Market Overview

Citigroup Rallies on EPS Upside


Citigroup (NYSE: C) came out with its earnings for the first quarter of 2012 on Monday. The company posted earnings per share of $0.95. Excluding the net effect of negative of valuation adjustments on credit and debt (CVA/DVA) and a net gain on minority investments, the banking giant's comparable EPS was $1.11, up 7 percent on the prior year quarter. Analysts had expected $1.04, a 4% improvement over the previous quarter.

Revenues totaled 19.4 billion for the quarter. Excluding $1.3 billion impact in CVA/DVA from tightening credit spreads and $477 million net gains in minority investments, revenues totaled $20.2 billion. This represented a 1% improvement over the first quarter last year. As operating expenses were essentially unchanged at $12.3 billion, and a $2.3 billion in net credit losses was largely offset by $2.2 billion reduction in net loan loss reserve releases, Citigroup's net income declined by 2 percent from the prio year;'s first quarter, to $2.9 billion. Net of credit spread and minority gains, net income was $3.4 billion, a 5% improvement.

Revenue growth was largely driven by growth in the company's largest business, Global Consumer Banking, which saw 5 percent improvement at $10 billion.Loan growth, at 514 million, grew 12 percent for the quarter. Growth in loans is one metric analysts have kept an eye on, with interest rates at all-time lows. Notably, just under half of the business unit's activity was international.

Elsewhere in the company, Securities and Banking revenues, at $5.3 billion, were 12 percent down, driven by tighter credit spreads. Transaction and Services were up 7% at 2.7 billion, whereas Citi Holdings decreased 47 percent to $874, largely reflecting the ongoing reduction of its assets.

Citigroup was one of four banks that failed the most recent stress test from the Federal Reserve, and is not delivering a dividend for the quarter. Instead, the company continues to shore its balance sheet. Its toxic assets, bundled under its Citi Holdings unit, shrunk further, to 11 percent of total assets in the quarter. Further, with a Tier 1 common ratio of 12.4 percent under Basel I and 7.2% under Basel III, the company said it continued to be one of the best capital banks in the world. Book value and tangible book value increased by 6% and 9% each, the company said, at $61.90 and $50.90 per share.

The company's CEO, Vikram Pandit credited improvements in the operating environment that favored the company's trading activities. However, he cautioned against continued macro challenges ahead. "While the operating environment improved in the first quarter, there is still much macro uncertainty and we will continue to manage risk carefully. We will continue to leverage the depth and the scale of our global presence to serve our clients and grow our businesses," concluded Mr. Pandit.

C closed at $33.41 on Friday and has opened up over 3 percent.

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