New York, NY – Citigroup Inc. (NYSE:C) today reported a net loss for the 2008 first quarter of $5.1 billion, or $1.02 per share, based on 5,086 million shares outstanding(1). Results include $6.0 billion in pre-tax write-downs and credit costs on sub-prime related direct exposures. Results also include write-downs of $3.1 billion (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, a downward credit value adjustment of $1.5 billion related to exposure to monoline insurers, write-downs of $1.5 billion on auction rate securities inventory, and a $3.1 billion increase in credit costs in global consumer.
First Quarter Highlights
- Record revenues in transaction services, up 42%, and record net income, up 63%. Liability balances increased 32% and assets under custody grew 21%.
- Within fixed income markets, client-related rates and currencies business revenues rose 17%. Local markets sales and trading in emerging markets produced strong results.
- Strong growth in equity prime finance revenues.
- Smith Barney revenues increased 18% and Private Bank revenues grew 10%.
- International retail banking revenues grew 21%.
"Our financial results reflect the continuation of the unprecedented market and credit environment and its impact on our historical risk positions. During the first quarter, valuations of our sub-prime related exposures in fixed income markets and leveraged finance assets have further declined and credit costs in our consumer lending businesses have increased. Despite the negative factors in the broader markets, we continue to see strong momentum throughout the organization with robust volumes in many of our products and regions," said Vikram Pandit, Chief Executive Officer of Citi.
"We have taken decisive and significant actions to strengthen our balance sheet, including over $30 billion of capital raised during December and January, a significant increase in our credit reserves, the sale of Redecard shares, the recently announced divestitures of CitiCapital and Diners Club International, and the realignment of and pending asset reductions in our mortgage business. We continue to enhance our risk management processes, our capital productivity and expense containment, as well as our ability to deliver innovative, world-class products that meet our clients' specific needs. To achieve this, we recently reorganized the businesses along regional and product lines to bring us closer to our clients. At the same time, we are taking the necessary steps to make Citi more efficient while fostering a culture of accountability and teamwork."
"As we move into the second quarter and beyond, we will continue to divest non-strategic assets and allocate capital to the products and regions that will drive increased revenues, enhance the value of our franchise, and ultimately, maximize shareholder value," said Pandit.
FIRST QUARTER SUMMARY
GLOBAL CONSUMER GROUP
Revenues grew 3% due to a 4% increase in average deposits, a 9% increase in average managed loans and a $349 million pre-tax gain on Visa shares, offset by lower securitization results in cards. Excluding the gain on Visa shares and a $161 million pre-tax gain on the sale of MasterCard shares in the first quarter of 2007, revenues were up 1%. Expenses increased 6%, driven by acquisitions and a repositioning charge of $131 million, partially offset by a $159 million release of the Visa-related litigation reserve. Credit costs increased $2.3 billion, primarily reflecting a weakening of leading credit indicators, including higher delinquencies on mortgages, unsecured personal loans, credit cards and auto loans. Credit costs also increased due to trends in the U.S. macro-economic environment, including the housing market downturn and rising unemployment rates, as well as portfolio growth.
- U.S. Cards
- GAAP revenues decreased 2%, reflecting the impact of higher funding costs and higher credit losses in the securitization trusts, partially offset by the gain on Visa shares. Excluding the gain on Visa shares and a gain on MasterCard shares in the first quarter of 2007, revenues were down 8%.
- Managed revenues grew 14%, reflecting the gain on Visa shares and a 6% increase in managed receivables. The managed net interest margin increased 3 basis points to 10.14%.
- Expenses decreased by 6%, primarily driven by a partial release of the Visa-related litigation reserve, offset by increased collection and servicing expenses.
- Credit costs increased $447 million, driven by higher net credit losses, up 23%, and a $302 million pre-tax charge to increase loan loss reserves. Higher credit costs reflected a weakening of leading credit indicators, trends in the macro-economic environment and an increase in the rate at which delinquent customers advanced to write-off. The managed net credit loss ratio increased by 120 basis points to 5.83%.
- Net income declined 34%, driven largely by increased credit costs.
- U.S. Retail Distribution
- Revenues grew 9%, driven by higher average loans and deposits, up 24% and 5%, respectively. Volume growth was partially offset by spread compression due to a decline in short term interest rates. Checking accounts increased 5%.
- Expenses increased 6%, reflecting higher business volumes and branch openings.
- Credit costs increased $591 million, driven by higher net credit losses and a $362 million pre-tax charge to increase loan loss reserves. Higher credit costs reflected a weakening of leading credit indicators, including higher delinquencies in the retail bank home equity portfolio and unsecured personal loans, as well as portfolio growth. The net credit loss ratio increased 97 basis points to 3.82%.
- Net income declined 74%, primarily due to higher credit costs.
- U.S. Consumer Lending
- Revenues increased 10%, driven by growth in net interest revenues of 8%, reflecting 8% growth in average loans.
- Expenses grew 53%, driven by acquisitions, increased business volumes, higher collection expenses and a repositioning charge.
- Credit costs increased $1.2 billion, driven by higher net credit losses, up $762 million, and a $659 million pre-tax charge to increase loan loss reserves. These increases reflected a weakening of leading credit indicators, including higher delinquencies in first and second mortgages and auto loans. Credit costs also reflected trends in the macro-economic environment, including the housing market downturn.
- The higher expenses and credit costs led to a net loss of $476 million.
- U.S. Commercial Business
- Revenues declined 11%, reflecting portfolio sales during 2007. Average loan balances were up 4% and deposits were flat.
- Net income declined 27% due to lower revenues and higher credit costs.
Revenues increased 33%, driven by organic growth, the impact of recent acquisitions, a $663 million pre-tax gain on Redecard shares, and a $97 million pre-tax gain on Visa shares. Excluding the gains on Redecard and Visa shares, as well as a gain on sale of MasterCard shares in the prior-year period, revenues increased 22%. Revenue growth was offset partially by a decline in Japan consumer finance. Average deposits and loans were up 23% and 30%, respectively. Expenses increased 18%, primarily due to acquisitions, higher business volumes, and a $106 million repositioning charge, partially offset by a $257 million benefit related to a legal vehicle restructuring in Mexico. Credit costs increased substantially, primarily driven by Mexico cards and India consumer finance, as well as by acquisitions and portfolio growth. Net income increased 33%, primarily due to increased business volumes and the gain on Redecard and Visa shares.
- International Cards
- Revenues grew 76%, primarily driven by acquisitions, higher average loans and purchase sales, up 53% and 41%, respectively, improved net interest margins, gains on Redecard and Visa shares. Excluding the gains on Redecard and Visa shares in the current quarter and the gain on sale of MasterCard shares in the prior-year period, revenues increased 37%.
- Expenses increased due to higher business volumes and acquisitions.
- Credit costs increased by $541 million, primarily driven by Mexico and acquisitions.
- Net income increased 81% as higher revenues more than offset significantly higher credit costs.
- International Consumer Finance
- In Japan, revenues declined by 29% driven by lower interest revenue and higher refund claims. The net loss of $69 million reflected the difficult operating environment and the ongoing impact of consumer lending laws passed in the fourth quarter of 2006.
- Outside of Japan, revenues increased 10%, driven by average loan growth of 14%. The net loss of $99 million mainly was due to an increase in credit costs of 92%, primarily driven by India, and a repositioning charge.
- International Retail Banking
- Revenues grew 21%, driven by increased average deposits and loans, up 23% and 28%, respectively, including the impact of acquisitions. Loan balances grew at a double-digit pace in EMEA, Mexico and Asia, and more than doubled in Latin America. Investment assets under management grew 14%.
- Expenses grew 12%, reflecting increased business volumes and acquisitions, offset by a $221 million benefit related to a legal vehicle restructuring in Mexico.
- Credit costs increased $85 million, driven by acquisitions and portfolio growth.
- Net income increased 35%, on higher business volumes and a benefit to expenses, partially offset by higher credit costs and lower tax benefits.
MARKETS & BANKING
- Securities and Banking
- Transaction Services
- Revenues increased 42% to a record $2.3 billion, driven by higher customer volumes, continued sales momentum, improved net interest margin, and the acquisition of The Bisys Group. Revenues grew at a double-digit pace in Japan, Latin America, Asia, U.S. and EMEA.
- Liability balances grew 32% and assets under custody were up 21%.
- Operating expenses increased 25%, primarily driven by increased business volumes and Bisys.
- Net income increased 63% to a record $732 million.
GLOBAL WEALTH MANAGEMENT
- Smith Barney
- Revenue growth of 18% reflected 17% growth in client assets under fee-based management, primarily driven by acquisitions.
- Expenses grew 38%, primarily due to the impact of acquisitions, a reserve related to facilitating the liquidation of investments in a Citi-managed fund for its clients, and increased customer activity.
- Credit costs increased $11 million, driven by Asia.
- Net income decreased 56%, due to higher expenses and credit costs.
- Private Bank
- Revenue growth of 10% was driven by a 15% increase in U.S. revenues, as strong business volumes were partially offset by net interest margin compression. International revenues increased 8%, reflecting growth in structured lending products.
- Client business volumes increased 9%, including higher client assets under fee-based management, up 7%, and loans and unused commitments, up 33%.
- Expense growth of 6% primarily reflected a reserve related to facilitating the liquidation of investments in a Citi-managed fund for its clients and a repositioning charge.
- Net income increased 27% driven by increased customer activity.
- Alternative Investments
- Alternative Investments recorded negative revenues of $358 million on sharply lower proprietary revenues and a $212 million mark-to-market loss on SIV assets. The net loss was driven by the lower revenues and a $202 million write-down of the multi-strategy hedge fund intangible asset related to Old Lane.
Corporate/Other income improved $248 million. The current period included a $212 million pre-tax write-down of an equity investment held by Nikko Cordial. The prior-year period included a $1.4 billion charge related to a structural expense review, partially offset by a gain on the sale of certain corporate-owned assets.
- Consumer revenue growth of 6% was driven by 21% growth in average loans and 19% growth in investment AUMs, partially offset by the absence of a gain on sale of MasterCard shares in the prior-year period. Higher credit costs were mostly driven by a net charge to increase loan loss reserves in cards, where receivables grew 24% over the last year, reflecting target market expansion. Net income declined as higher revenues and an expense benefit related to a legal vehicle restructuring were more than offset by higher credit costs, primarily in the cards business.
- Markets & banking revenues and net income decreased as strong revenue and net income in transaction services were offset by lower results in securities and banking. In securities and banking, revenues declined 17%, driven by lower revenues in fixed income markets and underwriting, lower results in lending, and volatile foreign exchange rates. Transaction services revenues increased 7%, driven by strong growth in business volumes.
- Europe, Middle East and Africa
- Consumer revenues increased 29%, driven by growth in average loans and deposits, up 48% and 49%, respectively. Investment AUMs also increased by 15%. Net income decreased mainly due to a repositioning charge.
- Markets & banking results reflected $1.4 billion of write-downs and credit costs on sub-prime related direct exposures and $461 million of write-downs related to highly leveraged finance commitments, both in securities and banking. Revenues in securities and banking also included strong performance in fixed income emerging markets and foreign exchange. The write-downs more than offset record revenues and net income in transaction services, which grew at a double-digit pace, driven by increased customer volumes and deposit growth.
- Wealth management revenue growth was driven by increases in banking, capital markets products and structured lending.
- Consumer results were driven by double-digit growth in cards and retail banking, including the impact from an acquisition, offset by continued weakness in consumer finance. Consumer finance net income declined due to higher refund claims, lower receivables, and an increase in the net credit loss ratio.
- Markets & banking results decreased in securities and banking, partially offset by strong results in transaction services. Securities and banking results were primarily driven by mark-to-market losses in Nikko Cordial, and decreases in fixed income underwriting and equity markets. Transaction services showed double-digit revenue growth across all products.
- Wealth management results reflected the consolidation of Nikko.
- Consumer revenues increased 24%, driven by growth in average loans, up 22%, and average customer deposits, up 14%, as well as by an increase in investment AUMs of 13%. The decline in net income reflected higher expenses associated with increased collection efforts, primarily in India, and branch openings, as well as higher credit costs in India consumer finance.
- Markets & banking revenues and net income increased 30% and 29%, respectively. Securities and banking revenues increased 22%, driven by record fixed income markets, particularly in rates and currencies, and by strong results in equity markets. Transaction services revenues and net income grew at a double-digit pace, reflecting increased business volumes and balances.
- Wealth management results were lower due to a decrease in capital markets revenue, mainly in structured products.
- Latin America
- Consumer revenue and net income growth was driven by higher average loans and deposits, up 72% and a 69%, respectively, as well as by growth in investment AUMs. Results include the impact of acquisitions and a $661 million pre-tax gain on the sale of Redecard shares.
- Markets & banking revenues grew 9% and net income increased 7%, as strong results in transaction services were offset partially by declines in securities and banking, primarily due to weakness in fixed income underwriting, equity markets and advisory.
A reconciliation of non-GAAP financial information contained in this press release is set forth
on page 12.
Vikram Pandit, Chief Executive Officer, and Gary Crittenden, Chief Financial Officer, will host a conference call today at 8:30 AM (EDT). A live webcast of the presentation, as well as financial results and presentation materials, will be available at http://www.citigroup.com/citigroup/fin. A replay of the webcast will be available at http://www.citigroup.com/citigroup/fin/pres.htm.
Citi, the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries, providing consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Citi's major brand names include Citibank, CitiFinancial, Primerica, Smith Barney, Banamex, and Nikko. Additional information may be found at www.citigroup.com or www.citi.com.
Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Financial Supplement. Both the earnings release and the Financial Supplement are available on Citi's website at www.citigroup.com or www.citi.com.
Certain statements in this document are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors. More information about these factors is contained in Citigroup's filings with the Securities and Exchange Commission.
Click here for the complete press release and summary financial information.