(Reuters) - Citigroup's first-quarter profit fell 27% as the bank took charges related to its reorganization and paid higher fees to a government deposit insurance fund, but beat analyst expectations as some businesses grew.
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. After initially rising, Citi shares fell 2.8% in late morning. "Last month marked the end to the organizational simplification we announced in September," Fraser said in a statement. The bank expects the reorganization headcount reduction to reach 7,000 people and took charges related to severance in the first quarter.
Revenue rose in its services, banking and retail divisions.
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.
Revenue will rise to $80 billion to $81 billion this year, 1.8% to 3% higher than in 2023, the company forecast.
"There's a lot of risks out there," Citi's finance chief Mark Mason told reporters on a conference call on Friday. "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."
SEGMENT REVENUE
As Citi proceeds with its reorganization, markets have rewarded Fraser with an 18% stock boost that has outperformed peers and the benchmark S&P 500. Investors are now assessing its growth prospects in priority areas such as wealth 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 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 fees fueled a 49% surge in banking revenue to $1.7 billion. Investment banking fees rose 35% to $903 million, driven mainly by fees from debt and equity capital markets transactions.
Citi's investment banking market share is below historical levels, but is growing, and likely to expand further as deals emerge in healthcare, technology and financial companies, Mason said. The arrival of Viswas Raghavan, former investment banking co-head at JPMorgan Chase, in the summer 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. Citi estimates its clients have $5 trillion in investable assets held in other institutions, and expects to grow the bank's share by attracting more of those assets.
While Citi's consumer banking division grew revenue, it also stockpiled more money to cover potential losses from customers who default on their loans. Non-conforming loans in the credit card division rose 74% to $1.9 billion.
Rival JPMorgan Chase reported a higher first-quarter profit on Friday, while Wells Fargo's quarterly profit shrank as it earned less from customer interest payments.
Citi 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 in two enforcement actions from the U.S. Federal Reserve and the Office of the Comptroller of the Currency from 2020.
The consent orders direct the bank to repair deficiencies in its risk management, data governance and internal controls.
By Manya Saini in Bengaluru and Tatiana Bautzer in New York
Editing by Lananh Nguyen, Arun Koyyur and Nick Zieminski
