Citigroup (C: Charts, News), the fallen banking giant that has lost 95% of its market value over the past five years, exceeded bearish analyst expectations which missed on the top line but beat on the bottom one. For its second quarter, Citigroup earned $1 per share, or $2.9 billion, on revenue of $18.6 billion. This was a 12% decline in earnings per share and a 10% drop in revenue from the prior year quarter. Analysts had forecast 89 cents per share on revenue of $18.8 billion. Citigroup also recorded a loss of $424 million on the sale of its 10% stake in Turkish bank Akbank, which was excluded as a one-time charge.
Citigroup investors are concerned that its businesses in China and India, two of its major overseas markets, would be affected by continuous news of a macro slowdown. The latest quarterly results show that Citigroup’s Asian and Latin American businesses both declined by less than 1%. “We are largely an urban bank in Asia, and cities are growing,” stated CEO Vikram Pandit. “Urbanization is a very powerful trend. The middle class is growing. People are coming in the cities. That’s what drives our business.”
As one of the largest lenders in the world, Citigroup is considered a bellwether of the global finance industry. Citigroup’s loan reserves declined from $34.4 billion to $27.6 billion, signifying that more customers were paying back their loans on time. Citigroup also took an accounting gain of $219 million due to an increase in its debt’s value. Both the decrease in loan reserves and the accounting gain padded the company’s earnings.
CFO John Gerspach noted that the strength of the U.S. dollar, primarily due to the euro’s weakness, would negatively impact its overseas earnings throughout the year. Some more volatile currencies, such as the Mexican peso and Brazilian real, depreciated by 5% and 11% respectively. The fall in these Latin currencies was enough to negate gains in its overseas business; excluding currency fluctuations, business in Mexico and Brazil actually grew. Gerspach noted that Citigroup was “excited” about the growth opportunities in these two markets, especially through issuing new credit cards.
Citigroup’s investment banking arm posted a revenue decline of 21% to $854 million, due to market turmoil related to the ongoing Eurozone debt crisis. Lower interest rates, however, caused more homeowners to refinance their homes or purchase new ones. These helped grow Citigroup’s retail banking revenue by 32% to $1.6 billion from the prior year quarter.
Citigroup realizes that it needs to increase its dividend from the current token 1 cent yield to attract more institutional investors. Pandit remained confident regarding a return of the bank’s dividend, which was discontinued at the start of 2009. “I believe we will be in good shape and have the capital to be able to do that by the end of the year,” he stated. Pandit had promised a dividend increase to shareholders earlier this year, but was struck down in March when the Fed reported that the bank did not have sufficient capital to raise its dividend while withstanding another financial crisis. This broken promise, along with Citigroup’s declining share price, outraged major shareholders, who denied Pandit a $15 million compensation package and $10 million in retention pay in an advisory vote in April.
Citigroup’s dividend increases are currently restricted by the U.S. government – which bailed the bank out with over $45 billion in early 2009. Pandit noted that Citigroup will not seek to increase its dividend this year, but will try again in 2013.
Citigroup has fared far worse than its industry peers over the past five years. The stock currently trades at 5.9 times forward earnings with a 5-year PEG ratio of 0.73, and is fundamentally cheaper than JPMorgan (JPM: Charts, News) or Bank of America (BAC: Charts, News).
Other News About C
Citi Second-Quarter Profit Falls, OldAssets Sting
Citigroup posts weak earnings which still beat estimates.
Citigroup’s Stoker Misled Investors, SEC Lawyer Tells Jurors
Is Citigroup about to get probed by the SEC?
Other Stocks in the News
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JPMorgan Blaming Marks On Traders Baffles Ex-Employees
JPMorgan’s trading losses continue to mount as the blame spreads.
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