Citigroup’s rally adds to the cheer on Wall Street

Nick Goodway
17 Apr 2009

Citigroup today became the fourth US bank in recent days to report surprisingly good results as Wall Street looked to end the week on a high.

The bank, which has axed 13,000 staff in the past three months and 65,000 since the start of the credit crunch to leave it with 309,000, posted first-quarter profits of $1.61 billion (£1.08 billion), having made losses of $5.25 billion a year earlier.

It ended a five-quarter losing streak for Citi and followed better-than-expected profits from Goldman Sachs, JPMorgan Chase and Wells Fargo.

However, after $2.56 billion of bailout-related charges were taken into account, Citi racked up losses of $966 million, or 18 cents a share.

It was narrower than the 34 cents-a-share loss expected on Wall Street and Citi shares rose more than 15% to $4.63 in trading before the market opened.

Citi shares have rallied from a low of around $1 in the past month but are still well off their peak of $56 in late 2006.

Chief executive Vikram Pandit said: “We are pleased with our performance. We had our best overall quarter since the second quarter of 2007.”

Revenues were up 99% to $24.8 billion in the first quarter and Citi reported Tier 1 capital ratio — a key measure of its financial strength — of 11.8%.

Richard Hunter, head of UK equities at Hargreaves Lansdown, said: “The fact that all of these banks have had such a strong first quarter has led to some tentative hopes that perhaps the banking sector crisis is bottoming.”

But others warned the banking crisis was far from over and pointed to increasing defaults on mortgages and credit card loans as recession deepens and unemployment rises.

Manoj Ladwa, a senior trader at ETX Capital in the City, said: “On the surface, Citigroup's first-quarter results look good. But it's difficult to see the current figures as anything more than a blip. Increasing defaults on home and credit card loans and an outflow of funds from their wealth management business does not bode well for coming quarters.”

Citi, which received $45 billion of support from the US taxpayer through the government's Troubled Asset Relief Programme, was hit by a further $10.3 billion of credit-crunch losses, up 76% on last year.

Goldman and JPMorgan have said they want to pay back money borrowed from the government as soon as possible but Pandit made no such commitment today.

Michael Holland of Holland & Co in New York said: “There's no doubt the challenges are still enormous for Citigroup. With continuing concerns about the consumer, Citi is going to suffer.”

Citi has axed thousands of staff at its offices in Canary Wharf, where its European investment banking operations are based.