Citigroup Inc. (NYSE:C – News) today reported net income for the 2007 first quarter of $5.01 billion, or $1.01 per share. Results include a previously disclosed charge of $1.38 billion, or $871 million after-tax, related to a structural expense review conducted during the quarter. Excluding the charge, net income was $5.88 billion, or $1.18 per share. Return on common equity was 17.1%.
Management Comment
“We generated strong momentum this quarter, with revenues increasing 15% to a record, driven by growing customer business volumes. Global consumer deposits were up 12% and global consumer loans grew 11%. In our international franchises, revenues grew 18%, led by international markets & banking revenue up 20%. Our revenue growth combined with improving expense management and, after adjusting for certain non-recurring items, we generated positive operating leverage. Offsetting our improved revenue and expense performance were higher credit costs and a lower level of tax benefits than last year,” said Charles Prince, Chairman and Chief Executive Officer of Citi.
“We continued to invest in expanding our distribution and enhancing our technology as we build a broad, strong foundation for future growth. We also announced the acquisition of Egg, Ltd. in the U.K., the world’s largest internet bank, and we launched a tender offer to acquire 100% of Nikko Cordial in Japan, consistent with our effort to drive growth through a balance of organic investment and targeted acquisitions and expand internationally,” said Prince.
“We achieved these results while completing our structural expense review, which will help us become a leaner, more efficient organization and lower our rate of expense growth. As we look ahead, our priorities are clear: we will invest to grow and integrate our businesses, take actions to improve efficiency and lower costs, and continue to build momentum across our franchises,” said Prince.
U.S. Cards
Revenues increased 2%, driven by 11% growth in non-interest revenues, reflecting a higher level of securitized receivables and a $161 million pre-tax gain on the sale of MasterCard shares. Net interest revenues declined 14%, primarily due to a transfer of higher margin receivables to securitization trusts and net interest margin compression. Expenses decreased 3%.
Average managed loans grew 1%, driven by higher reward and private label card balances, including the addition of Federated card receivables.
The managed net credit loss ratio increased 73 basis points to 4.63%, primarily reflecting an increase in bankruptcy filings over unusually low filing levels experienced in the prior-year period.
Net income declined due to the absence of an $89 million tax benefit recorded on the prior-year period.
U.S. Retail Distribution
Revenues increased 6%, primarily driven by increased customer business volumes. Average deposits and loans grew 22% and 12%, respectively, and investment product sales grew 21%. Deposits in Citibank e-savings reached $12.9 billion. Volume growth was partially offset by lower net interest margins, reflecting increased e-savings and time deposit balances.
Expenses increased 8% on higher customer activity and investment in new branches. During the quarter, 30 consumer finance branches and 21 new Citibank branches were opened. Total branches increased 9% versus the prior year.
Net income declined due to higher credit costs and the absence of a $51 million tax benefit recorded in the prior-year period. Higher credit costs were primarily driven by increased loan volumes, and the absence of a loan loss reserve release recorded in the prior-year period. The net credit loss ratio increased 19 basis points to 2.85%.
U.S. Consumer Lending
Revenues increased 23%, driven by growth in net interest revenues and net servicing revenues, and higher gains on sales of securities. Net interest revenues increased 12%, as growth in average loans, up 16%, offset lower net interest margins.
Higher credit costs reflected increased net credit losses and an increase in loan loss reserves due to portfolio growth, seasoning, and increased delinquencies in second mortgages. The net credit loss ratio in real estate lending increased 14 basis points to 0.33%.
Net income declined 18% due to higher credit costs and the absence of a $31 million tax benefit recorded in the prior-year period.
U.S. Commercial Business
Revenues declined as increased loan and deposit balances, up 8% and 12%, respectively, were offset by lower net interest margins and an increase in the mix of tax-advantaged revenues.
Net income decreased 4%, as higher credit costs reflected increased net credit losses due to portfolio growth and the absence of a loan loss reserve release recorded in the prior-year period. The tax benefit was due to an increase in tax-advantaged revenues.
International Cards
Revenue and net income growth was driven by higher purchase sales and average loans, up 25% and 28%, respectively, and improved net interest margins. Results include the integration of Credicard in Brazil and the acquisition of Grupo Financiero Uno (GFU) in Central America. Revenues also include a $66 million pre-tax gain on the sale of MasterCard shares.
Expenses grew 33%, reflecting the integration of Credicard and GFU, continued investment in organic growth and higher customer activity.
Credit costs increased 30%, primarily driven by target market expansion in Mexico and the integration of Credicard. The net credit loss rate increased 135 basis points to 4.99%.
International Consumer Finance
In Japan, revenues and net income declined due to increased customer refunds and credit costs, reflecting recent changes in the operating environment and the fourth quarter 2006 passage of new consumer lending laws. The revenue decline also reflects a narrowing of the target market. Lower revenues were partially offset by a decline in expenses, driven by a repositioning of the business that included closing 84 branches and 101 automated loan machines during the quarter.
Outside of Japan, revenues increased 23%, driven by average loan growth of 25% and stable net interest margin. Net income declined as revenue growth was offset by increased investment spending, including the opening of 29 new branches, and an increase in credit costs due to portfolio growth. The net credit loss ratio decreased 1 basis point to 3.26%.
International Retail Banking
Revenues increased 12%, driven by increased deposits and loans, up 7% and 13%, respectively, and 33% growth in investment product sales. Loan growth was partially offset by net interest margin compression. Loan balances grew at a double-digit pace in Asia, EMEA and Latin America.
Expense growth reflected increased business volumes and continued investment spending. During the quarter, 19 new branches were opened.
Credit costs more than doubled due to an increase in loan loss reserves due to portfolio growth, the absence of loan loss reserve releases in the prior-year period, and a lower level of recoveries from portfolio sales versus the prior-year period. The net credit loss ratio increased 17 basis points to 1.38%.
Net income declined 20% reflecting higher credit costs, the absence of a $55 million tax benefit recorded in the prior-year period, and lower APB 23 tax benefits in Mexico.
For complete details on Citi’s latest results visit CardData
(www.carddata.com).
