Citigroup's net income climbed 17% to $4.09 billion, or $1.35 a share, thanks to improved credit quality and an outperformance in bond trading.
Excluding a gain on a series of asset sales, profit was $1.27 a share, beating the $1.24 average estimate of 22 analysts surveyed by Bloomberg.
The bond-trading result, outpacing analysts’ projections by about $100 million, was among the surprises. Another was the provision for loan losses, which at $1.66 billion was better than all seven estimates compiled by Bloomberg. The institutional clients group, which houses the bank’s Wall Street operations, drove the improvement by releasing $230 million in unneeded reserves as energy prices stabilized.
Total revenue rose 3% to $18.1 billion, compared with the $17.7 billion average estimate. Non-interest expenses were largely flat at $10.5 billion, in line with expectations.
Citi generated the most revenue from fixed-income trading in three years, defying some analysts’ concerns about a slowdown in interest rate and currency activity during the first quarter.
Revenue from the bank’s biggest trading business jumped 19% from a year earlier to $3.62 billion on strength in those areas, as well as spread products, the firm said Thursday in a statement. Before results, analysts at Keefe, Bruyette & Woods cited lower volatility in rates and foreign-exchange as a reason for muted expectations, while Goldman Sachs Group Inc. pointed to industry commentary suggesting rates trading had cooled in the period’s final weeks.
The figures show mounting strength in Citigroup’s trading operations just as President Donald Trump sets out to reshape U.S. policies and the Federal Reserve embarks on interest rate hikes. The New York-based firm controlled 19% of bond-trading revenue generated by the nine largest global investment banks last year, almost 3 percentage points more than in 2012, according to data compiled by Bloomberg Intelligence. And it’s been investing in its equities desks. Altogether, total trading results climbed 17% from a year earlier.
“The momentum we saw across many of our businesses towards the end of last year carried into the first quarter, resulting in significantly better overall performance than a year ago,” Chief Executive Officer Michael Corbat said in the statement.
Analysts at Credit Suisse Group AG said they’ll be watching for signs that Citigroup’s trading desks can build market share and that the bank’s retail division can expand organically.
With the fewest U.S. branches of any large competitor, Citigroup is counting on its credit card franchise to drive growth in North America. It issued more than 1 million new cards in six months last year after signing a partnership with Costco Wholesale Corp. to be the preferred lender to the warehouse club’s shoppers.
Costco helped boost revenue from Citi-branded cards in North America by 13% in the first quarter to $2.1 billion. Costco also contributed to a 3% increase in operating expenses, to $2.6 billion, and an uptick in loan-loss reserves in the bank’s retail operations. In all, North America consumer banking profit fell 25% from the year earlier to $627 million.
Chief Financial Officer John Gerspach reassured investors last month that the Costco deal is an “unqualified success,” and its ability to generate earnings will “really kick in” during this year’s second half.
Revenue in the global consumer bank led by Stephen Bird, which serves more than 100 million customers in 19 countries, rose 1% to $7.82 billion. Net income from the segment fell 16% to $1 billion.
Revenue in the institutional clients group run by President Jamie Forese rose 16% to $9.13 billion. Net income rose 61% to $3 billion. Equities-trading revenue rose 10% to $769 million, within a percentage point of what analysts predicted. Investment banking revenue rose 39% to $1.21 billion, compared with analysts’ $1.17 billion estimate.
Earlier Thursday, JPMorgan Chase reported earnings that beat analysts’ estimates, fueled by better-than-expected trading revenue and lending margins. Net income at the biggest U.S. bank rose 17% to $6.45 billion.
