Citigroup Reports 4% Rise in Quarterly Profit, Despite Regulatory Woes

Mark Lennihan/Associated Press

Dogged by its failure to pass the Federal Reserve's latest stress test and investigations of fraud at its Mexican unit, Citigroup reported some good news on Monday: first-quarter profit that beat analysts' expectations.

Citigroup said adjusted quarterly profit rose about 4 percent, to $4.1 billion, or earnings per share of $1.30, from the period a year earlier. Financial analysts polled by Bloomberg News had been expecting earnings per share of about $1.13.

The profit numbers are adjusted for one-time events, such as adjustments to its debt values and tax charges.

Despite exceeding profit expectations, adjusted revenue fell 2 percent, $20.1 billion, from the year-earlier period, but topped estimates of $19.4 billion for the quarter.

Not adjusting for one-time items, Citigroup's profit rose 4 percent to $3.9 billion, or $1.23 a share, or revenue of $20.12 billion.

The revenue decline reflected industry challenges in both investment and consumer banking. Stricter regulations and low interest rates are weighing on the trading operation that had once generated large profit for Wall Street bank's like Citigroup. At the same time, lending to consumers and businesses is rebounding, but has hardly come roaring back since the financial crisis, as economic growth remains slow.

'Despite a quarter that was difficult for our company, we delivered strong results,' Michael Corbat, Citgroup's chief executive, said in a statement. 'Both our consumer and institutional businesses performed well and we grew both loans and deposits while holding the line on our expenses.'

Still, in the first quarter, Citigroup seemed to weather a bit of that storm better than some rivals.

Revenue in the bank's fixed-income trading business fell 18 percent, but the decline was not as steep as JPMorgan Chase's 26 percent decline, reported on Friday. Citigroup also had solid growth in its Latin American and Asian consumer businesses, even as regulatory scrutiny grows over the bank's ability to manage its sprawling global operations.

Citigroup said its deposits increased 3 percent to $966 billion from a year ago, while loan in the bank's Citicorp unit increased 7 percent to $575 billion.

Another big driver of the Citigroup's profit was a 20 percent decline in the cost of credit from a year ago, reflecting how improving economic conditions are requiring the bank to hold less capital to make loans as borrowers' financial conditions improve.

Citigroup's results represent a reversal of fortune for a bank that has been hurt in recent months by a string of prominent stumbles, including a $400 million fraud in its Banamex unit and the Fed's rebuke of its plan to increase dividends and share repurchases.

In February, Citigroup said it had uncovered the fraud in Banamex, involving short-term loans to an oil services company with a questionable financial background. The Federal Bureau of Investigation and authorities in Mexico are investigating the breach.

Part of the focus of those inquiries is looking at whether Citigroup had the proper controls in place to prevent such a costly fraud. Federal authorities are also investigation anti-money laundering issues related to Banamex and the transfer of money between accounts in the United States and Mexico.

For investors, perhaps the most serious stumble came last month when the Fed rejected Citigroup's capital plan, citing concerns about the reliability of the financial projections that the bank submitted as part of the annual stress test. The rejection was particularly stinging because Citigroup has built a comfortable capital cushion, even under the most stressful economic scenario tested by the Fed.

It was also a big blow for the bank's chief executive, Michael L. Corbat, who has promised to help mend fences with regulators - relationships that had been strained during the financial crisis. The bank has not detailed whether it plans to resubmit its capital plan.

The first quarter showed that some of Mr. Corbat's efforts to streamline the bank by shedding assets no considered vital were paying off. The bank's operating expenses fell 4 percent, to $10.9 billion.

As part of that cost-cutting, the bank recently laid off about 200 employees in its markets group, including the brother of a former Citigroup chief executive, Charles O. Prince, according to a person familiar with the matter.

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