(Corrects percentage change to 42 percent in headline and first
* Q2 adjusted shr $1.25 vs Street estimate $1.17
* Shares rise nearly 1 percent
* Revenue up in most securities and banking businesses
* Bank releases $784 mln reserves vs $1.01 bln year ago
By David Henry
July 15 Citigroup Inc posted a 42 percent
increase in quarterly profit, as stronger home prices reduced
mortgage losses and bond trading revenue jumped, underscoring
the bank's recovery since the financial crisis.
Still, storm clouds lie ahead for the third-largest U.S.
bank by assets as rising bond yields in the United States are
expected to cut into debt underwriting volume, and slowing
growth in emerging markets may cut into profit from overseas.
About 58 percent of its revenue last year came from outside of
Analysts said Citigroup, which required three U.S. bailouts
in 2008 and 2009, is getting its house in order after years of
management problems. Chief Executive Michael Corbat is
continuing many of the strategic changes started under
predecessor Vikram Pandit, and the initiatives appeared to be
bearing fruit in businesses like investment banking.
It is unclear if the operational improvements will be enough
to offset the banking sector's headwinds, analysts said.
"Citigroup seems to be getting healthier, but the underlying
economy is not," said Stanley Crouch, chief investment officer
of Aegis Capital Corp, whose clients own Citigroup shares.
"You get this riptide, and it may not be good," Crouch
In the second quarter, Citigroup's biggest profit boosts
came from its securities and banking unit, where bond trading
revenue rose 18 percent, stock trading revenue soared 68
percent, and underwriting and advisory was up 21 percent.
Overall, second-quarter net income rose to $4.18 billion
from $2.95 billion in the same quarter last year. Excluding
gains from changes in the value of its debt and the sale of a
stake in a Turkish bank, the company earned $3.89 billion, up
from $3.08 billion.
Results beat analysts' average expectations, and Citigroup
shares rose 0.8 percent to $51.20.
(For graphic on earnings: link.reuters.com/quk69t)
"What you see is the result of a lot of the repositioning
and restructurings we have done over the last two to four
years," Chief Financial Office John Gerspach said on a
conference call with journalists, speaking of gains in the
securities and banking unit.
The bank has been focusing more on client trading than
making its own market bets, and hiring investment bankers who
have brought in new deals, Gerspach said. The shift toward
trading on behalf of clients was particularly helpful in the
volatile markets for emerging market securities this quarter, he
Hires, including investment bankers, done under Pandit also
paid off for the second consecutive quarter.
RISING TRADING REVENUE
On a per-share basis, excluding special items and after
preferred share dividends, Citigroup earned $1.25 a share, up
from $1 a share a year earlier. The result beat the average
analyst estimate of $1.17, according to Thomson Reuters I/B/E/S.
Revenue from fixed income markets, part of the securities
and banking unit, rose to $3.37 billion from $2.86 billion,
while equity market revenue soared to $942 million from $561
Trading revenue in the year-earlier quarter was weak across
the industry as the European debt crisis brewed.
Net credit losses declined to $2.61 billion from $3.49
billion as higher house prices lifted the value of the home
mortgage assets held since the financial crisis.
In Citi Holdings, it set aside $451 million for bad loans,
benefits and claims, down from $1.23 billion in the same quarter
last year. The bank used money it had previously set aside to
cover loan losses, releasing $784 million of reserves, compared
with $1.01 billion of reserves in the same quarter last year.
STICKING WITH STRATEGY
Citi's shares have risen about 28 percent this year through
Friday's close, slightly better than the KBW bank index.
They have doubled in value in the past year.
But investors are increasingly concerned about the bank's
potential as emerging market growth shows signs of slowing. The
bank's shares have faltered since early June.
CEO Corbat has sought to cut costs and increase earnings
since October, when Citigroup's board put him in the job after
ousting Vikram Pandit.
But Corbat and Chairman Michael O'Neill have said they are
sticking with Pandit's strategy of positioning the company to
benefit from global growth in emerging markets, urbanization and
increasing digital commerce.
(Reporting by David Henry; Additional reporting by Lauren Tara
LaCapra in New York and Tanya Agrawal in Bangalore; Editing by
Dan Wilchins, Ted Kerr and Jeffrey Benkoe)