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Citi profit falls on severance costs from reorganization while stock slides

Published 04/12/2024, 08:06 AM
Updated 04/12/2024, 02:30 PM
© Reuters. FILE PHOTO: The logo for Citibank is seen on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., August 3, 2021. REUTERS/Andrew Kelly/File Photo
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By Manya Saini and Tatiana Bautzer

(Reuters) -Citigroup's first-quarter profit fell 27% as the bank took charges related to its reorganization, although it beat expectations as revenues grew in key divisions.

The bank's shares were volatile, wiping out an earlier gain to slide 2% while other bank stocks also weakened.

Citi's net income fell to $3.4 billion, or $1.58 per share, in the three months ended March 31, the bank said on Friday, above Wall Street expectations, according to LSEG data. The stock showed a mixed reception.

CEO Jane Fraser outlined further plans on Friday to turn around the company by reducing bureaucracy, cutting staff and focusing on key businesses that serve some of the world's biggest corporations. The overhaul is aimed at making Citi more competitive with rivals including JPMorgan Chase (NYSE:JPM) and Wells Fargo, where earnings also exceeded forecasts.

Citi predicted its revenue would rise 1.8% to 3% this year to between $80 billion and $81 billion. The gains will come after the bank reduced its workforce by 7,000 employees and took $483 million in charges in the first quarter related to severance and a payment into a Federal Deposit Insurance Corp fund.

Most of the layoffs were concluded in the first quarter, generating an expected $1.5 billion of cost savings, Fraser told analysts on a conference call. Additional cuts could save as much as $2.5 billion a year in the medium term.

Citigroup is still working to unwind operations in markets such as Russia. Its preparations are still on track for an initial public offering of its Mexican business next year.

"Results were healthy and demonstrated that the company continues to make progress on its transformation," said Ian Lapey, portfolio manager at Gabelli Funds, which hold shares in the bank.

"There's a lot of risks out there," Citi's finance chief Mark Mason told reporters on a conference call. "The global economy seems to be resilient. I think that we do expect that there will be a slowdown in growth through 2024, but when you look at the labor markets and the strength of the consumer, that seems to be holding up."

After markets rewarded Citi with an 18% stock boost this year, investors are now assessing its growth prospects in priority areas such as wealth management and investment banking.

In the first quarter, performance at Citi's services and banking divisions stood out. Revenue from the business that provides cash management, clearing and payments services for the world's biggest corporations rose 8% to $4.8 billion, buoyed by an 18% jump in securities services revenue to $1.3 billion.

The results "underline the promise of certain businesses, such as Treasury & Trade Solutions," said Peter Nerby, Moody's (NYSE:MCO) Ratings senior vice-president. "Crucially for creditors, risk-based capital ratios improved while risk appetite and liquidity are stable, as management enters a pivotal year in the execution of the refreshed strategy.”

Meanwhile, a resurgence in capital markets and investment banking fueled a 49% surge in banking revenue to $1.7 billion. Investment banking fees rose 35% to $903 million, driven mainly by debt and equity capital markets.

While Citi's investment banking market share is below historical levels, it is growing and likely to expand further as deals emerge in healthcare, technology and financial companies, Mason said.

The summer arrival of Viswas Raghavan, former investment banking co-head at JPMorgan, to run the banking division will also help to boost results, executives said.

Wealth management, a key area in Citi's strategy, had a 4% drop in revenue in the quarter to $1.7 billion.

Fraser cited some positive signs for wealth, such as higher fees and an estimated $22 billion of net new assets gathered over the past 12 months. Citigroup seeks to attract more of the $5 trillion in investable assets that its clients have parked in other institutions.

Consumer banking revenue rose, but the unit also stockpiled more money to cover potential losses from customers who could default on their loans. Non-conforming loans in the credit card division rose 74% to $1.9 billion.

The lender still faces challenges, including regulatory problems and an unsettled workforce. In February, Reuters reported U.S. regulators asked Citigroup for urgent changes to the way it measures default risk of its trading partners.

The bank is working to fix problems laid out by regulators ordering the bank to repair deficiencies in its risk management, data governance and internal controls.

© Reuters. FILE PHOTO: The logo for Citibank is seen on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., August 3, 2021. REUTERS/Andrew Kelly/File Photo

"There are a few areas where we are intensifying our processes and data remediation, particularly related to regulatory reporting," Fraser said.

"But something of this magnitude, you'd expect us to have some areas where we have good progress and others where we need to intensify efforts," she added.

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