Citigroup Profit Sinks 46% On Loan Loss Provisions, Dealmaking Slump

Citigroup Inc posted a 46% plunge in first-quarter profit on Thursday as it took hits from provisions for Russia-related losses, a slump in underwriting fees and higher expenses.

Citi - the most global of the U.S. banks - added $1.9 billion to its reserves in the quarter to prepare for losses from direct exposures in Russia and the economic impact of the Ukraine war.

That pushed credit costs to $755 million, a contrast with the $2.1 billion benefit a year ago when it freed up loss reserves built during the COVID-19 pandemic.

The bank said it had reduced its exposure to Russia to $7.8 billion, from $9.8 billion in December. If the conflict follows a severely adverse scenario, it would now lose no more than $3 billion, down from the nearly $5 billion estimated last month.

Net income fell to $4.30 billion, or $2.02 per share, for the quarter to March 31, from $7.94 billion, or $3.62 per share, a year earlier.

Analysts on average had expected a profit of $1.55 per share, according to Refinitiv IBES data.

Citi shares rose on the report and were up 1.6% shortly before a mid-day conference call with analysts.

"This was in line with our hopes for what we would see," said Patrick Kaser, a portfolio manager at Brandywine Global Investment Management and a long-time investor in the bank.

The reduced Russia exposure was a plus. "They appear to have navigated and managed down their risk," Kaser said.

Revenue fell 2% to $19.2 billion.

That was mainly due to a 43% slump in investment banking revenue as last year's rush of deals involving blank-check companies tapered off, drying up underwriting fees.

Revenue from Treasury and Trade Solutions - Citi's crown jewel business - rose 18% due to higher net interest income and fee growth.

"While the geopolitical and macro environment has become more volatile, we are executing the strategy we announced at our recent Investor Day," Chief Executive Officer Jane Fraser said in the results announcement.

Fraser is leading an overhaul of Citi, which lags the financial performance of peers and has to carry out orders from U.S. banking regulators to fix its risk and compliance systems.

Her push has, however, driven up costs, with expenses rising 10% in the quarter excluding those for divestitures of the Asia consumer business.

BUYBACKS

Yet Citi has been using any excess capital to buy back shares. Unlike other big banks, its stock trades at a discount to its net worth, making buybacks attractive.

The bank returned $4 billion to shareholders in the quarter, including $1 billion in dividends, and its share count was 6% lower than a year earlier.

Citigroup expects to do a "modest" level of buybacks in the second quarter that would be less than the $3 billion in the first quarter, Citigroup Chief Financial Officer Mark Mason told reporters after the bank posted results.

The first quarter repurchases came as Citi's capital account was hurt by unrealized losses on securities as a result of the recent rise in interest rates.

Its Common Equity Tier 1 capital ratio fell to 11.4% from 12.2% in December. The bank expects to have the ratio back up to 12% by year-end as earnings add to its capital, Mason said.

A similar, but worse, decline was reported by JPMorgan Chase & Co on Wednesday, deepening concerns among investors that bank buybacks would be constrained this year.

Kaser said Citi's capital levels held up better than he had feared.

Citigroup expects additional capital to come from the sales of its consumer businesses outside of the United States.

In Mexico, the bank is in "initial discussions" with potential buyers of its Citibanamex franchise, Mason said, adding that disposal options include a public offering.