* Adjusted EPS $1.00 vs Street view 89 cents
* Net income falls 12 pct to $2.946 bln
* Citi Holdings assets down 28 pct to $191 bln
* Citi Holdings losses widen to $920 mln
* Shares rise 0.6 percent
By David Henry
July 16 Citigroup Inc said on Monday
quarterly earnings fell 12 percent as it was stung by losses
from credit crisis-era assets, but the bank's results were
better than many analysts expected after cost-cutting.
The third largest U.S. bank is still feeling pain from Citi
Holdings, a unit set up in 2009 to house assets and businesses
it was looking to shed after the 2007-2008 credit crunch forced
multiple U.S. government rescues. Citi Holdings' losses widened
to $920 million in the second quarter from $661 million in the
same period a year earlier.
Even though the U.S. government has exited nearly all its
Citigroup investments, the bank is still dealing with bad assets
from the credit crunch and struggling to grow.
In March, Citigroup was one of the few major banks to have
regulators reject its plans for returning capital to
shareholders. On Monday, Chief Executive Vikram
Pandit said he was not sure what he would ask regulators for
when the bank files its 2013 capital plan with the Federal
The bank's results on Monday echoed themes from reports on
Friday by JPMorgan Chase & Co, the biggest U.S. bank,
and Wells Fargo & Co, the fourth-biggest. All three beat
analyst estimates with help from cost-cutting, stronger mortgage
businesses and better consumer delinquency rates, even as their
profit margins came under pressure from low interest rates.
Banks' reliance on cost cutting worries some investors.
Citicorp, the Citigroup unit that houses its continuing
businesses, posted a 6 percent increase in net income, with
gains coming mainly from cost cutting and setting aside less
money for bad loans.
"The problem is they have no justifiable way to grow," said
Jeff Sica, president of Sica Wealth Management in Morristown,
Citicorp's assets grew just 1 percent in the period,
although some areas, like commercial loans, posted better
growth. Income in the bank's main retail unit fell 1 percent
from the same quarter last year, with revenue barely changed.
In a slow economy Citigroup will struggle to do anything
more than slowly heal itself, said Allerton Smith, senior
director of fixed-income capital markets research at Moody's
Analytics. "It's hard for them and all big banks to find good
loans," Smith said.
Meanwhile, assets that the bank is looking to shed are still
painful. Citigroup is not cutting costs in Citi Holdings as fast
as revenues are dropping -- operating expenses fell 25 percent
but revenue tumbled 62 percent.
On a conference call with journalists, Chief Financial
Officer John Gerspach said Citi Holdings' costs fell in line
with its assets, which were down about 28 percent from the same
quarter last year -- reaching $191 billion at the end of June
2012. In 2009, when the bank first posted results for Citi
Holdings, the unit had about $650 billion of assets.
Reducing assets in Citi Holdings improved the company's
capital ratios under new Basel III requirements, Gerspach said.
Unloading more of those assets should improve the bank's
chances of winning permission from regulators to return capital
to investors through share buybacks, but Gerspach declined to
predict how long that will take.
Another factor that could help capital ratios is the bank's
expectation that it will sell a 14 percent stake in its
brokerage joint-venture Morgan Stanley Smith Barney to Morgan
Stanley in September, Gerspach said. The two sides were
to exchange proposals later on Monday for the sale price.
Gerspach said the prices would be so far apart that outside
appraisals would have to be used to complete the transaction.
The executives refused to provide details on government
investigations of bank lending rates, such as LIBOR, although
Pandit did caution that not every bank submitted bogus rates for
Libor. Nor would Citigroup assess the impact on future revenues
of Friday's settlement of lawsuits by merchants over credit card
Being more efficient
Even with widening losses in Citi Holdings, the bank
performed better than analysts estimated. Cost cutting helped,
most notably in Citicorp's investment bank -- where it cut out
$322 million of expenses, allowing the investment bank's net
income to rise 18 percent to $1.402 billion.
Citigroup has been laying off staff in its investment bank
for three quarters or so, Gerspach said. There could be more
layoffs in coming quarters, although they will not likely be
significant, he added.
"These are reductions that are geared towards just making
sure we've got the capacity right and making sure we're the most
efficient organization that we can be," he told reporters.
Overall net income fell to $2.946 billion, or 95 cents per
share, from $3.34 billion, or $1.09 a share, in the same quarter
a year earlier. Overall operating expenses fell 6 percent to
The results included a $424 million loss from the sale of a
10.1 percent stake in Akbank TAS of Turkey and a $219 million
gain from changes in the market value of its own debt and that
of certain trading partners.
Excluding the debt accounting adjustments and the Turkish
bank stake sale, earnings were $1.00 per share while net income
was 1 percent lower than a year earlier.
Analysts, on average, expected earnings of 89 cents per
share, excluding special items, according to Thomson Reuters
Citigroup shares rose 0.6 percent to $26.81 at the close of
New York Stock Exchange trading. The price is only about half as
much as the tangible book value per share of $50.90 that the
company reported, based on the difference between its tangible
assets and its liabilities.
Reflecting the bank's struggles, this year Citigroup stock
is up 1.9 percent, compared with a 7.9 percent rise in Standard
& Poor's 500 stock index and a 16.4 percent rise in the KBW Bank