Citi profit beats as companies, consumers on borrowing binge

Nathan Howard/Bloomberg

Citigroup's profit topped analysts' estimates as corporations tapped markets for financing and consumers leaned on credit cards — signs that a prolonged period of elevated interest rates will benefit big banks.

Net income in the first quarter totaled $3.4 billion, or $1.58 a share, the New York-based bank said Friday in a statement. That topped the $1.23 per share predicted by analysts in a Bloomberg survey.

Mounting expectations that the Federal Reserve will take time to cut interest rates bolstered earnings in key business lines, with more companies enlisting Citigroup's bankers to sell bonds rather than wait. Consumers, meanwhile, spent more on credit cards and carried larger balances.

Investors have been keenly watching Citigroup's earnings as Chief Executive Jane Fraser is carrying out a companywide restructuring that includes cutting 20,000 positions. About 7,000 jobs had been eliminated by the end of the first quarter, Citi said in a separate presentation.

"There are still stranded costs we're working to eliminate," Chief Financial Officer Mark Mason said in a conference call with journalists. "There's still improved productivity that we expect over the next couple of years."

The bank generated $21.1 billion of net revenue in the quarter, beating the average Wall Street estimate of $20.4 billion. The figure was up 3% from a year earlier, excluding a gain the bank had booked on the sale of a unit in India.

Citigroup's business overhaul resulted in "a cleaner, simpler management structure that fully aligns to and facilitates our strategy," Fraser said in the statement. "We've made good progress as we retire multiple legacy platforms, streamline end-to-end processes and strengthen our risk and control environment."

The bank's full-year guidance for revenue and expenses remained unchanged.

Shares of Citigroup rose 2.7% to $62.33 at 9:32 a.m. in New York, extending their gain this year to 21%.

Corporations that eschewed markets when the Fed was rapidly hiking rates returned this year once they had a clearer sense of what was to come, raising capital and shoring up their financing. That business may benefit further as investors temper expectations for the central bank to lower rates this year.

Net interest income rose 1.2% to $13.5 billion, beating Wall Street estimates. Earlier Friday, JPMorgan Chase reported that first-quarter NII rose 11% from a year earlier, slightly short of what analysts predicted, while Wells Fargo & Co. posted an 8% drop.

Citigroup's capital markets desks earned more than expected from underwriting debt, raking in $576 million of fees, as well as from equities. That was offset by a slump in advising on mergers and acquisitions as deal activity remained muted.

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The bank's traders posted a 7% decline in revenue — milder than the 8% to 12% drop Fraser had warned investors to expect at a conference last month, which analysts had baked into estimates. Fixed income, currencies and commodities generated $4.2 billion, about 10% less than a year earlier, while revenue from equities rose 5% to $1.2 billion.

The wealth business, where Citigroup has struggled to compete against more established competitors such as JPMorgan and Morgan Stanley, also notched a 4% decline. Last year, Fraser enlisted Andy Sieg from Bank of America to lead the unit.

Credit cards drove growth in U.S. personal banking, boosted by more spending, as well as larger interest-generating balances on cards from partnerships, such as with Home Depot.

Fraser's restructuring effort is Citigroup's largest in years. With it, the company is focusing on five key businesses: markets, banking, wealth, U.S. personal banking and services.

That last segment, which includes handling cash for corporations, boosted revenue 8% to $4.8 billion, roughly in line with analysts' estimates.