The Banking and Strategy Initiative

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Bank Results Season: Citi’s uphill battle for a 10% RoE

Q1 earnings set the ball rolling for the Global Bank’s reestablishment strategy under the new CEO, with $4 Bln in Net profits excluding DVA on $20.8 Bln in revenues. The Bank’s $3.8 Bln net profits add to the $6 Bln announced by JP Morgan and $5.3 Bln announced by Wells Fargo on Friday which amounted to $1.6 and $0.94 in EPS respectively. Citi’s $1.29 in EPS thus takes the challenge to Bank of America later in the week , which has limited international operations after almost $100 bln in asset sales since 2008. The bank has grown its profits more than 30% from its shameful year ago performance in the Q1 results of 95 cents per share or $2.8 B. The bank’s NIMs, unlike the competition have picked up after a bad 2012 to 2.94% again relying on international capital

Loan loss and reserve releases like the other biggies have come down to under $1 B though Loan Loss Reserves are still a huge $23.7 B or just under 4% of its outstanding loans. GCB revenues stayed at $10 B evenly split between NA and International businesses while Transaction services continuedto decline marginally to $2.7 B and Corporate investment banking revenue hit a high growing under double digits to $7.1 Bln.  Cost of credit at the operational Citicorp business increased because of lower loan loss reserves despite the improved NIMs leading to Op Costs of $10.1 Bln and hit GCB Net income again to $1.9Bln

At the CIB division, the bank was still doing only $204 mln in advisory fees but higher debt underwriting tabs pushed the investment Banking total for the bank to $1.1 Bln while combined trading revenues were still a lackluster 25% behind JP Morgan at $5.4 Bln

Despite the buoyant beginnings in 2013, Citi is still battling $283 B in Citi holdings assets declining to #$149 Bln in this quarter down a sharp 30% but still hurting RWA and alongwith Citi’s claimed DTA, seriously denting its Basel III Capital ratios even as it cleared the Fed Stress tests in the 2013 edition allowing it to set a $2 Bln buyback budget, the bank still envisages that it is unlikely to make it with $40 B in Global Consumer Banking (2012 Topline) or the nearly $11 B in $73 Bl of revenues in 2012 that were headed from Transaction Banking. At a recent March Financial Services Conference, Mike Corbat also presented the bank as having 20 markets out of nearly fourt imes that , those were delivering growth at a  sub 40% efficiency ration and another 15 odd markets that are strong enough to survive without any further changes. The other half of the bank, within Citicorp, continues to suffer from a nearly60% efficiency ratio including 21 marekts in which the bank is planning to restructure or exit operations.

The bank continues to rely on merging Markets to bring home the moolah in the future decades but NA Consumer Banking that still defines half its Global consumer Banking Topline may continue as the most profitable. The Consumer branch is also redesignating its Credit Cards portfolio across US and international businesses into four segments from Base to affluent to bring order to the seeming chaos

Citi improved its investment banking take from Asia by 471%

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