After reporting disappointing results in the prior quarter,
) reported an impressive first-quarter 2013. Earnings per share
came in at $1.29 for the quarter, beating the Zacks Consensus
Estimate by 11 cents. Moreover, earnings were up 16% from the
prior-year period on higher revenues and lower loan loss
Notably, results in the reported quarter were impacted by credit
valuation adjustment (CVA) and debt valuation adjustment (DVA).
Including CVA/DVA and repositioning charges, Citigroup reported
earnings of $1.23 per share.
For the first quarter, Citigroup reported net income of $3.8
billion, up 31% from the prior-year quarter.
Total provisions for credit losses and benefits and claims for
the first quarter at Citigroup were down 16% year over year at
$2.5 billion. The improvement was primarily attributable to a 25%
decline in net credit losses to $3.0 billion.
Performance in Detail
Revenues came in at $20.5 billion for the quarter, up 6% from the
prior-year quarter. Excluding CVA/DVA, Citigroup revenues
improved 3% from the prior-year period to $20.8 billion.
Moreover, the figure was above the Zacks Consensus Estimate of
$20.1 billion. The revenue increase was driven primarily by
growth in Citicorp revenues and Citi Holdings revenues.
At Citicorp, revenues came in at $19.6 billion, up 6% year over
year. Excluding CVA/DVA, revenues were $19.9 billion, up 2% from
the prior-year quarter. Elevated revenues in the Securities and
Banking business led to this rise. Yet, lower transaction
services revenues were on the downside.
Further, Citi Holdings reported revenues of $901 million, up 2%
year over year. Revenues were $910 million excluding CVA/DVA, up
15% from the prior-year quarter. The figure was pulled up
primarily due to an upsurge in revenues in Brokerage and Asset
Management, reflecting reduced funding costs due to decline in
assets. Moreover, Special Asset Pool revenues increased,
reflecting lower asset marks and lower funding costs.
Operating expenses at Citigroup were up 1% year over year at
$12.4 billion. Increase in expenses reflected higher
repositioning charges, partially offset by decreased legal and
related costs and efficiency savings.
Citigroup's credit quality improved in the reported quarter.
Total non-accrual assets dipped 9% year over year to $11.1
billion. The company reported a 16% fall in Corporate non-accrual
loans and a decline of 5% was reported in consumer non-accrual
Citigroup's total allowance for loan losses was $23.7 billion
at quarter end, or 3.7% of total loans, down from $29.0 billion,
or 4.5%, in the prior-year period.
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Citigroup continued to build up its capital levels. In its latest
capital plan, Citigroup has received the Federal Reserve's
approval for $1.2 billion worth of share repurchases through the
first quarter of 2014. However, the company did not request a
change in its dividend levels and currently pays a quarterly
common stock dividend of 1 cent per share with no share buyback
As of Mar 31, 2013, the company's Basel I Tier 1 Capital Ratio
was 13.1% and its Basel I Tier 1 Common Ratio was 11.8%, both
reflecting the U.S. market risk capital rules (Basel 2.5), having
become effective from Jan 1, 2013. Moreover, Citigroup's
estimated Basel III Tier 1 Common Ratio was 9.3%, up from 8.7% in
the prior quarter.
As of Mar 31, 2013, book value per share was $62.51 and tangible
book value per share was $52.35, up 1% and 3%, respectively, from
the prior-year period end.
At quarter end, Citigroup's end of period assets was $1.88
trillion, down 3% year over year while deposits of $934 billion,
were up 3% year over year. Citi Holdings' assets decreased 29%
from the prior-year quarter level to $149 billion and represented
just 8% of the company's total assets at first quarter end.
Following volatile results in 2012, Citigroup's first quarter
results were encouraging. With the upsurge in revenues, on the
whole, its profit level also surpassed expectations.
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 tepid
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. Additionally, with
the thrust of new banking regulations, there will be pressure on
fees and loan growth could remain feeble.
The stress test results of 2013 are out, with Citigroup emerging
triumphant. The company has not only managed to clear this year's
stress test but has outperformed other major banks including
JPMorgan Chase & Co.
Bank of America Corporation
Wells Fargo & Company
The clearing of the stress test shows that Citigroup's efforts to
streamline its operations are now bearing fruit. Over the past
few years, the company has been restructuring its business,
making several layoffs, selling assets and trimming costs.
The news will also strengthen the confidence of investors in the
company. Citigroup has come a long way since 2008, when it had to
take $45 billion as bail-out money to survive the economic
downturn. Through the stress test the company has shown that its
capital position has significantly improved from 2008.
However, despite having cleared the stress test, Citigroup should
leave no room for complacency with its capital enhancement
initiatives. The company should continue to strive for
improvement in its balance sheet and capital ratios.
Further, 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. Moreover, Citigroup currently
retains a Zacks Rank #3 (Hold).