Citigroup’s 2Q Profit Rises 18 Percent

Published 12:00 am Monday, December 26, 2005

NEW YORK – Citigroup Inc. said Friday its second-quarter profit rose 18 percent on strong overseas operations that led to record revenues for the biggest U.S. bank.

Like its competitors, Citigroup took advantage of faster-growing markets abroad as the sluggish U.S. housing market and other factors slowed domestic business and weakened credit quality.

“It’s the heart and soul of our strategy,” said Gary Crittenden, Citi’s chief financial officer, pointing out that international revenue rose 34 percent to $12.56 billion in the second quarter while U.S. revenue edged up 6 percent.

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Citigroup’s net income rose to $6.23 billion, or $1.24 per share, in the April to June period, from $5.27 billion, or $1.05 a share, in the same period a year earlier. Revenue in the quarter grew 20 percent to a record $26.63 billion from $22.18 billion a year earlier.

The results beat the average forecast of analysts surveyed by Thomson Financial of earnings of $1.13 a share and revenue of $24.89 billion.

Analysts and investors were pleased by the bank’s operating leverage and performance in wealth management and investment banking, but remained concerned about potential losses in a shaky credit environment. Citigroup shares fell 87 cents, or 1.7 percent, to $50.26, by midday trading Friday.

“Credit was a drag on our bottom-line results,” said Chairman and Chief Charles Prince in a conference call with analysts, and CFO Crittenden said he expects to “continue to see deterioration” in consumer credit in the second half of the year.

Credit costs rose $934 million in the second quarter, as net credit losses increased $259 million and after Citigroup padded its loan loss reserves by $465 million, compared with a release of $210 million from its reserves in the second quarter of 2006. The bank said it saw higher delinquencies in second mortgages in consumer lending, and that it altered loan loss estimates for its credit cards portfolio.

Crittenden said Citigroup will probably continue to bolster its loan loss provisions in the second half of the year, and that it has halved its subprime holdings to $13 billion compared with late 2006.

Investors also worry that leveraged loans for corporate buyouts could pose problems for Citigroup; Crittenden said that last quarter, the bank had trouble selling debt on four deals.

Citigroup views the global credit environment as stable, though.

The financial sector has taken a hit this week, as major banks reporting financial results _ including Bank of America Corp., JPMorgan Chase & Co. and Washington Mutual Inc. _ said they have set more money aside to account for borrowers who may shirk payments. That indicates banks expect a dicier lending climate, which could lead to restrained investing, or worse, losses.

Jitters over risky lending ballooned when Bear Stearns Cos. said Tuesday that the value of two hedge funds that bet on bonds backed by subprime mortgages plunged from $1.5 billion to practically nothing. Citigroup sells bonds backed by subprime mortgages, or mortgages sold to people with poor credit.

“We like the stock on a 12 month view given the expense program …. However, near-term capital markets trends could weigh on the stock,” wrote Morgan Stanley Betsy L. Graseck in a note.

Operating expenses rose 16 percent last quarter due to higher business volumes and acquisitions. The company said it opened or bought 160 new retail bank or consumer branches during the quarter, 136 of which were abroad. In early April, the bank said it would slash $2 billion from this year’s operating costs largely by cutting 17,000 jobs. The cuts are about one-third complete, Crittenden said, and slightly ahead of schedule.

Citigroup’s consumer lending revenue climbed 23 percent in the second quarter, which helped drive the bank’s overall U.S. consumer division revenue up 3 percent to $7.78 billion. The international consumer group’s revenue grew 16 percent to $5.89 billion.

The markets and banking division saw revenue rise 33 percent to $8.96 billion _ fueled by a 50 percent rise in international markets and banking revenues to $5.92 billion.

Citigroup sees Asia and Latin America as particularly lucrative regions. The bank is taking steps to list shares on the Tokyo Stock Exchange, and gained full control of Nikko Cordial Corp., the third-largest retail brokerage in Japan. Thursday, Citigroup announced a partnership with the company that runs Banco de Chile to get more customers there.

Global wealth management revenue rose 28 percent to $3.20 billion.

Revenue from alternative investments soared 77 percent to $1.03 billion.

Meanwhile Friday, Charlotte, N.C.-based Wachovia Corp. reported second-quarter profit gained 24 percent, meeting analyst expectations.

A service of the Associated Press(AP)