Citigroup turns in $4.4 billion profit

First-quarter results show that the giant bank may be on the mend

By Stevenson Jacobs
updated 34 minutes ago

NEW YORK - Citigroup Inc. provided more evidence that the nation's big banks may have turned a corner. The bank reported a surprise first-quarter profit Monday as trading revenue offset losses from failed loans.

Citigroup said it earned $4.4 billion after payment of preferred dividends, compared with a loss of $696 million a year earlier. That was the bank's biggest quarterly profit since the second quarter of 2007.

The company cited strong trading of bonds, stocks and other securities for its big profit. Citigroup, one of the hardest hit banks during the credit crisis and recession, said losses from bad loans fell for the third consecutive quarter. It also set aside less money for loan losses.

"Loan losses coming down with growth of top-line revenue speaks to the overall recovery," said Oliver Pursche, executive vice president at Gary Goldberg Financial Services. Pursche a co-portfolio manager of the GMG Defensive Beta Fund, which holds shares in Citigroup, but is not currently buying shares.

Citigroup earned 15 cents per share on revenue of $25.4 billion. That easily beat analysts expectations of a slight loss, according to Thomson Reuters.

Citigroup's strong showing follows similarly impressive results last week by Bank of America Corp. and JPMorgan Chase & Co. That has boosted hopes that the worst of the credit crisis has passed and banks may be entering a period of sustained profitability.

Yet CEO Vikram Pandit sought to dampen short-term expectations for Citigroup, saying the bank remained cautious "given the uncertain economic recovery and high unemployment in the U.S."

"Realistically, we do not expect our performance to follow an invariable trendline upward," he said. "Longer-term, however, the prospects for Citigroup are clear and bright."

Pandit sounded a little less upbeat about the economy than his counterparts at JPMorgan Chase and Bank of America. But Citigroup's recovery from the devastation of the financial markets has been more difficult.

The bank's stock jumped 28 cents, or 6.1 percent, to $4.84 in morning trading. Shares briefly reached $5 last week for the first time in six months.

Some financial stocks mostly rose as well, lifted by the Citigroup results. Financial stocks tumbled Friday in response to news that the government was charging Goldman Sachs Group Inc. with civil fraud for mortgage-related transactions.

Citigroup said its total reserves to cover losses from bad loans fell 22 percent, or $2.4 billion, from the fourth quarter to its lowest level in two years. The company said its credit losses fell 15 percent to $8.4 billion from almost $10 billion in the fourth quarter. Citigroup reported improvement across nearly all its loan portfolios.

John Gerspach, Citigroup's chief financial officer, said the bank's loan losses appear to have peaked in the second quarter last year and have been declining since.

"Perhaps the worst is behind us," he said of the loan losses during a conference call with reporters.

"I think what this quarter demonstrates is that we have turned a corner and are executing our strategy," he added.

The company reported $8 billion in securities and banking operations, which includes its trading business. That was up $4.7 billion from the fourth quarter.

Bonds accounted for a big chunk of the trading gain. Like other companies' investment banking operations, Citigroup's benefited from very low interest rates that allowed it to borrow cheaply to buy higher-yielding investments.

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Citigroup's stock has been rising lately following the government's announcement last month that it would start selling the 27 percent stake in the bank it acquired as part of its bailout of the bank during the credit crisis.

The sale by the government will end the last remaining ties Citigroup has to the Troubled Asset Relief Program. Citigroup received a total of $45 billion from the government during the credit crisis. It repaid $20 billion in December and the remaining $25 billion was converted into the minority stake the government is now selling at a profit.

"All of us at Citigroup recognize that we would not be where we are without the assistance of American taxpayers," Citigroup Pandit said.

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