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Citigroup reports higher earnings.

Citigroup needed some good news given recent news that the Federal Reserve would not approve Citi paying dividends or buying back stock.

Also, Citi discovered another fraud case out of Mexico.

On Monday, Citigroup Inc. (NYSE:C) reported its first quarter earnings.

I was taken by the difference in the "tone" surrounding the Citi release and that present in the release of earnings by JPMorgan Chase & Co. (NYSE:JPM) last Friday.

My initial feeling about the JPMorgan earnings I tried to capture in my report on that release:

"The year 2013 is not a year Jamie Dimon wants to repeat. It was a year in which earnings performance was not the greatest and, in addition, the bank had to fork over about $20.0 billion to the government to settle claims against it. Given the way that Mr. Dimon's banks have performed in the past, it is my feeling that he is really bringing JPMorgan together and position the bank to weather the financial restructuring that is going to take place over the next several years.

In doing this, Mr. Dimon seems to want to minimize credit risks going into a period where there will be an effort to reduce financial liquidity in the banking system and a period of higher interest rates. I believe that he is being very cautious."

Mr. Dimon is confident in his position as the leader of JPMorgan and he is trying to position his back for the (uncertain) events of the next two years or so.

Michael Corbat, the Chief Executive of Citigroup, is in a different position. He has been the leader at Citi only since October 2012. He still has work to do to prove himself in the position.

Corbat and Citigroup have been hit by three things in recent weeks. First, there has been the announced fraud that took place in its Mexican unit. There is further alleged fraud that is linked to its Mexican business, although of a much smaller magnitude than the earlier case.

Second, the Federal Reserve failed to approve a request by Citi to pay higher dividends and buy back stock after its recent stress test exercise.

Third, upon gaining knowledge about these results, questions arose about the ability of the bank to hit its 2015 financial targets. The primary goal was for the bank to achieve a 10.0 percent return on tangible common equity. John Gerspach, Citigroup's Chief Financial Officer, admitted, "It's going to be increasingly difficult to meet that target."

Whereas Mr. Dimon, secure in his position, could act cautiously and work to position JPMorgan for the longer term, Mr. Corbat seemed to need to produce some results that would indicate he and Citigroup were moving in the right direction.

That is exactly what was reported.

Net income at Citi rose 3.4 percent from the same quarter in 2013 to $3.9 billion. This exceeded analysts' estimates of $3.6 billion.

Adjusted revenue fell by 2.0 percent to $20.1 billion, but this was above analysts' estimates of $19.4 billion. Citi experienced some of the same slowdowns that JPMorgan did, with trading in fixed income, commodities and currencies dropping in the quarter as did mortgage activity, both new originations and refinancings. Citi saw a drop in trading of stocks and bonds of 13.0 percent, lower than JPMorgan's total, which dropped 17.0 percent. Citi's total mortgage originations dropped 71.0 percent, whereas those at JPMorgan fell by 68.0 percent. Wells Fargo saw a fall of 67.0 percent.

The loan growth at JPMorgan was basically flat, reflecting, I believe, Dimon's cautious position with respect to risk management. Citigroup, on the other hand, experienced loan growth in the quarter. As noted in the Financial Times, "Revenues at the international consumer bank improved from a year ago, with Latin American banking up 5.0 percent to $2.3 billion and Asia up 1.0 percent to $1.9 billion."

Of course, there are the other adjustments. There was "a big drop in losses at Citi Holdings, the bad bank it split off during the financial crisis, which fell more than 60.0 percent, down from $798 million to $292 million."

The bank also benefited from an increase in its loan-loss reserve release, which rose from $650 million to $673 million. Provisions for bad loans dropped 20.0 percent to $18.9 billion.

Furthermore, the bank's operating expenses, something Mr. Corbat had been focusing on, fell by 4.0 percent to $10.9 billion.

To sum up the earnings report released by Citigroup, I would say that Mr. Corbat is moving the bank in the right direction. Some of the variation in results is typical of the modern mega-bank, an organization that lives off fees from trading, loan originations, and investment banking.

The bank is still producing results connected with moving loan loss reserves around and cutting expenses, but these always accompany commercial banks coming out of a case of severe financial trouble.

The disconcerting thing that has happened is the response the Federal Reserve made to the stress test that Citigroup undertook. This seemingly took the management of Citi by surprise and, given the improvements that have been made to the bank, it took many investors by surprise.

The Wall Street Journal reported that John Gerspach, "said the bank had boosted the resources devoted to control and compliance issues by about 33.0 percent over the past three years, and had about 500 employees who spent more than half their time working on the Fed's stress-test process."

The bank is trying, but it is a little disturbing that with so many resources being thrown at these stress-tests, Citi got the result it did. It cannot afford to come up short in this area again.

Overall, as I wrote earlier, Citigroup is in a little different position than JPMorgan. In order to keep the momentum going on the side of Mr. Corbat and his management team, net income has to continue to rise. This, I believe, is going to put more and more pressure on Mr. Corbat in the rest of this year and in 2015… let alone beyond that.

Because of this, Mr. Corbat and Citigroup may have to take on a little more risk in the future than does JPMorgan. The result of this effort will be determined, to a great extent, by how volatile the next two to three years turn out to be.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.