Citigroup’s profit plunges 32 per cent

Citigroup Inc’s first-quarter profit fell 32 per cent as shrinking loans and poor trading results pressured revenue while expenses surged. The results highlighted how the third-largest US bank, which teetered on the brink of collapse in the financial crisis, has stabilised but is still struggling to generate real growth. The results were better than expected, which supported Citigroup’s stock on a day when the US equity market was falling.

But like other big banks, the company’s profit came mainly from dipping into money previously set aside to cover bad loans. “We’re not seeing a lot of revenues being thrown off by main businesses…They haven’t been able to turn recovery into growth,” said Len Blum, a managing partner of investment firm Westwood Capital, who personally owns bank stocks.

All three of the biggest US banks—Bank of America, JPMorgan Chase and Citigroup— have posted shrinking loan books for the first quarter, raising questions about the strength of US economic growth. The biggest boon for banks right now is that credit losses are dropping. Citigroup’s credit losses fell 25 per cent in the quarter and steadily declined all last year, allowing it to dip into reserves previously set aside to cover losses.

Citigroup is among the most international of the major US banks, and that helped some businesses in its Citicorp unit, where the bank houses the operations it plans to continue operating over the long term. Citicorp’s Latin American consumer banking, investment banking and transaction-processing services all posted higher income from continuing operations, for example, even as North American investment banking and transaction-processing operations posted profit declines.

Beating estimates

Overall, Citigroup earned US$3.0 billion, or 10 cents per share, in the first quarter, beating analysts’ average forecast of 9 cents a share, according to Thomson Reuters I/B/E/S. A year earlier it earned US$4.4 billion, or 15 cents per share. Revenue dropped 22 per cent to US$19.73 billion. In its securities and banking business, fixed income trading revenue fell 29 per cent to US$3.8 billion. Operating expenses rose 7 per cent to US$12.33 billion. Citigroup said this was in part due to higher legal expenses, but on a conference call with reporters, Chief Financial Officer John Gerspach declined to say why those costs had risen.

Gerspach said the bank will incur US$25 million to US$30 million in annual costs, as well as one-time charges of US$45 million to US$50 million over the “next few quarters,” related to a foreclosure-related settlement with bank regulators. Last week, 14 banks including Citigroup agreed to overhaul their mortgage operations and compensate borrowers who were wrongly foreclosed upon, as part of a settlement with bank regulators. The foreclosure mess that began in the fourth quarter of 2010, with borrowers accusing major banks of repossessing homes without having the right paperwork in place, will increase costs at several large US banks. (Reuters)