(By Mani) Investors seemingly have received the earnings report from banking giant Citigroup, Inc. (NYSE:C) positively despite its lukewarm first quarter numbers.
Despite the bank's earnings and revenues missing Wall Street's expectations, shares of the company closed up 1.77% at $34. The stock is trading above the 100 and 200-day moving averages and crossed its 50-day moving average today.
It is interesting to wonder why shareholders cheered the results. To be frank, investors were not expecting strong results from Citigroup, whose performance had been mixed in the past four quarters and it is in a turnaround phase. In the past four quarters, Citigroup posted profit increases in the second and third quarter of 2011, while its profits fell in the first and fourth quarter of 2011.
Investors may have concentrated on expenses, and this is where the New York-based financial services company hit the bulls eye.
Total operating expenses remained flat with last year at $12.3 billion. The bank also kept aside less for loan losses as the provision fell 5 percent to $3.01 billion as the $2.3 billion improvement in net credit losses was largely offset by a $2.2 billion reduction in net loan loss reserve releases.
Citigroup's total allowance for loan losses was $29.0 billion at quarter's end, or 4.5 percent of total loans, compared to $36.6 billion, or 5.8 percent, in the prior year period. The $1.2 billion net release of credit reserves in the quarter was down 65 percent from the prior year period.
After failing the Fed's stress test, investors did not expect an increase in return of capital in the form of dividend or buyback. However, a sequential improvement in capital ratios and CEO Vikram Pandit's comments could have evoked positive sentiments in the minds of investors that the bank may announce a payout hike sooner or later.
The tier 1 common capital ratio grew to 12.4 percent from 11.8 percent in the fourth quarter and 11.34 percent last year, implying a likely increase in future payout. Tier 1 Capital Ratio rose to 14.2 percent in the quarter from 13.55 percent in the fourth quarter and 13.26 percent in the same quarter last year. Based on the first quarter financials, the bank said it would resubmit a new capital plan to the Fed, which would have 75 days to examine it.
In the conference call with analysts, Citigroup CEO Vikram Pandit said: "As we consider our resubmission for this year, we also have to keep in mind that we will be submitting the 2013 capital plan to the Fed a short time later."
Meanwhile, the bank's consumer banking revenues advanced 5 percent to $10 billion after the segment generated revenue growth across all geographies except EMEA. Transaction services revenue rose 7 percent to $2.74 billion.
Citi's debt underwriting revenue advanced 19 percent to $601 million. The improvement was helped by low interest rates that led the company's corporate clients to raise capital by issuing more debt than in 2011.
However, like its peers, Citi faced a blow from its investment banking unit which reported a 12 percent revenue decline to $5.3 billion due to lower volumes in stock markets this year.
Still saying the company's earnings and sales missing Street? Not exactly.
The company's profit and revenue fell 2 percent, but excluding valuation adjustments, both these metrics improved from last year.
For the first-quarter, Citi earned $2.93 billion or 95 cents a share, down from last year's $3.0 billion, or 99 cents a share. Excluding debt valuation adjustments, it earned $1.11 per share.
Total revenues declined to $19.41 billion from $19.73 billion a year-ago. Excluding valuation adjustments, revenue came in at $20.69 billion. Revenues also improved 13 percent from the fourth quarter.
Excluding items, both earnings and revenue topped analysts estimate of $1 a share and $19.81 billion, respectively.
Loans and deposits – a key metric of any bank – also registered an upside. Citi's loan book improved 12 percent to $514 billion, and deposits advanced 5 percent to $906.1 billion.
Shares of Citigroup, which has some 200 million customer accounts, have dropped 24 percent in the past year, but increased 18 percent year-to-date. They have trading between $21.40 and $46.00 in the past 52-weeks.