Citigroup Narrows Loss, Topping Forecasts

Citigroup reported a first-quarter loss that was narrower than analysts expected Friday and said its Tier 1 capital ratio improved dramatically compared with the same period of last year.

Citigroup's loss per share was 18 cents in the first three months of the year, compared with a loss of $1.03 a share in the year-ago period.

On average analysts predicted a loss of 34 cents a share.

The bank's Tier 1 capital ratio was around 11.8 percent versus 7.7 percent in the first quarter 2008, Citigroup said in a statement.

Revenue rose 99 percent from the first quarter of 2008 to $24.8 billion, driven by strong results in the Institutional Clients Group, the bank said. 

The company said income available to shareholders was lowered by 24 cents a share from the conversion price of the $12.5 billion convertible preferred stock issued in a private offering in January last year.

"This did not have an impact on net income but resulted in a reduction to income available to common shareholders of $1.3 billion or $0.24 per share. Without this reduction, earnings per share were positive," Citigroup said.

The results included $10.3 billion of credit costs, up 76 percent, with a large portion of the increase stemming from credit cards. This included $7.3 billion of net credit losses, a $2.7 billion increase to loss reserves, and $332 million for other benefits and claims.

Citigroup shares fell 6 percent after rising as much as 15 percent in pre-market trading.

Waiting for Stress Test Results

The bank also said it planned to delay the proposed exchange of billions of dollars of preferred shares into common stock until the U.S. government completes its "stress tests" of large banks to gauge which might need more capital or aid.

Despite topping analysts esitmates, some analysts were concerned about how the numbers reflect the bank's overall health and said the results must be thoroughly scrutinized.

The unwinding of leverage in derivatives by a distressed seller as AIG was bound to make profits for some other players in the market, and the change in accounting rules -- to allow more liberty in marking assets to market -- may have had some impact, David Kotok, chairman and chief investment officer at Cumberland Advisors, said.

"We don't know how much profit came from this one-time deleveraging unwind. And we have an accounting rule change and we're in the middle of a transition," Kotok told CNBC. "Those are the mysteries that will be clearer on June 30."

Another big unknown is the fate of commercial mortgages, which may drag on the economy, he added, because property prices continue to fall and commercial property developers do not enjoy sympathy in Congress the same way as homeowners do, he said.

"It was slightly better than anticipated, but we probably underestimated how much government support would be a wind at their back," Michael Holland, founder of Holland & Co., told Reuters. "There's no doubt the challenges are still enormous for Citigroup. If you put it in the context of
what we heard from JPMorgan yesterday with its continuing concerns about the consumer, Citi is going to suffer, too."

Others said the results may herald a new stage for the banks. "Perhaps the banking sector crisis is bottoming," said Richard Hunter, head of U.S. equities at Hargreaves Landsdown in London.

Citigroup has been propped up three times by the government since October, taking $45 billion from the Troubled Asset Relief Program and getting a government agreement to share in losses on $300.8 billion of troubled assets.

Split

The company said operating expenses fell 23 percent, and its workforce shrank by 13,000 in the quarter to 309,000.

"We have lowered risk and dramatically reduced the problem legacy assets that have caused many of our losses," Chief Executive Vikram Pandit said. "We have meaningfully lowered expenses and headcount and improved efficiency." Pandit said results were the best since the second quarter of 2007. The bank lost $37.5 billion in the prior five quarters.

Pandit in January split Citigroup into Citicorp, which includes businesses that the bank wants to keep, and Citi Holdings, which includes brokerage and insurance units, bad debt and other assets that it wants to shed.

There has been speculation that Pandit would need to quickly improve results, and that Citigroup would not need more government aid, to ensure that federal regulators let him keep his job, which he assumed in December 2007.

Citigroup's institutional clients group, which includes investment banking, swung to a $2.83 billion profit from a year-earlier loss, helped by strong results from fixed-income trading.

Consumer banking lost $1.23 billion, reflecting increased credit losses, including in residential real estate.

Credit card operations saw profit fall by two-thirds to $417 million, although North America posted a loss.

Through Thursday, Citigroup shares had fallen 40 percent this year, compared with a 19 percent drop in the KBW Bank Index.

Citigroup had traded above $56 as recently as January 2007.

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— Reuters contributed to this report

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