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Click on individual bank names in the table below to access American Banker's coverage of each company's earnings report. Links to relevant coverage, filings, releases, and bank benchmark profile data can be found in the Related Links area of each article.
July 28
Citigroup's march back continues apace — but its progress in the second quarter proved costly.
Analysts hounded Citigroup executives about how they plan to bring down a 9% year-over-year increase in expenses. The executives pinned the rise on legal provisions and foreign exchange costs, which they argued should not deter them from "investment mode." Elevated costs are expected through yearend.
"We don't like the idea that our expenses are going to be above guidance any more than anyone else does," Citi's chief financial officer, John Gerspach, said on a conference call Friday. "You can either manage back down to the guidance by cutting investment programs, or you can continue to press on."
Investors should soon see returns from spending on Citigroup's transaction services capabilities and its consumer banking operations in Asia and Latin America that began last year, Gerspach promised. And despite weak domestic results, he said, the company had committed itself to reinforcing its North American consumer banking efforts.
"You've got a 12- to 18-month lead time before you see something positive coming out of those investments," Gerspach said.
Citigroup's domestic investment campaign is certainly forward thinking: Little in its results suggests that its U.S. business is already on a path of robust core banking growth. Citi reported a 24% increase in earnings, to $3.3 billion, and overseas banking results were a big reason. The company added 2.9 million consumer accounts abroad for a total of 77.9 million, and average loan balances jumped from $125.9 billion to $133.1 billion.
But as with JPMorgan Chase & Co., the results do not suggest good news is on the way for banks without at least one foot in capital markets or overseas growth markets.
Citigroup's North American results were poor, with a 9% drop in consumer revenue, an 18% decline in securities revenue and a 4% decline in transaction services revenue compared with a year earlier.
Total credit losses fell from $6.3 billion in the first quarter to $5.1 billion in the second, continuing a steady decline and allowing Citigroup to release $2.2 billion from its reserves. A cloud on credit issues came from Citigroup's overseas activities. In both Asia and Latin America, delinquencies of more than 90 days rose, and the company noted that "international credit costs will likely increase."
Most of the overall earnings were from one-time sources such as a $2 billion release from its loss reserves and a $500 million gain booked on asset sales.
Its 7% decline in total revenue stemmed almost entirely from the runoff of assets in Citi Holdings; revenue at Citicorp, which houses the parent's continuing operations, fell less than 1% from a year earlier, to $16.3 billion. It registered 1% loan growth from a year earlier.
On a conference call with analysts, executives took care to address concerns that its exposure to European sovereign debt poses only a limited direct threat. Citigroup's net exposure to Greece, Ireland, Italy, Portugal and Spain totaled $13 billion at midyear, officials said, and much of it was well secured.
Chief Executive Vikram Pandit called the disclosure "the appropriate amount of transparency to get beyond the headline numbers," and said Citigroup's sovereign debt exposure "has come down a lot over time." But the company cannot and should not stop doing business in European markets subject to debt concerns, he said.
Some of the analysts on the call questioned whether the disclosure was sufficient, however, and asked that Citigroup present a clearer picture of its exposure to European banks.
"If Europe turns into a real problem, the net exposure guidance you gave isn't to give investors any comfort whatsoever," Michael Olson, an analyst for Piper Jaffray & Co., said on the call. "So I'd encourage you guys to give the gross exposure at some point."
Citigroup's investment banking revenue rose $1.1 billion, but its securities division fell 29% year over year to $1.2 billion. The number compared unfavorably with the stellar production JPMorgan Chase reported on Thursday, "implying that JPM's outperformance was more JPM-specific than an indication of industry-wide resilience," Sandler O'Neill analyst Jeff Harte wrote in a research note Friday.
Citi also reiterated its commitment to returning capital to investors in 2012. The company is aiming to hold Tier 1 capital of between 8% and 9%, and believes it is on a stable path to reaching that goal while still leaving aside money for either dividends or share buybacks next year. Pandit said the company was geared toward what he described as "Basel friendly" businesses such as transactional services, which do not consume significant amounts of risk-weighted capital.
Though other banks have fought against regulations that would push capital levels higher, Pandit said, he's comfortable running Citi's business with slightly more of a buffer.
"Others said they weren't going to go a dime above the 7%," he said. "We've always been aiming at 8% to 9%."
