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Citigroup's profit misses estimates

Citigroup Inc., the nation's largest financial institution, on Monday reported second-quarter profit below Wall Street expectations as short-term interest rates affected several businesses and new bankruptcy legislation caused a short-term spike in filings and boosted credit costs.
/ Source: The Associated Press

Citigroup Inc., the nation’s largest financial institution, reported second-quarter profits that were a nickel-per-share below Wall Street’s expectations Monday as a result of what CEO Charles Prince called “challenging conditions,” including a tough bond market and an interest-rate squeeze.

The New York-based bank earned $5.07 billion in the April-June period, or 97 cents per share, up from $1.14 billion, or 22 cents per share, a year earlier. The year-earlier period included a gain on the sale of Citigroup’s stake in the Saudi Arabia-based Samba Financial Group as well as a nearly $5 billion charge for the bank’s settlement of WorldCom Inc. litigation.

Revenue amounted to $20.17 billion in the latest quarter, down from $20.86 billion in last year’s second quarter.

Analysts expected Citigroup to earn $1.02 per share on revenue of $21.41 billion, according to a Thomson Financial survey.

Earnings from continuing operations — that is, excluding the Samba Financial deal and the WorldCom charge — rose to $4.73 billion, or 91 cents per share, from $916 million, or 17 cents per share, a year earlier.

Michael L. Mayo, a banking analyst with Prudential Equity Group, said in a note to clients that Citigroup’s performance in fixed income markets was poorer than competitors.

“Other issues included sluggish overall revenue growth,” Mayo said. “For example, excluding the fixed income component, revenues would have been only flat.”

Mayo, who rates the stock at “neutral,” lowered his full-year earnings forecast to $4 a share from $4.15 a share.

Revenue strength in the bank’s international consumer business and transaction services were offset by a 12 percent decline in capital markets and banking revenues, including a 28 percent drop in fixed income markets, Citigroup said.

In a conference call with Wall Street analysts, Chief Financial Officer Sallie Krawcheck acknowledged that “on the fixed income side, we did underperform” but added that the bank did well in equities.

Prince told the analysts that in the quarter, there were “some very positive elements to it and some weaknesses we’re keenly aware of and are working on.”

Prince, in a statement accompanying the report, said “our business faced challenging conditions during the quarter.”

He added: “The capital markets environment was one of the worst we have seen in years, and combined with a flattening yield curve, led to a significant decline in our fixed income markets revenues.”

In the statement, Prince also noted that the nation’s new, tougher bankruptcy law, which goes into effect this fall, “caused a short-term spike in bankruptcy filings” in advance of the implementation date. This, he said, added about $175 million in losses to the bank’s North American card operations.

Citigroup’s global consumer group reported revenue of $12 billion for the second quarter, down 2 percent from $12.2 billion a year earlier. Net income in the division was $2.9 billion, down 7 percent from $3.1 billion a year earlier.

In corporate and investment banking, revenues were $5.16 billion, down 15 percent from $6.07 billion a year earlier. Net income was $1.37 billion, compared with a $2.8 billion loss a year earlier because of the special items.