April 19, 2010

Citigroup's Profit Soars; Broker Venture Also Strong

Citi's earnings hit $4.4 billion; Smith Barney unit triples income

After nearly two years of dismal news, Citigroup reported Monday, April 19, a profit of $4.4 billion for the quarter ended March 31, 2010. The positive report should buoy American taxpayers, who own 27% of the company after federal bailouts helped stem multibillion dollar losses.

The first-quarter profit was a result of the rebounding economy overseas and improving bond market. These areas play to Citigroup's strengths, which has a big presence in emerging markets and fixed income.

Citigroup achieved some of its turnaround through aggressive streamlining, like cutting loose its units in insurance and retail brokerage (it owns 49% of Smith Barney after selling a majority stake to Morgan Stanley, which releases results on Wednesday, April 21).

"Citi today is fundamentally a very different company from what it was only two years ago," Vikram Pandit, Citigroup's chief executive, said in statement.

The bank's brokerage and asset management profit nearly tripled, to $86 million, from $31 million in the fourth quarter, on a 25% increase in revenue. Compared with the first quarter in 2009, before the Smith Barney sale, Citigroup's asset and wealth management revenue fell 79%, to $340 million, but profit rose 69%.

Citigroup did not disclose detailed results for Smith Barney. The venture with Morgan Stanley, which employs more than 18,000 advisors, comprises 87% of Citigroup's asset management and wealth management assets.

Citigroup's $4.4 billion profit was its highest since the second quarter of 2007. The bank earned 15 cents a share, on $25.4 billion in revenue, compared with a $1.6 billion profit and a loss of 18 cents a share, on $24.5 billion in revenue, in the same period a year ago. A prime example of the bank's turnaround was the vast difference in the first quarter profit compared to the fourth quarter in 2009, when it lost $7.6 billion.

"We are proud of our first quarter results but remain cautious about the environment, given the uncertain economic recovery and high unemployment in the U.S.," Pandit said. "Realistically, we do not expect our performance to follow an invariable trend-line upward. Longer-term, however, the prospects for Citi are clear and bright."

Citigroup's profit in its Securities and Banking unit was $3.2 billion, up $2.9 billion from the fourth quarter in 2009. The bank's revenue in Fixed Income Markets rose 77%, to $5.4 billion, compared to $1.7 billion in the prior quarter. Citigroup said the increase in revenues was mainly driven by a strong performance across interest rates and currencies, and credit and securitized products.

Investment banking revenues were $1.1 billion, down $402 million, or 28%, from the prior quarter, mainly due to a decline in equity underwriting.

Read the full version of Citigroup's earnings report.

Read a story on the change in Citi's compensation of its brokers in an interview with Debbie McWhinney from the archives of InvestmentAdvisor.com.

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