NEW YORK, N.Y. – Citigroup’s first-quarter earnings rose, helped by declines in expenses and provisions for bad loans. The earnings improved even as revenue from mortgage refinancing and bond trading fell.
EARNINGS: Citigroup reported a profit of $4.1 billion in the first quarter, after stripping out the effects of an accounting change and a tax item. That was up 2.5 per cent from the same period a year earlier, when it made $4 billion.
EXPECTATIONS EXCEEDED: On a per-share basis, the earnings amounted to $1.30 compared with $1.29 a year earlier. That was better than estimates of analysts polled by FactSet, who were expecting $1.14 per share.
LOWER REVENUE: Revenue was $20.1 billion. That was down 2 per cent from the same period last year when the bank generated revenue of $20.6 billion. Analysts had forecast revenue of $19.5 billion.
‘BAD BANK’ BETTER: Citi got a boost from improving results in its Citi Holdings unit, which is selling off assets such as mortgages that soured in the financial crisis. Losses at Citi Holdings fell to $284 million from $804 million in the same period a year earlier. The bank also benefited from a small drop in expenses. Citi Chief Financial Officer John Gerspach said on a call with reporters that the bank wants to reduce the losses to “as close to zero as possible” by 2015.
SOUTH OF THE BORDER: Citi also revealed more fraud at its Mexican unit. The bank reduced its 2013 earnings by $235 million in February, saying it was a victim of fraud committed by a Mexican oil services company which secured hundreds of millions of dollars in short-term loans. The company, Oceanografia S.A. de C.V., or OSA, overstated by $400 million the business it was doing with Mexico’s state-owned oil company Petróleos Mexicanos, or Pemex.
Citi’s Gerspach said the bank’s Mexican unit uncovered another fraud of under $30 million in dealing with another supplier, which Citi did not name. Gerspach said that the supplier had already started to return the funds and that Citi expected to get all of its money back.
STOCK REACTION: Citi’s stock rose $1.37, or 3 per cent, to $47.07 in morning trading, paring the bank’s loss for the year to 9 per cent.
MORTAGE WEAKNESS: Citi’s global consumer banking revenue fell 5 per cent to $9.3 billion from a year ago, driven by “significantly lower” mortgage refinancing in the U.S. The increase in bond yields since last summer has caused mortgage rates to rise, which in turn has slowed refinancing of home loans.
STOCK REACTION: Citi’s stock rose $1.99, or 4.4 per cent, to close at $47.67.
JOB CUTS: Citigroup’s consumer banking unit, which operates in 36 different countries, plans to shutter branches and cut jobs to further reduce expenses. The bank intends to cut 4,000 jobs at the unit, reducing its headcount to about 145,000 by the fourth quarter of this year. Citi currently employs about 248,000 people across the bank.
BOND TRADING: Fixed-income revenue dropped 18 per cent to $3.9 billion from a year earlier. Bond markets were quieter in the most recent quarter compared with the same period a year earlier. JPMorgan also reported a big drop in its bond trading business when it announced earnings Friday.
CAPITAL PLAN: Last month the Federal Reserve rejected Citi’s request to increase its dividend and buy back more of its own stock. The decision, a setback for Citi, came as part of the Fed’s annual “stress tests” of major U.S. banks. Gerspach said the Fed rejected the plan mainly because of the how the bank identified and quantified its risk in certain scenarios, rather than the absolute level of capital that Citi held.