Citi Manages To Beat The Prognoses, Performs Better Than Expected

on Jul 20, 2012

Citigroup announced on Monday its financial results for the second quarter of 2012. Despite some undeniable shortcomings, most notably the 12% drop in net income compared to the same period last year, the third largest U.S bank proved many analysts wrong, showing much better results than expected. In addition to the positive reports from JPMorgan Chase and Wells Fargo, this shows that the financial sector has performed well over the second three months of the year.

Reported Earnings Per Share (EPS) were 95 cents on $18.5 billion in revenue, beating the Street’s consensus forecast of 88 cents EPS. On the other hand revenue didn’t meet expectations for $19.6 billion and was 7% down on last year. Net income has also decreased from $3.34 billion for the second quarter of 2011 to $2.946 billion. Overall operating expenses fell six per cent to $12.13 billion.

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!m[](/uploads/story/195/thumbs/pic1_inline.png)A major problem for the bank is its Citi Holdings unit, which is quickly turning into a sinking ship. In Q2 2012 Citi Holdings losses increased by nearly 40 percent over the same period in 2011 – from $661 million to 920 million. The assets of the unit were also down to $191 billion, a 28 percent decrease. The first reported results for Citi Holdings showed that it had about $650 billion of assets. The bank stated that the unit now represents less than 10 percent of Citigroup’s total assets.

But even with the increasing losses of Citi Holdings, the bank performed better than analysts expected. A big part of the positive performance was due to cost cutting, especially in Citicorp’s investment bank. A 322 million cut in expenses allowed the bank to improve its net income by 18 percent – to $1.402 billion.
CEO Vikram Pandit cited strong growth in loans and deposits. Both saw significant increases from a year ago – 10 percent and 6 percent respectively. The bank released $984 million in loan loss reserves in Q2, a big boost to earnings but 50% less than the year before.

Evercore Partners analyst Andrew Marquardt said that that despite the fact that the bank has fallen short of its expected revenue, it has compensated for it to some degree with better credits and expenses.
On an international level Citi’s results have worsened. The bank’s units in Latin America and Asia registered 4 percent drops in revenue, while the decrease was 11 percent for the Europe, Middle East and Africa unit. Overall net income was down 4% internationally.

Opening levels of Citi shares were high, but the price quickly went down as a result of the broader market sell off. However, the stock managed to gain 1.6%. The performance of the other major banks was stable, with only JPMorgan Chase retreating by 1.9 percent. Wells Fargo’s stock appreciated by 0.8%, while Bank of America due to report Wednesday, registered a small gain of 0.3 percent.


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