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Citigroup Inc. , the third-biggest U.S. bank, said profit fell 2.3 percent, missing analysts’ estimates on a bigger-than-projected accounting cost. Trading revenue rebounded from the fourth quarter.
First-quarter net income was $2.93 billion, or 95 cents a share, compared with $3 billion, or $1 a share, in the same period last year, the New York-based bank said today in a statement. The average estimate of 17 analysts surveyed by Bloomberg News was $1.02 a share in adjusted earnings.
Chief Executive Officer Vikram Pandit is trying to reverse last year’s 10 percent revenue slump and return capital to shareholders after failing part of a Federal Reserve stress test in March. Wall Street firms’ trading businesses benefited in the first quarter as U.S. unemployment fell and Europe’s debt crisis eased.
“The earnings outlook is brightening,” said Gary Townsend, head of Hill Townsend Capital LLC, which manages about $40 million, including Citigroup shares. “What you have is a CEO who has pretty well accomplished what he said he would do in early 2009. The fruit of the labor is finally going to begin bearing in 2012 and ‘13.”
Citigroup’s profit was $1.11 a share excluding a $1.3 billion accounting cost called a credit valuation adjustment, or CVA, and gains the bank made on sales of stakes in other lenders.
The one-time items reduced earnings by 16 cents a share. Moshe Orenbuch, an analyst with Credit Suisse Group AG, had predicted the cost would be 6 cents.
Pandit sold stakes in Turkish lender Akbank TAS, Shanghai Pudong Development Bank and Housing Development Finance Corp. in Mumbai during the quarter.
Citigroup’s net income compares with the $5.38 billion posted last week by JPMorgan Chase & Co. , the biggest U.S. bank. Wells Fargo & Co., the fourth-largest lender, reported a $4.25 billion profit.
Investors took more risks during the quarter as the European Central Bank increased lending to banks, easing anxiety tied to the region’s sovereign debt crisis. The five largest Wall Street banks helped clients buy and sell more commodities, sovereign debt, currencies and mortgages, leading to a 76 percent increase in fixed-income revenue compared with the fourth quarter of last year, JMP Securities LLC analyst David Trone estimated in a March 22 note.
“Positive developments out of Europe and a general willingness to take on risk have pushed capital market stocks higher,” Trone wrote.
The trading rebound comes as Pandit seeks to cut more than 1,000 jobs across the division that contains Citigroup’s trading and investment-banking units. Revenue at the securities and banking division, overseen by Jamie Forese, tumbled 16 percent to $19.7 billion in 2011, leading Chief Financial Officer John Gerspach to cite “management and execution challenges” in parts of the business.
Richard Staite, an analyst in London with Atlantic Equities LLP, said the surge in trading in the first quarter is unlikely to last as investors take fewer risks during the rest of the year.
“We think many investors will remain on the sidelines during a period of relatively weak and uncertain economic growth,” Staite wrote March 30. He said a pattern has developed for the past three years in which a strong first quarter “has been followed by disappointment.”
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