|
 On conference calls, executives suggested the pain might not be over
by saying the bank is unlikely to meet a key performance target, and
that it could $400 million more in credit costs this year than
previously thought if oil prices drop by a certain amount.
"2016 didn't get off to the start we hoped for," Chief Executive
Michael Corbat said on a conference call to discuss results with
analysts.
Citigroup, the fourth largest U.S. lender by assets, reported the
biggest drop in profit among big U.S. banks that have released
first-quarter results so far. However, lower operating expenses
helped the bank beat Wall Street's low expectations.
Citi's share price was little changed by the close of trading, down
6 cents at $44.92. The shares are trading at a sharp discount to the
value the bank places on its hard assets of $62.58 per share.
Banks globally have had a tough start to the year amid near-zero
interest rates and an economic slowdown in China. Their loans to
energy companies have only made things worse, as a slump in oil
prices has led to bankruptcies and financial stress for many oil and
gas producers. The industry has been doing all it can to reduce
costs in an effort to minimize the blow of lower revenue.
Citigroup recorded $491 million in so-called "repositioning" charges
as part of its cost-cutting effort. Those costs included severance
payments for managers and trading staff, moving certain positions to
lower-cost cities, and changing the way it uses real estate
sometimes by exiting locations.
Wall Street businesses are getting hit because revenue is hard to
come by. Citigroup's trading revenue dropped 15 percent last quarter
from the year-ago period, while revenue from deals and underwriting
fell 27 percent.
Citigroup is cutting back in areas where executives think revenue
will not be coming back, Chief Financial Officer John Gerspach said.
In fixed-income, he hinted that cuts are happening in businesses
including one that sells products that trade on differences between
yields on different bonds. In contrast, Citigroup's interest-rate
trading is booming.
"We are making selective reductions where we need to," Gerspach
said, to reflect "what we think the market reality is going
forward."
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ENERGY STRESS
Citigroup also had some troubles in its energy loan portfolio, like
its peers JPMorgan Chase & Co <JPM.N>, Bank of America Corp <BAC.N>
and Wells Fargo & Co <WFC.N>, which reported earnings earlier in the
week.
Nonetheless, Gerspach said the bank has "a very good book of energy
loans" relative to competitors, and some analysts agreed.
"The market is acting as though there were a significant credit
quality issue lurking, which we think is highly unlikely and Citi's
numbers were once again outstanding on that front," Oppenheimer's
Chris Kotowski said in a note to clients, pointing out the stock's
large discount to tangible book value.
Still, the bank is facing the kind of profit pressure that has been
plaguing the finance sector for some time. While its operating
expenses declined 3.0 percent to $10.5 billion, revenue fell 11
percent. Repositioning costs are expected to be much lower through
the rest of 2016, but Gerspach said weak business so far will likely
result in a worse-than-expected ratio of costs to revenue for the
full year of about 58 percent.
It's "tough to recover from the first quarter that we had," he said.
Overall, Citigroup's net income fell to $3.5 billion, or $1.10 per
share, during the first quarter, beating the average analyst
estimate of $1.03 per share, according to Thomson Reuters I/B/E/S.
Revenue, at $17.56 billion, topped the average estimate of $17.48
billion.
(Reporting by Sweta Singh in Bengaluru and David Henry in New York;
additional reporting by Dan Freed in New York; Writing by Lauren
Tara LaCapra; Editing by Kirti Pandey)
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