Citigroup turns a profit, but more consumer loan woes loom
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It wasn’t pretty, but Citigroup Inc. finally got back into the black in the first quarter.
The beleaguered banking giant’s net income of $1.6 billion in the first three months marks the first time since late 2007 that the company has turned a profit.
Citigroup benefited from one key market trend that also helped Goldman Sachs Group and JPMorgan Chase & Co. in the quarter: a surge in bond issuance and trading, as investors worldwide hungered for fixed-income securities. The bond business meant a big $5.5 billion in revenue for Citi in the quarter.
Other factors -- including reduced asset write-downs, a smaller loan-loss reserve and an accounting-driven gain related to the company’s own financial woes -- also played a role in restoring profit.
On a per-share basis, Citigroup reported an 18-cent loss because of costs associated with its planned conversion of preferred shares to common stock. That was better than the 34-cent loss analysts were expecting.
Citigroup stock jumped in early trading but later fell back, which some analysts said reflected technical trading related to the timing of the preferred-shares conversion. Citigroup announced today that the share swap won’t occur until after the government’s closely watched ‘stress test’ of major banks is completed later this month. The government will announce results of the stress tests on May 4.
The common shares were down 25 cents to $3.76 at about 12:40 p.m. PDT. The stock has rebounded from $1.02 on March 5, and traded as high as $4.48 early this week.
It remains to be seen whether Citigroup can build on its first-quarter results, as economic weakness weighs on its core consumer-banking business. The consumer-banking unit lost $1.2 billion last quarter after eking out a $52-million profit a year ago. Revenue slipped to $6.4 billion from $7.8 billion.
Earnings at the bank’s giant credit-card operation slumped to $417 million in the quarter from $1.2 billion a year earlier as revenue fell to $5.8 billion from $6.4 billion.
‘The good news is that [asset] write-downs appear to be in the ninth inning,’ David Trone, analyst at Fox-Pitt Kelton wrote in a report today. ‘But credit problems are just getting started,’ he said, referring to rising loan losses in the consumer sector.
‘On balance, we suggest investors look but not leap until we get closer to a credit peak,’ he said.
-- Walter Hamilton
Photo credit: Justin Lane / EPA