the first quarter from $804 million a year earlier, as mortgage results improved. Revenue at the division rose 61 percent from a year earlier to $1.46 billion.
Total revenue for the quarter fell 1 percent to $20.1 billion as expenses also declined 1 percent to $12.1 billion. Analysts predicted revenue of $19.4 billion, according to the average of 19 estimates compiled by Bloomberg.
Corbat was dealt a setback to his turnaround plan last month when Citigroup failed the annual stress test after the Fed found deficiencies in the bank’s ability to project revenue and losses in its global operations. Regulators rejected the firm’s request to quintuple its dividend and repurchase $6.4 billion of shares.
“Despite a quarter that was difficult for our company, we delivered strong results,” Corbat said in the statement.
The bank will focus on preparing for the 2015 stress test rather than requesting additional buybacks or dividend increases this year, Corbat said today on a conference call with analysts.
The stress-test rejection means “it’s hard to imagine” a scenario in which the company can meet its 2015 goal of reaching a 10 percent return on tangible common equity, Chief Financial Officer John Gerspach said today on a conference call with journalists.
Corbat said his conversations with regulators lead him to conclude they aren’t opposed to the bank’s business model or strategy. The CEO said he expects the board to hold him responsible for the stress-test failure.
“I’m accountable,” Corbat said on the call. “It is something I’m sure the board will hold me accountable for in 2014 when they reflect upon the year.”
Citigroup said capital-markets revenue was better than expected. Gerspach told investors March 3 that revenue from the trading businesses would drop by a “high mid-teens” percentage. Adjusted for accounting items, revenue from the markets and securities-services division, which includes equity and bond trading, fell 12 percent to $5.18 billion.
Bond trading, which marred the company’s two prior quarterly earnings results, fell 18 percent to an adjusted $3.85 billion in the first quarter. Equity trading rose 13 percent to $883 million.
Trading revenue for fixed-income, currency and commodities business may fall 5 percent to 10 percent for the year, Gerspach said. In a subsequent call with analysts, the CFO said the comments referred to “the overall FICC market as opposed to giving any specific guidance on our FICC revenue.”
Revenue from bond trading at JPMorgan Chase & Co. fell 21 percent to $3.76 billion, the New York-based bank said last week. Stock trading at JPMorgan declined 3 percent to $1.3 billion.
Profit at Citigroup’s global consumer-banking division dropped 6 percent to $1.72 billion as results were hurt by fewer U.S. mortgage refinancings, the company said. Mortgage originations fell 71 percent to $18 billion.
The institutional business, which includes the investment bank and transaction services, posted profit of $2.94 billion, a 3 percent drop from a year earlier.
Citigroup is also investigating a suspected $400 million loan fraud at its Mexico unit. The bank disclosed the matter on Feb. 28, and said it reduced 2013 profit by $235 million. Authorities including the Federal Bureau of Investigation are investigating.
Gerspach said today that the bank’s internal investigation had found a second instance of suspected fraud at the unit of less than $30 million.
The capital-plan rejection and regulatory investigations “brought back memories of the ‘same old Citigroup,’” Matt Burnell, an analyst at Wells Fargo, wrote in an April 7 report. In a note today, he called the results “better than feared.”
Corbat, in response to the stress-test failure, asked Eugene McQuade, the departing CEO of Citibank N.A., to cancel his retirement and lead the company’s submissions to the Fed over the next year, according to a memo obtained by Bloomberg News.
In the two weeks since failing the stress test, Citigroup reached a $1.13 billion settlement with bond investors and said it would sell its Honduran consumer bank and one-third of its branches in South Korea. The company also is in talks to sell its retail and credit-card business in Spain to Banco Popular Espanol SA, the Madrid-based lender said in a filing last week.
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