Citigroup Beats Estimates as Cost Cuts Mitigate Revenue Drop

Citigroup Q1 Profit Tops Analysts' Estimates
  • Trading revenue declines 13%, less than CFO's March forecast
  • Citi Holdings unit to stop reporting separately this year

Citigroup Inc. reported first-quarter profit that beat analysts’ estimates, joining big U.S. rivals in slashing costs more than anticipated amid a trading and dealmaking slump.

Net income fell 27 percent to $3.5 billion, or $1.10 a share, from $4.77 billion, or $1.51, a year earlier, the company said Friday in a statement. That beat the $1.03 estimate of 24 analysts surveyed by Bloomberg.

U.S. bank stocks led the broader market higher this week after larger competitors JPMorgan Chase & Co. and Bank of America Corp. cut expenses in the first quarter, leaving profits that beat expectations. At New York-based Citigroup, Chief Executive Officer Mike Corbat has been eliminating jobs and narrowing the firm’s focus to markets and business lines where he can generate acceptable returns. Revenue from trading fell 13 percent.

“While our market-sensitive products clearly suffered from weak investor sentiment during the quarter, we continued to make progress in several key areas,” Corbat, 55, said in the statement, citing loan and deposit growth and expense reductions.

The bank’s shares fell 0.1 percent to $44.92 at 4:15 p.m., after five straight days of gains.

Revenue, Expenses

Citigroup’s operating costs dropped 3 percent to $10.5 billion, beating the $10.8 billion average estimate of analysts. Revenue slid 11 percent to $17.6 billion, compared with analysts’ $17.5 billion projection.

Corbat has exited consumer banking in more than a dozen countries and jettisoned assets that don’t meet his vision. Earlier this year, the bank also began a round of dismissals said to number in the thousands, with at least 2,000 people leaving. The lender will cut about 70 traders and salespeople in London this month, people familiar with the matter have said.

“We expect the actions that we took during the quarter to have a positive impact on expenses,” Chief Financial Officer John Gerspach said on a conference call with journalists.

Trading revenue fell to $3.79 billion, the fourth straight year that fixed-income and equities trading operations declined in what is typically the industry’s strongest quarter. Chief Financial Officer John Gerspach said in early March the drop this time would probably be 15 percent.

Trading Results

Bond-trading revenue of $3.09 billion beat the $2.97 billion estimate of six analysts surveyed by Bloomberg, while equity-trading revenue of $706 million missed the $731 million estimate. Stocks chief Derek Bandeen has said he plans to leave the bank later this year once a successor is named.

Investment-banking revenue fell 27 percent to $875 million, led by slower activity across the industry, the bank said. Gerspach told analysts last month to expect a decline of about 25 percent.

The bank set aside about $455 million for energy loans in the first quarter, including $80 million in the consumer bank for smaller companies, Gerspach said on the call. About $115 million went to cover write-offs, with the rest going for reserves, he said. In all, the bank said provisions were $2.05 billion.

About $730 loans were placed on non-accrual status, and two-thirds are performing, he said. About $500 million of those were for energy, he said.

“We still feel we have a very good book,” he said, adding that the bank won’t be immune to credit losses. “The quality of the book stacks up well against our competitors.”

Credit Cards

Citigroup, which gets more revenue from outside its home market than any of its U.S. competitors, said in the first quarter that it plans to sell retail-banking and credit-card operations in Brazil, Argentina and Colombia.

Costs to restructure those and other operations amounted to $491 million, more than the $400 million that Gerspach predicted in March. Legal and related expenses fell to $166 million.

Citi Holdings, the portfolio of unwanted assets the bank has tagged for sale, was profitable for the seventh consecutive quarter. It’s become such a diminished part of the firm’s balance sheet that the company said it will stop separately reporting the results later this year.

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