After reporting a disappointing result in the prior quarter,
) results were a mixed bag in the first quarter. First-quarter 2012
earnings came in at 95 cents per share on revenues of $19.4
billion. It was hurt by accounting charges though modestly
benefited from its recent stake sale activities and increasing
global consumer banking as well as transaction services
With credit spreads tightening in the quarter, Citigroup results
included a loss of $1.3 billion for credit valuation adjustment (
) and debt valuation adjustment (
). Excluding that CVA/DVA adjustments as well as net gains from
minority investments, the company reported earnings of $1.11 per
share on revenues of $20.2 billion. This compared favorably with
the Zacks Consensus Estimate for earnings per share of $1.01 and
revenues of $19.8 billion.
Helped by revenue gains from its Global Consumer Banking and
Transaction Services, the company's revenue, excluding both CVA/DVA
and the net gain on minority investments, were just up 1% from the
prior-year period. Expenses remained flat and provisions for credit
losses reported a decline.
For the first quarter 2012, Citigroup reported net income of
$2.9 billion compared with $956 million in the prior quarter and
$3.0 billion in the prior-year quarter.
First quarter total provisions for credit losses and benefits
and claims at Citigroup were down 5% year over year to $3.0
billion. The improvement was attributable to a 37% decline in net
credit losses to $4.0 billion, coupled with a $1.1 billion release
of credit reserves.
Quarter in Detail
At Citicorp, excluding CVA/DVA, revenues moved up 6% year over
year to $19.4 billion. Higher revenues in Global Consumer Banking,
Securities and Banking and Transaction Services primarily pulled
the figure up.
However, excluding CVA/DVA, Citi Holdings revenues were $786
million, down 53% from the prior year quarter, primarily reflecting
the company's continuing efforts to reduce this segment's assets
and the absence of positive private equity marks experienced in the
prior year period. Negative revenues were reported in the Special
Asset Pool and Brokerage and Asset Management business and lower
revenues in Local Consumer Lending segment.
On the other hand, primarily due to net gains on minority
investments, Corporate/Other revenues came in at $500 million in
the reported quarter, compared with a loss of $61 million in the
year ago quarter. Stake sale in Housing Development Finance
Corporation Ltd. (HDFC) and in Shanghai Pudong Development Bank
(SPDB) resulted in the company realizing gains in the quarter.
These were, however, partly offset by the impact of hedging
activities and the pre-tax impairment charge relating to Akbank
Operating expenses at Citigroup were flat year over year at
Citigroup's asset quality continued to improve in the reported
quarter with total non-accrual assets decreasing 25% year over year
to $12.3 billion. The company reported a 46% fall in Corporate
non-accrual loans and 6% decline in consumer non-accrual loans.
Citigroup's total allowance for loan losses was $29.0 billion at
quarter end, or 4.5% of total loans, down from $36.6 billion, or
5.8%, in the prior-year period.
Citigroup continued to build up its capital levels, with
preliminary Tier 1 Common ratio improving to 12.4% from 11.8% in
the prior quarter. Tier 1 Capital Ratio also ascended to 14.2% from
13.55% in the prior quarter. As of March 31, 2012, book value per
share was $61.90 and tangible book value per share was $50.90, up
6% and 9%, respectively, from the prior-year period end.
At quarter end, Citigroup's end of period assets was $1.94
trillion, unchanged year over year while deposits of $906.1
billion, were up 5% year over year. Citi Holdings' assets were 29%
below the prior year quarter level to $209 billion and represented
just 11% of the company's total asset at the first quarter end.
Following a disappointing result in the prior quarter,
Citigroup's first fiscal quarter results of the year were full of
noise. After encouraging results at the other banking giants such
JPMorgan Chase & Company
Wells Fargo & Company
), which reported last Friday, the market was looking forward for
some impressive numbers at Citigroup.
Its global trade finance business, managed to provide some
encouraging figures and recent stake sale helped in achieving some
gains. But management pointed out the presence of much macro
uncertainty in the days ahead.
Citigroup's underlying franchises of the consumer businesses
have remained strong, but revenues have continuously been under
pressure for the past several quarters. Considering the protracted
economic recovery, we believe that robust top line expansion will
remain elusive in the near term.
Moreover, though Citigroup's strategy to shrink non-core assets
would improve the valuation over time, the trimmed Citi Holdings
portfolio would result in revenue challenges, partially restricting
the upside potential of the stock.
Also, Citigroup has failed to significantly enhance shareholder
value following the financial crisis and this has somewhat weakened
its competitive position. The company could not pass the stress
test this year with its proposed plan to return capital to
shareholders, implying that with such plans it would be difficult
for the company to survive another financial downturn.
Additionally, with the thrust of new banking regulations, there
will be pressure on fees and loan growth could remain feeble.
However, investments and efficiency savings would help Citigroup
in garnering a solid market share and this is quite evident from
its recent quarter results. Reduction in provisions for future
losses and improved credit trends are expected to counter the
negatives. One can consider a company like Citigroup as a value
investment given its global footprint and attractive core business.
It is also among the best reserved banks.
Citigroup shares are maintaining a Zacks #3 Rank, which
translates into a short-term Hold rating.
Given Citigroup's global footprint, we believe that its results
give us a clue about the economic trends and the performance of the
overall banking sector. JPMorgan Chase and Wells Fargo, which
kicked off the earnings season for the banking sector this time by
reporting their earnings last Friday, reported better-than-expected
earnings in the first quarter based on top line improvement. Next
we look forward for
Goldman Sachs Group Inc.
) which will report on April 17 and
Bank of America Corporation
) on April 19.
BANK OF AMER CP (
): Free Stock Analysis Report
CITIGROUP INC (
): Free Stock Analysis Report
GOLDMAN SACHS (
): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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