Citigroup shares bounced up in early trading Friday after the largest U.S. bank posted a smaller-than-expected quarterly lossdespite $11.7 billion of write-downs and credit losses tied to deteriorating capital markets and the slumping economy.
The second-quarter net loss totaled $2.5 billion, or 54 cents per share, and compared with a year-earlier profit of $6.23 billion, or $1.24 per share. Shares rose 9.1 percent to $19.60 in pre-market trading.
"It appears the worst may be over in the subprime mess," said Andre Bakhos, president of Princeton Financial Group in Princeton, N.J. "There appears to be a bandage on the wound."
Citigroup's loss from continuing operations was $2.22 billion, or 49 cents per share, while revenue declined 29 percent to $18.65 billion.
Analysts on average expected a loss of 67 cents per share on revenue of $17.44 billion, Reuters Estimates said.
The report followed surprisingly strong profits this week from JPMorgan Chase and Wells Fargo , and a much larger-than-expected $4.9 billion quarterly loss at Merrill Lynch .
Citigroup eliminated 6,000 jobs during the quarter, and about 11,000 from January to June. It aims to keep cutting jobs at a similar rate, as Chief Executive Vikram Pandit tries to slash $15 billion of costs within two to three years.
"While there is still much to do, we are encouraged by our progress," Pandit said in a statement.
Pandit has tried to focus on stronger businesses and cull $400 billion of risky or poorly performing assets after years of poor expense and risk management left the New York-based bank bearing the full brunt of the global credit crisis.
Citigroup has lost about $17.4 billion in the last three quarters and incurred more than $58 billion of write-downs and increased credit costs since the middle of 2007.
"Pandit seems to be doing the right things and is starting to build a base," said Jonathan Monk, senior portfolio manager at Aerion Fund Management in London.
U.S. equity index futures turned positive, after being lower following earnings disappointments late Thursday from Merrill, Google and Microsoft . The dollar strengthened, and the yield on the benchmark 10-year U.S. Treasury note rose above 4 percent.
Not Yet Happily Ever After
Citigroup's securities and banking unit took $7.2 billion of write-downs. This included $3.5 billion tied to subprime mortgages and $2.4 billion related to bond insurers, and smaller losses tied to commercial real estate, leveraged finance and "Alt-A" mortgages.
The bank also increased credit costs by $4.5 billion, mainly for its U.S. consumer banking and global credit card businesses.
"Citi is exposed to every aspect of the economy," said Matt McCormick, an analyst at Bahl & Gaynor Investment Counsel in Cincinnati. "There could be more consumer delinquencies, particularly in credit cards. It's not like the movies where all of a sudden you say, 'And they all lived happily ever after."'
Pandit has cut Citigroup's dividend and raised more than $40 billion of capital. This has helped boost the bank's Tier-1 capital ratio, which measures its ability to cover losses, to about 8.7 percent from 7.12 percent at year end. Regulators consider 6 percent sufficient.
This month, Pandit agreed to sell Citigroup's German consumer banking business to France's Credit Mutuel Group for roughly $8 billion. The bank ended June with $2.1 trillion of assets, down from $2.36 trillion at the end of September.
Citigroup's investment bank lost $2.04 billion in the quarter, while consumer banking, the largest business, suffered a $700 million loss.
Credit card profit declined 56 percent to $467 million, and wealth management profit fell 21 percent to $405 million.
Pandit joined Citigroup a year ago. He became the bank's chief executive in December, replacing Charles Prince, who had resigned under pressure the previous month.
Through Thursday, Citigroup shares had fallen 39 percent this year, compared with a 30 percent drop in the KBW Bank Index.