Citigroup profit drops 46% on loan loss provisions and deal crisis

A view of the exterior of the Citibank headquarters in New York, New York, U.S., May 20, 2015. REUTERS/Mike Segar/File Photo

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  • Citi adds $1.9 billion in Ukraine crisis reserves
  • Investment banking revenue plummets following slowdown in SPACs
  • Bank returns $4 billion to shareholders

NEW YORK, April 14 (Reuters) – Citigroup Inc (CN) reported a 46% plunge in first-quarter profit on Thursday due to Russia-related loss provisions, lower underwriting fees and higher spending.

Citi – the most global of US banks – added $1.9 billion to its reserves in the quarter to prepare for losses from direct exposures in Russia and the economic impact of war in Ukraine.

That pushed credit costs to $755 million, a contrast to the $2.1 billion a year ago when it released loss reserves built up during the COVID-19 pandemic.

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The bank said it reduced its exposure to Russia to $7.8 billion from $9.8 billion in December. If the conflict follows an extremely adverse scenario, it would only lose $3 billion, compared to nearly $5 billion estimated last month.

Net income fell to $4.30 billion, or $2.02 per share, for the quarter to March 31, from $7.94 billion, or $3.62 per share, a year earlier.

Analysts on average had expected earnings of $1.55 per share, according to data from Refinitiv IBES.

Revenue fell 2% to $19.2 billion.

This was mainly due to a 43% drop in investment banking revenue as last year’s rush of deals involving blank check firms dwindled, drying up underwriting fees.

Revenue from treasury and business solutions – Citi’s crown jewel business – rose 18% due to higher net interest income and fee growth.

“As the geopolitical and macroeconomic environment has become more volatile, we are executing the strategy we announced at our recent Investor Day,” Chief Executive Jane Fraser said in the earnings announcement.

Fraser is leading an overhaul of Citi, which is lagging behind the financial performance of its peers and must carry out orders from US banking regulators to fix its risk and compliance systems.

Its surge did push up costs, however, with spending up 10% in the quarter, excluding those related to divestitures in the consumer business in Asia.

REDEMPTIONS

Still, Citi used any excess capital to buy back stock. Unlike other big banks, its shares trade at a price below its net worth, which makes buybacks attractive.

The bank returned $4 billion to shareholders in the quarter, including $1 billion in dividends, and its share count was 6% lower than a year earlier.

The redemptions came as Citi’s capital account was hit by unrealized losses on securities following the recent rise in interest rates.

Its Common Equity Tier 1 capital ratio fell to 11.4% from 12.2% in December. The bank announced its intention to reduce the ratio to 12% by the end of the year.

A similar decline was reported by JPMorgan Chase & Co (JPM.N) on Wednesday, heightening investor concerns that bank takeovers would be limited this year. Read more

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Reporting by Manya Saini in Bengaluru and David Henry in New York; Editing by Aditya Soni

Our standards: The Thomson Reuters Trust Principles.

Dorothy H. Lewis