Citigroup surprises analysts with $1.6bn in profit for first quarter
April 19, 2009
By Bradley Keoun
Citigroup, the US bank rescued by $45 billion (R406 billion) in US funds, ended a five-quarter losing streak with a $1.6bn profit on trading gains and an accounting benefit for companies in distress.
The first-quarter profit compared with a net loss of $5.11 billion a year earlier, the bank said on Friday. On a per-share basis, the bank reported an 18c loss because of costs related to preferred dividends. The average estimate of 13 analysts surveyed by Bloomberg was a loss of 32c.
Citigroup investors had not seen a profit since before chief executive Vikram Pandit took over in 2007. While the bank cut compensation costs and took fewer writedowns, it could not halt rising delinquencies on home and credit card loans. Citigroup benefited from higher fixed-income trading revenue that also bolstered earnings at Goldman Sachs Group and JPMorgan Chase.
"We've seen good trading results from JPMorgan, from Goldman Sachs and now from Citi," said Gary Townsend, chief executive of Hill-Townsend Capital. "There is a question about sustainability, but it's clearly a good sign for the sector."
The industry's first-quarter profits were not a "one-off" phenomenon, said Barclays president Robert Diamond. "It has been quite a while since we've seen analysts talk about revenue as opposed to writedowns and balance sheet risks," he said.
Citigroup rose 2 percent to $4.09 on Friday morning. At its peak in late 2006, the stock was worth $56.41, valuing the company at $277 billion. At the current price, the market value stands at about $22 billion.
The bank reported $4.69 billion in fixed-income trading revenue in the quarter, compared with a trading loss of $7.02 billion a year earlier. Revenue from stock trading was $1.9 billion, up 94 percent.
The bank took $5.62 billion of writedowns on securities related to subprime mortgages and other investments.
That compared with $14.1 billion of writedowns in the first quarter of last year, giving the company a positive $8.47 billion revenue swing.
Citigroup posted a $2.5 billion gain from accounting rules allowing companies to profit when their own creditworthiness falls.
The rules reflect the possibility that a company could buy back its own liabilities at a discount, which under traditional accounting methods would result in a profit.
Citigroup, one of 19 US banks gearing up for the release of stress tests run by the Federal Reserve, has quadrupled on the New York Stock Exchange since falling to a low of $1.02 on March 5, in the wake of the company's announcement that as much as $52.5 billion of preferred stock would be exchanged for common shares to bolster the bank's equity base.
Under that plan, as much as $25 billion of the government's investment in the bank will be converted into regular shares, giving it a 36 percent voting stake. Citigroup's tangible common equity - a cushion against losses that many investors and analysts study - would increase to $81 billion from about $30 billion, the bank said.
Existing shareholders would be left with about a fourth of their original stakes. The bank said it planned to complete its exchange offer with the government after industry stress tests were completed.
In November, Pandit pledged to cut 52 000 jobs from the company's workforce of 352 000, including 26 000 through business divestitures.
In January, Pandit reorganised Citigroup, tagging the CitiFinancial consumer-finance and Primerica insurance units for eventual disposal and putting them into a separate division, Citi Holdings, with other businesses deemed "non-core". The move, he said, would help investors focus on the earning power of the company's core retail, corporate and investment- banking businesses.
The receipt of taxpayer money has forced Pandit to endure congressional scrutiny of expenses, including a $10 million executive-suite renovation and a $400 million sponsorship of the New York Mets stadium.
He vowed to cut his salary to $1 until the bank returned to profitability.
The earnings report follows earnings announcements by US banks whose results have surpassed analysts' forecasts.
Goldman Sachs on Monday reported better-than-expected earnings as trading revenue outweighed asset writedowns. Wells Fargo said last week it had about $3 billion in first-quarter net income. - Bloomberg
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