Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

Summary

  • One step forward: Tangible book value increased 7%.
  • One step back: Earnings decreased from last year.
  • Second step back: Revenues decreased from last year.

The last time I wrote about Citigroup Inc. (NYSE:C) I stated:

"I'm not going to be buying the stock right now because I feel it is just too risky right now, but I'll continue to let what I own ride the tide." Since that article was published the stock is up 2.72% (3.02% of that move came today on the back of earnings) while the S&P 500 (NYSEARCA:SPY) is up 0.82%. Citi is a global diversified financial services holding company, whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, which include consumer banking and credit, corporate and investment banking, securities brokerage and wealth management.

The company reported earnings before the market opened on 14Jul14 and on the surface the results were excellent with the company reporting earnings of $1.24 per share (beating estimates by $0.19) on revenue of $19.37 billion (beating estimates by $440 million). The stock increased 3.02% the day it reported earnings and what I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Global Consumer Banking

2Q14

1Q14

2Q13

Q/Q

Y/Y

Total Revenue

$ 9,381

$ 9,293

$ 9,718

1%

-3%

Provision for credit losses

$ 1,499

$ 1,618

$ 1,603

-7%

-6%

Operating expense

$ 5,461

$ 5,190

$ 5,285

5%

3%

Net income

$ 1,599

$ 1,719

$ 1,856

-7%

-14%

Global Consumer Banking is the part of the business which serves more than 100 million clients in 40 countries and consists of five divisions: Citibank, Citi Branded Cards, Citi Retail Services, Citi Commercial Bank, and CitiMortgage. This portion of the business accounts for approximately 49% of total revenues. From my perspective I don't like that net income decreased 14% from the prior year. Net income decreased in large part due to a decline in revenues and increase in operating expenses. The higher expenses were due to a repositioning in Korea and the impact of the Best Buy portfolio acquisition.

Institutional Clients Group

2Q14

1Q14

2Q13

Q/Q

Y/Y

Total Revenue

$ 8,463

$ 9,234

$ 9,560

-8%

-11%

Provision for credit losses

$ (112)

$ 27

$ (30)

-515%

273%

Operating expense

$ 4,891

$ 4,994

$ 5,006

-2%

-2%

Net income

$ 2,563

$ 2,943

$ 2,829

-13%

-9%

This part of the business offers investment and corporate banking services and products for corporations, governments, institutions, and ultra-high-net-worth investors operating in four divisions: Citi Markets, Citi Corporate & Investment Banking, Citi Private Bank, and Citi Transaction Services. What I notice most about this division of the company is that revenues decreased by 11% from last year due to a decrease in fixed income markets and equity markets. There was also a 273% increase in provision for credit losses when compared to last year.

Citi Holdings

2Q14

1Q14

2Q13

Q/Q

Y/Y

Total Revenue

$ 1,463

$ 1,456

$ 1,096

0%

33%

Provision for credit losses

$ 343

$ 329

$ 451

4%

-24%

Operating expense

$ 4,514

$ 1,544

$ 1,564

192%

189%

Net income

$ 244

$ (292)

$ (591)

-184%

-141%

Citi Holdings consists of Citi businesses that Citi wants to sell and are not considered part of Citi's core businesses, mainly U.S. mortgages. Revenues increased thanks to the absence of repurchasing reserve builds for representation and warranty claims, increased gains on asset sales, and lower funding costs.

Conclusion

Citigroup Inc.

2Q14

1Q14

2Q13

Q/Q

Y/Y

Total Revenue

$ 19,307

$ 19,983

$ 20,374

-3%

-5%

Provision for credit losses

$ 1,730

$ 1,974

$ 2,024

-12%

-15%

Operating expense

$ 14,866

$ 11,728

$ 11,855

27%

25%

Net income

$ 4,406

$ 4,370

$ 4,094

1%

8%

EPS

$ 1.24

$ 1.30

$ 1.25

-5%

-1%

Tangible Book Value

$ 56.89

$ 56.40

$ 53.10

1%

7%

The decrease in provision for credit losses for the company as a whole was at 15%, which is a great thing I believe. But what I don't like is that earnings per share decreased 1% from the prior year and 5% from the prior quarter. Personally I don't like that total revenue for the company decreased 5% from last year and 3% from last quarter. If there was a bright spot, it was that tangible book value increased 7% from last year. Citi's share price was up 1.57% from the prior earnings release excluding dividends.

The results of this quarter were obviously outstanding as was evidenced in the share price of the stock, jumping 3.02% after reporting, albeit at the expense of lowered expectations. The combination of decreased earnings and decreased revenues makes me cringe. Even though the company beat expectations it doesn't really make me feel like the all clear signal was given to buy more shares. I'm going to stick to the strategy of letting my current position ride.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Citigroup Takes One Step Forward And Two Steps Back On Second Quarter Earnings