APRIL 11 — Citigroup’s first-quarter profit fell 27 per cent but beat market expectations today, while taking a US$483 million charge tied to CEO Jane Fraser’s sweeping reorganisation.

Net income fell to US$3.4 billion, or US$1.58 per share, in the three months ended March 31, the bank said today. That compares with US$4.6 billion, or US$2.19 per share, a year earlier.

"Last month marked the end to the organizational simplification we announced in September,” Fraser said in a statement. "The result is a cleaner, simpler management structure that fully aligns to and facilitates our strategy.”

Shares in the third-largest US lender rose 2.5 per cent in early trading.

CFO Mark Mason said the headcount reduction of 7,000 will appear in data over the next few quarters as the average notice period for laid-off employees was about 90 days.

The lender expects an annual savings of US$1.5 billion from overhaul, it said in an investor presentation.

The bank also paid US$251 million into a Federal Deposit Insurance Corp (FDIC) fund that was drained last year after three regional lenders failed.

Excluding one-time items, Citi’s adjusted profit of US$1.86 per share sailing past Wall Street expectations of US$1.23 each, according to LSEG data.

"Citigroup’s 1Q results were healthy and demonstrated that the company continues to make progress on its transformation,” said Ian Lapey, portfolio manager at Gabelli Funds, which hold shares in the bank.

Revenue fell 2 per cent on a reported basis to US$21.1 billion in the first quarter. Excluding one-off items such as the sales of businesses last year, it was higher in the quarter.

It forecast revenue between US$80 billion to US$81 billion for 2024, about 1.8 per cent to 3 per cent higher than US$78.5 billion in 2023.

"There’s a lot of risks out there,” CFO Mason told reporters on a conference call.

"The global economy seems to be resilient. I think that we do expect that there will be a slowdown in growth through 2024, but when you look at the labor markets and the strength of the consumer, that seems to be holding up.”

Segment revenue

Performance at Citi’s services and banking divisions stood out.

Revenue from the business that provides cash management, clearing and payments services for the world’s biggest corporations rose 8 per cent to US$4.8 billion, buoyed by an 18 per cent jump in securities services revenue to US$1.3 billion.

Meanwhile, a resurgence in capital markets and investment banking fees fueled a 49 per cent surge in banking revenue to US$1.7 billion. Corporate lending rose 34 per cent.

Markets were a sore spot. Trading revenue fell 7 per cent to US$5.4 billion, dragged lower by fixed income and currencies.

Wealth management revenue shrank 4 per cent to US$1.7 billion.

While Citi’s consumer banking division grew revenue, it also stockpiled more money to cover potential losses from customers who default on their loans.

The bank said credit costs of US$2.2 billion were driven by higher non-conforming loans of US$1.9 billion.

Rival JPMorgan Chase reported a higher first-quarter profit on Friday, while Wells Fargo’s quarterly profit shrank as it earned less from customer interest payments.

Reorganisation costs

For the full year, bank expects expenses between US$53.5 billion to US$53.8 billion, excluding the FDIC’s special assessment fees.

Its forecast included about US$700 million to US$1 billion of repositioning costs and restructuring charges, of which roughly US$483 million was recorded in the first quarter.

Fraser began a sweeping reorganization in September to simplify the bank and improve performance, pushing up expenses to US$14.2 billion.

The largest round of staffing moves, including reassignments and departures, was communicated to employees in late March.

In the previous quarter, Citi had posted a US$1.8 billion loss as one-time items dragged down its earnings.

"These past months have not been easy,” Fraser wrote in March. "Far from it. The changes we’ve made are the biggest that most of us have experienced at Citi ..., putting us on the front foot and improving our competitiveness,” she had said.

Investors have rewarded Fraser with a share price boost since the overhaul began in September. Next, they want to see growth in wealth management and investment banking.

The company’s stock has risen 18 per cent this year, outperforming peers and beating the benchmark S&P 500.

The bank still faces challenges, including regulatory problems and an unsettled workforce. In February, Reuters reported US regulators asked Citigroup for urgent changes to the way it measures default risk of its trading partners.

Citi is working to fix problems laid out in two enforcement actions from the US Federal Reserve and the Office of the Comptroller of the Currency from 2020.

The consent orders direct the bank to repair deficiencies in its risk management, data governance and internal controls. — Reuters