Well I was wrong. Instead of coming in a penny short as I had predicted, Citigroup Inc. (NYSE: C) beat Wall Street estimates for its first quarter earnings.
Despite a decline in earnings, as Reuters reports, Citigroup's earnings adjusted for restructuring charges came in 9 cents a share ahead of the expected $1.09. Net income fell for the third straight quarter, declining to $5.01 billion, or $1.01 per share, from $5.64 billion, or $1.12, a year earlier. And excluding an $871 million restructuring charge, profit totaled $1.18 per share.
The best news from my perspective is that revenue growth was strong while cost growth decelerated. Specifically Citigroup revenue rose 15% to $25.46 billion, while operating expenses rose 17% to $15.57 billion. Excluding the charge, however, expenses rose just 6%. This compares favorably to the 23% cost growth in the fourth quarter of 2006. The first quarter revenue growth of 15% matches that of last year's fourth quarter.
The good news? Trading and investment banking. Assets hit $2 trillion for the first time, ending the quarter at $2.02 trillion -- helped by a 40% rise in trading account assets, to $460.1 billion. Revenue was up 20% from fixed-income capital markets and 26% from equity markets which boosted corporate and investment banking profit 36% to $2.62 billion.
The bad news was consumer banking whose profit fell 14% to $2.63 billion, as revenue rose 10% to $13.11 billion. In the U.S., profit fell 12% while revenue rose 6%, while international consumer profit fell 16% and revenue rose 14%.
These results suggest that shareholder would be far better off with two separate companies: Citigroup Consumer (CC) -- which would own its consumer banking units -- and Citigroup Business (CB) which would control everything else. If so, I would have held onto CB and sold my CC last year. But once all the bad debt clears out of the consumer lending industry, CC's price would probably be way down and would be a good bet on a future consumer recovery.
However, that's all fantasy land. For now, C is up 70 cents. If Citigroup can accelerate revenue growth and reduce costs, its stock could rise further.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares.
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Reader Comments (Page 1 of 1)
4-16-2007 @ 4:18PM
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