For Citigroup (C), squeezing out growth still requires a few steps backwards for every few steps forward.
The New York bank on Monday reported results that, while profitable, were somewhat messier than the first-quarter earnings reported last week by rivals JPMorgan Chase (JPM) and Wells Fargo (WFC).
Its revenues were weaker than those of its two peers, whose strong top-line growth raised some optimism last week. Citigroup's revenues grew a mere 1% from a year earlier, to $20.2 billion — and that number excluded the impact of various one-time items, including a $1.3 billion charge related to the value of the bank's debt. Including those items, revenue fell 2% to $19.4 billion.
But the consensus is that Citigroup remains a complex case that has to be measured on its own, sometimes frustrating, terms. "There's a little bit of improvement, and it's not a whizz-bang report," says Jason L. Ware, an analyst with Salt Lake City-based Albion Financial Group. "I wasn't terribly impressed or terribly disappointed."
Many investors agreed, with shares up nearly 2%, to $34.01, in late-afternoon trading. However, some investors were vocally more disappointed. On Monday, executives had to field multiple rounds of questions about Citigroup's much-promised plans to return capital to shareholders, after the Federal Reserve in March blocked the bank's proposal to raise its dividend or buy back shares this year.
Chief Executive Vikram Pandit told analysts during a conference call Monday that Citigroup is trying to plead its case with the Fed — but that, given the regulator's various deadlines and approval process, the bank might not have a better answer until at least the fall.
"We stand by our submission," Pandit said. "There's lots more we need to do to get closer to understanding how the next part of the process is going to work."
The Fed's decision marred Citigroup's efforts to rehabilitate its image after the financial crisis, which forced it to take $45 billion in government bailout funds. The onetime "financial supermarket" has spent the last three years slimming down and refocusing on boosting select banking businesses.
But some of Citigroup's internal investments have yet to pay off. For example, Citigroup's North American credit card unit saw loan balances drop during the first quarter, and executives said the bank still has work to do before it begins to reap the benefits of its efforts to overhaul that unit.
"We're still rebuilding that business," Chief Financial Officer John Gerspach told reporters during a conference call on Monday morning. "You've really got to give us till the end of this year before we'll feel comfortable that we've got North America now at a point where we're producing positive operating leverage, with revenues growing faster than expenses."
He added that "consumers are still in a debt-consolidation mode, or a debt-payoff mode. Spending has picked up … but it's still somewhat slow-go."
The bank saw 12% loan growth in its main Citicorp unit, which comprises the businesses it wants to keep — but the rest of its operations continued to drag down its overall results, resulting in only 2% loan growth company-wide.
Citigroup's investment banking operations helped boost revenues, as did the transaction services and international consumer operations it has increasingly relied upon to buoy its weaker North American operations.
"We see loan demand certainly in the emerging markets, we see our trade loans growing, there are clearly pockets of demand," Gerspach told reporters. "But we still don't see that broad-based demand for lending in the U.S. or the developed world, as the European economies are recovering and the U.S. [is] dealing with a sluggish recovery."
The third-largest bank appeared better at budgeting than rivals JPMorgan Chase and Wells Fargo, which on Friday recorded surprisingly higher costs. Citigroup kept expenses flat from a year earlier at $12.3 billion, and Gerspach reiterated the bank's January plans to reduce its annual expense levels by between $2.5 billion and $3 billion. He told reporters that the bank had found $600 million worth of "savings" to trim from its first-quarter expenses.
And Citigroup pleased some industry members by overcoming its most recent earnings slump. Less-messy quarterly reports might "take a while" for the bank to turn in consistently, but they're "getting closer every day," says Alan Villalon, a senior analyst at Nuveen Investments, which owns Citigroup shares.
But Citigroup's first-quarter report "was much better than [the fourth-quarter report]," he added. "I mean, 4Q was bad. It was bad. I used a lot of expletives that day."