New York - Citigroup posted an unexpected profit increase yesterday and beat analysts’ estimates as the bank recouped funds previously set aside for bad loans and cut losses at a division holding unwanted assets.
First-quarter net income climbed 3.5 percent to $3.94 billion (R41.3bn) from $3.81bn a year earlier, the company said. Excluding accounting charges and a tax item, profit was $1.30 a share. The average estimate of 27 analysts surveyed was $1.14 on that basis.
Chief executive Michael Corbat is getting help from an improving global economy that was making it easier for consumers and businesses to repay loans. Citigroup released $673 million in loan-loss reserves set aside in earlier years, exceeding the $500m at Wells Fargo and the $227m estimate of Matt O’Connor, a Deutsche Bank analyst.
“There is enough juice left in credit costs” to boost quarterly results for the industry, Chris Kotowski, an Oppenheimer analyst, wrote in an April 3 note. He assigns the equivalent of a buy rating to Citigroup’s stock.
Profit was also boosted by improving results in a portfolio of unwanted assets the bank has marked for sale. Losses in the Citi Holdings unit narrowed to $284m in the first quarter from $804m a year earlier, as mortgage results improved. Revenue at the division rose 61 percent from a year earlier to $1.46bn.
Total revenue for the quarter fell 1 percent to $20.1bn and expenses declined 1 percent to $12.1bn. Analysts had predicted revenue of $19.4bn, according to the average of 19 estimates.
Corbat was dealt a setback to his turnaround plan last month when Citigroup failed an annual stress test administered by the Federal Reserve, which cited deficiencies in the bank’s ability to project revenue and losses in its global operations. Regulators rejected the firm’s request to quintuple its dividend and repurchase $6.4bn of shares.
“Despite a quarter that was difficult for our company, we delivered strong results,” Corbat said. “Both our consumer and institutional businesses performed well and we grew loans and deposits while holding the line on our expenses.”
The stress-test rejection probably dented prospects for achieving Corbat’s 2015 goal of reaching a 10 percent return on tangible common equity, Matt Burnell at Wells Fargo wrote in a report last week.
“The capital return path that we expected to become clearer in 2014 has been delayed,” Burnell wrote.
In the two weeks since failing the stress test, Citigroup reached a $1.13bn settlement with bond investors and said it would sell its Honduran consumer bank and one-third of its branches in South Korea. – Bloomberg