By Christina Rexrode And Peter Rudegeair
Citigroup Inc. said Thursday its first-quarter profit jumped a
larger-than-expected 21%, with the bank slashing costs to overcome
a drop in trading revenue.
Shares rose 2.2% to $54.41 in midday trading.
The New York-based bank reported a profit of $4.77 billion, or
$1.51 a share. That compared with $3.94 billion, or $1.23 a share,
a year ago. Excluding one-time items, per-share earnings were
$1.52, beating the $1.39 a share projected by analysts polled by
Thomson Reuters.
Revenue slipped 2.3% to $19.74 billion, but the adjusted revenue
of $19.81 billion was basically in line with what analysts had
expected, $19.82 billion.
The bank slashed operating expenses by 10% to $10.88 billion,
better than analysts had expected. It trimmed spending on
compensation, equipment, advertising and other business costs.
Legal expenses also fell from a year ago, when the bank was
preparing for a mortgage-securities settlement with the Justice
Department. So did repositioning costs, which can include severance
and related expenses a company pays when it is shrinking or
rejiggering businesses.
"This is a big deal," said BMO Capital Markets analyst James
Fotheringham.
However, there were also questions about how long the momentum
can last.
"Is this as good as it gets?" asked CLSA analyst Mike Mayo. "Is
this a false start for Citigroup or is there a lot more ahead?"
Chief Executive Officer Michael Corbat replied that the bank had
made substantive changes to diversify its revenue sources. The
company also noted that it was able to raise earnings even amid a
backdrop of lower trading revenue and lower results from consumer
banking outside the U.S.
Sanford C. Bernstein analyst John McDonald said the quarter
validated the bank's overall strategy of simplifying and slimming
down, a mission it has been on since it was battered in the
financial crisis.
Profit in the consumer bank rose 3%, fueled by U.S. consumer
banking. Profit in the investment bank and related units were
roughly flat, hurt by the drop in trading revenue.
Citigroup's trading revenue was down 9.5%, to $4.36 billion from
$4.81 billion a year ago. That was worse than J.P. Morgan Chase
& Co. and Goldman Sachs Group Inc., which logged increases, and
Bank of America Corp., which fell by a smaller proportion.
Part of the difference among the banks' trading results relates
to the types of products they focus on. J.P. Morgan tends to trade
currencies and rate products, which had a strong quarter. Citigroup
and Bank of America focus on so-called spread products like
mortgage-backed securities and corporate bonds, which had a weak
quarter.
Also, Citigroup lost money when the Swiss franc unexpectedly
surged earlier this year, while J.P. Morgan and Bank of America
both made money.
Low interest rates have been another theme of this quarter's
earnings, with analysts and investors asking whether banks have a
strategy to move forward even if rates stay low. Like other banks,
Citigroup is eager for interest rates to rise, because that will
allow it to charge more on loans.
But Chief Financial Officer John Gerspach emphasized that
Citigroup isn't dependent on rates going higher, saying the bank
plans to meet this year's financial targets regardless of how tough
the rate environment might be.
"We weren't expecting to be bailed out by any sort of
significant rate increase," Mr. Gerspach said, "and it doesn't look
like that's going to happen."
Compared to some of its peers, Citigroup is less affected by low
U.S. interest rates because many of its loans and deposits are
outside the U.S., including in regions where interest rates are
more favorable to the bank.
In investment banking, Citigroup earned $298 million in fees
from advising on mergers in the first quarter, up 70% from $175
million the year before. Merger advisory revenue was also up at
J.P. Morgan, Bank of America and Goldman, a signal that companies
are eager for deal-making.
Overall, the tone was far calmer than earnings a year ago, which
were announced shortly after the bank had failed the Federal
Reserve's stress test. Mr. Corbat at the time vowed to find an
"industrial-strength" solution to the stress-test missteps. Last
month the Fed approved Citigroup's stress-test request to raise its
dividend for the first time since the financial crisis.
Write to Christina Rexrode at christina.rexrode@wsj.com and
Peter Rudegeair at peter.rudegeair@wsj.com
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