With earnings season in full force, it was Citigroup’s (NYSE: C) turn on Friday. The firm reported strong results, beating the consensus estimate of 5 cents per share coming in with 9 cents per share. The results were below last quarter’s earnings of 14 cents per share, but showed important signs of improvement in beating expectations.
Similar to the disclosures offered by JPMorgan Chase (NYSE: JPM) a day earlier, the firm’s improvement reflect improved credit quality and lower loan loss provisions. Trading revenues surged in the first quarter, but fell significantly in the second as the market decline hampered performance.
In total, Citigroup reported a net profit of $2.7 billion, as compared to $4.4 billion in the prior quarter. The most important metric though cam in the provisions for credit losses, which came in at $6.7 billion, a decline of $2.0 billion or 23% sequentially. This loan loss represents the lowest level since Q3 2007.
With regulatory reform on the horizon, there will be a renewed emphasis on the importance of Capital Ratios. In this disclosure, we learned Citi’s Tier 1 capital ratio came in at 12.0% compared with 11.3% in the prior quarter. Tier 1 common ratio was 9.7%, up from 9.1% in previous quarter. Return On Common Equity (ROE), deteriorated to 7.0% from 12.0% in the prior quarter.
As the U.K. bonus tax continues to effect the global financial system, Citi incurred a $404 million charge in the quarter, driving total expenses up 3% to $11.9 billion.
After the final financial regulatory reform bill is signed into law, it is widely expected to restrict proprietary trading of the banks and thus denting profitability. Additionally, dealing in derivatives will limit risk in some cases, and profits. These actions are expected to impact Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and many others.
Amid the declining market and general chaos in the financial system, Citi continues it’s restructing efforts. The firm’s results are tied to economic recover, and the sluggish rate of both are to be expected in the upcoming quarters. However, in the core business Citi remains attractive and this is reflected in the latest earnings results.
