Citigroup Inc said on Monday first-quarter profit jumped a better-than-expected 30 percent as the bank made more money from underwriting stock issues and advising companies on mergers. The bank also lost less money from its bad assets, and it showed signs of getting expenses under control. Revenue was up 6 percent, while expenses increased by less than 1 percent.
The results signalled the long-beleaguered bank may be turning around, six months after Michael Corbat took the reins as chief executive. Citigroup shares rose 2.6 percent to $45.95 in morning trading. "Citigroup has been so messed up for so many years, there's an opportunity for them," said Mark Mandell, portfolio manager at Dalton Investments in Santa Monica, California, which owns Citigroup shares.
The No 3 US bank said first-quarter net income rose to $3.8 billion, or $1.23 per share, from $2.9 billion, or 95 cents per share, a year earlier. Excluding certain accounting adjustments, earnings were $4.0 billion, or $1.29 per share, up from $3.4 billion, or $1.11 per share, a year earlier. Analysts on average had forecast $1.17 per share before the accounting adjustments.
Revenue totalled $20.5 billion. Expenses, at $12.4 billion, were down 10 percent from the 2012 fourth quarter. The bank said the profitability of its lending, known as its net interest margin, was 2.94 percent in the first quarter, up marginally from 2.93 percent in the fourth quarter. Margins at many of Citigroup's competitors are shrinking.
There are other signs of recovery at the bank. Last month, Citigroup received Federal Reserve approval to buy back $1.2 billion of its shares. Last year, the bank failed to win Fed approval to distribute more capital to shareholders, which proved an embarrassment to then Chief Executive Vikram Pandit. The episode helped weaken Pandit's standing with the board of directors; he resigned last October. Citigroup, which is reviewing some of its weaker operations around the world, said revenue from its securities trading and investment banking business rose 31 percent to $6.98 billion in the first quarter. Excluding accounting adjustments linked to changes in the value of the company's debt and to changes in trading partners' credit quality, revenue rose 8 percent to $7.29 billion.
The biggest change came from North America, where revenue jumped 48 percent to $3.07 billion, excluding the accounting adjustment. On a product basis, revenues in merger advisory rose 84 percent to $204 million, while equity underwriting revenue rose 45 percent to $225 million. The bank benefited during the quarter from hiring that it did in late 2011 and early 2012, John Gerspach, chief financial officer, said on a conference call with reporters.
Under Corbat, who took over in October, Citigroup took a more cautious approach on loan loss reserves in the 2012 fourth quarter, releasing just $86 million. Through Friday, Citigroup shares were up 13.2 percent this year. In the same period, the KBW Bank stock index rose 9.6 percent and the Standard & Poor's 500 stock index rose 11.4 percent.