Citicorp Net Off 83%; Dividend Reaffirmed
Continuing its string of dismal earnings reports, Citicorp on Tuesday reported net income of $43 million for the second quarter, down 83% from a year earlier.
After paying dividends on its preferred stock, the nation's largest banking company lost 3 cents a share. But, despite analysts' expectations that a dividend cut was likely, Citicorp's board voted to maintain the 25-cent quarterly payout on common shares.
$1 Billion to Cover Loan Losses
The major drag on earnings was a whopping $1 billion provision for possible loan losses, the largest since the fourth quarter of 1989, when $1.4 billion was set aside. Included was $512 million for possible consumer loan losses, further evidence that credit quality problems continue in the company's retail portfolio.
Citicorp charged off $1.7 billion in loans, forcing it to replenish its loan-loss reserve, which was already small compared with those of its peers. After the provision, reserves for commercial loans excluding Third World credits stood at 23.4% of nonperforming commercial loans, up from 19.9% on March 31.
After the heavy chargeoffs, nonperforming assets rose just $21 million, compared with an average of almost $900 million in the three previous quarters.
Better than Predictions
The performance, while weak, was slightly better than analysts predicted. "It's not quite the disaster that everyone expected, but it's certainly not something that makes you want to run out and buy the stock," said Frank DeSantis, an analysts at Donaldson, Lufkin & Jenrette Inc.
"Disappointment over a core loss was offset by an encouraging slowdown in nonperforming asset growth," said Judah Kraushaar, an analyst with Merrill Lynch & Co.
Citicorp's shares closed unchanged at $14.75 on the New York Stock Exchange on Tuesday.
The company's aggressive efforts to raise capital also hurt its returns. It took a $48 million charge for a loss on its previously announced sale of a 50.3% percent stake in AMBAC, its municipal bond unit.
The AMBAC spinoff raised Citicorp's key Tier 1 capital ratio to 4.08% of assets, surpassing yearend 1992 guidelines. The sale officially closes Friday, but is treated as a second-quarter item under generally accepted accounting principles. It allows Citicorp to shed $27 billion of risk-adjusted assets from its balance sheet.
Its preferred dividend payments rose sharply, to $44 million, reflecting its first payouts on $1.25 billion in preferred equity raised earlier this year.
The common dividend was maintained even though net income failed to cover it for the shares are yielding around 6.8%, one of the highest yields among major banks.
"I think that the dividend gets cut in the third or fourth quarters," said Salomon Brothers analyst Thomas Hanley.
Poor loans continued to dominate Citicorp's results. The bank wrote off $479 million of corporate loans in its Japan, Europe, and North America sector, versus $179 million in the first quarter and $101 million in the year-earlier period. The corporate lending sector, which houses $9.9 billion of nonperforming assets dominated by commercial real estate and highly leveraged transactions, also added $39 million to its loanloss provision.
As expected, $171 million of the sectors writeoffs represented loans to First Capital Holdings, the bankrupt California insurance firm.
While Citicorp cited $219 million of losses for First Capital and AMBAC as one-time events, it also reported a $225 million one-time gain from selling securities in its portfolio. The bank also recorded $62 million of venture capital gains.
Citicorp, which earned $70 million in the first quarter, nevertheless warned that "the uncertain economic environment, particularly in real estate," carries a risk of further deterioration in its portfolio.
Results in other sectors of the company followed a familiar pattern. The bank's powerhouse consumer sector earned $185 million after a pretax charge of $90 million. Citicorp also said it recorded high writeoffs in the U.S. credit card and mortgage businesses. Consumer profits inched up $20 million from the previous quarter, but declined almost 30% from the year-earlier period.
Citicorp's international banking franchise made $119 million, compared with $128 million in the first quarter and $146 million last year. Aside from Brazil, Citicorp said it is actively expanding its foreign-country banking presence.
Citicorp's information sector, dominated by Quotron, continued its five-year string of losses. The sector lost $45 million, reflecting "continued retrenchment in the financial community, which is Quotron's primary customer base," the bank said.
Medium- and long-term outstanding in the cross-border debt portfolio fell $900 million to $6.6 billion after previously announced writeoffs to Argentina and Brazil. Citicorp said it has not yet recognized $97 million received from Brazil since it resumed partial payment on overdue interest on its debt earlier this year.