Earnings: Citi

The third big bank to report its earnings, Citigroup posted a net income of $101m for the third quarter, but reflects a $0.27 loss on a per share basis. The difference is a result of the completion of Citigroup’s exchange offers, which resulted in a $3.1bn reduction in the firm’s net income, partially offset by an $851m after-tax gain. Despite that, the offers added $64bn of Tier 1 Common and $60bn of Tangible Common Equity, leading to improved ratios.

Contrary to the JP Morgan and Goldman Sach’s results, Citi saw a decline in both the top line and the bottomline on a q/q basis. On a y/y basis, both numbers improved. Revenue dropped to $20.4bn from last quarter’s $30bn while net income declined 98% from Q2’s $4.4bn to $101m. This reflects the decline in the performance of its brokerage and asset management units.

On the consumer banking front, the company saw improvements in average deposits and investment AUM as they rose, 3% and 7% respectively as Asia continued to be a strong source of business for Citi.

The drag to Citi’s earnings came from the lower securities and banking revenunes as well as the flat result from investment banking; the improvement in liquidity, traditional seasonal factors and lower volatility left the bank with less trading opportunities.

The decline in Citi’s performance for the quarter from lower brokerage and asset management number need not be automatically seen as a weakness. Remember that last quarter’s results included the $11.1bn gain Citi earned from selling its brokerage unit Smith Barney.

Focusing on the firm’s significant exposure to the consumers through loans, Citi shows more than a 25% improvement in its provisions for credit losses, benefits and claims. From more than $12bn of provision for loan losses for Q2, that dropped to as low as $8.8bn for the most recent quarter. This is also a slight improvement from last year’s $8.9bn.

Through Citi’s Home Affordable Modification Program (HAMP), some losses which would have been recognized for the quarter were deferred while some mortgages were under the trial modification period.

CEO Vikram Pandit said of the result:

“This was an important quarter for us. The completion of the exchange offers and the significant actions taken during the last few quarters have created a strong foundation. With strong capital, strong liquidity and a strong franchise, we are looking forward. We continue to execute steadily against our plan, and sustainable profitability remains our primary goal in the near term. While consumer credit trends are improving in international markets, the U.S. consumer credit environment remains challenging.”

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