Citi second-quarter profit falls, old assets sting

Mon Jul 16, 2012 5:45pm EDT
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By David Henry

(Reuters) - Citigroup Inc said on Monday quarterly earnings fell 12 percent as it was stung by losses from credit crisis-era assets, but the bank's results were better than many analysts expected after cost-cutting.

The third largest U.S. bank is still feeling pain from Citi Holdings, a unit set up in 2009 to house assets and businesses it was looking to shed after the 2007-2008 credit crunch forced multiple U.S. government rescues. Citi Holdings' losses widened to $920 million in the second quarter from $661 million in the same period a year earlier.

Even though the U.S. government has exited nearly all its Citigroup investments, the bank is still dealing with bad assets from the credit crunch and struggling to grow.

In March, Citigroup was one of the few major banks to have regulators reject its plans for returning capital to shareholders. On Monday, Chief Executive Vikram Pandit said he was not sure what he would ask regulators for when the bank files its 2013 capital plan with the Federal Reserve.

The bank's results on Monday echoed themes from reports on Friday by JPMorgan Chase & Co, the biggest U.S. bank, and Wells Fargo & Co, the fourth-biggest. All three beat analyst estimates with help from cost-cutting, stronger mortgage businesses and better consumer delinquency rates, even as their profit margins came under pressure from low interest rates.

Banks' reliance on cost cutting worries some investors. Citicorp, the Citigroup unit that houses its continuing businesses, posted a 6 percent increase in net income, with gains coming mainly from cost cutting and setting aside less money for bad loans.

"The problem is they have no justifiable way to grow," said Jeff Sica, president of Sica Wealth Management in Morristown, New Jersey.

Citicorp's assets grew just 1 percent in the period, although some areas, like commercial loans, posted better growth. Income in the bank's main retail unit fell 1 percent from the same quarter last year, with revenue barely changed.   Continued...

A woman walks into a Citibank branch in New York in this January 17, 2012 file photo. REUTERS/Shannon Stapleton/Files