Citigroup beats estimates on higher income from loans; shares rise

By Tatiana Bautzer and Mehnaz Yasmin

(Reuters) - Citigroup Inc's first-quarter profit beat Wall Street expectations as it earned more from borrowers paying higher interest on loans.

While its net interest income rose 23% to $13.3 billion, Citi also set aside $241 million to cover potential loan losses, from $138 million a year earlier, according its results reported on Friday. Citi earned $1.86 per share in the first quarter, beating analysts' average estimate of $1.67, according to Refinitiv data. Shares were up 4.2% in afternoon trading.

Citigroup joined other banking giants, JPMorgan Chase & Co and Wells Fargo & Co in preparing for a potential recession later this year.

Chief Executive Officer Jane Fraser told analysts the bank is preparing for a shallow recession later this year, that could be exacerbated in a more severe credit crunch.

The lender expects more clients to fall behind on payments in the coming quarters as a mild recession looms over the second half of the year, its finance chief said.

Credit card delinquencies are rising, but still stand below pre-pandemic levels, Mason added. "I'd expect that by the time we get to the early part of 2024, we'll likely be at the normal levels" of non-conforming loans on credit cards, he added.

Citigroup has already tightened lending standards for consumers and is monitoring risks in the banking sector, specially regional banks, leveraged lending and commercial real estate, the CFO said.

The banking sector was jolted by the collapse of Silicon Valley Bank and Signature Bank last month, which wiped out billions of dollars in market value and led to large deposit outflows from mid-sized banks to larger rivals.

Citi's deposits were roughly flat at $1.33 trillion from a year ago as investors moved their cash into money market funds to chase greater yields. But Fraser and Mason told analysts that the bank saw a pickup in deposits in March coming mainly from corporations. The CEO said the majority of the institutional deposits are integrated into the operating accounts to run their day-to-day operations, and that would make them very stable.

The bank's investment in services to corporations resulted in 31% growth in revenues in treasury and trade solutions.

Citigroup: Deposits deluge https://www.reuters.com/graphics/CITI-DEPOSITS/CHART/gkplwjqjnvb/chart.png

Thomas Hayes, chairman and managing member at Great Hill Capital, said Citi reported the weakest growth of the three major banks that reported results on Friday, but still exceeded expectations and managed to buy back $1 billion of stock.

"Today's bank earnings put a dagger in the heart of the bears," Hayes said. Citi also got a windfall from asset sales, with revenue from legacy franchises unit rising 48% to $2.9 billion as the bank gained with the sale of the Indian consumer business to Axis.

INVESTMENT BANKING BACK?

Mason expressed cautious optimism about a recovery in investment banking. The revenue in the division sank 25% from a year ago, weighed down by the most sluggish market for deals in more than a decade.

Still, the bank saw a pickup in investment grade debt issuance in the first quarter and expects investment banking activity to recover in the latter part of the year. Citi slipped four rungs to the ninth position in 2023 in the list of financial advisors based on deal value, according to data from Dealogic.

Under Chief Executive Jane Fraser, the bank has been simplifying its businesses in an effort to boost revenue and become more competitive with rivals.

"The banking crisis may take attention from the efforts for a short period of time, but in the long run, this crisis will show where Citigroup's strengths lie by acting as a major stress test and will assist in simplifying operations in the long run," said Mona Dajani, a partner at New York-based law firm Shearman & Sterling LLP.

(Reporting by Mehnaz Yasmin and Bansari Kamdar in Bengaluru and Tatiana Bautzer in New York; Editing by Lananh Nguyen, Arun Koyyur, Nick Zieminski and Mark Porter)