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Citigroup (C) Earnings Release

Citigroup compiled stronger than expected earnings for the second quarter of the current year, despite a challenging environment. Even though its top line of $18.4b slightly missed the $18.76b consensus analyst estimate, it was able to surprise analysts with its EPS of $0.95. This was a surprise of approximately 7%. The bank is said to have benefited from the booming U.S. mortgage markets, its global expansion, as well as its cutting initiatives. The results, compared to JPMorgan (JPM) and Well's Fargo (WFC), are better. Both JPM and WFC were not able to beat analysts' estimates, and their EPS remained 5% and 2.4% below consensus analyst estimates. Share prices for both JPMorgan and WFC increased by 6% and 3% on Friday, when they released their second quarter results.

Citigroup 2Q2012 Results

Actual

Expected

% Surprise

Revenues ($Bn)

18.6

18.76

-0.9%

EPS

0.95

0.89

6.7%

Despite the fact that the bank's revenues of $18.6b took a hit of 4% compared to the prior quarter, Citigroup was able to keep its bottom line flat at $2.95b. Revenues and net income for 2Q2012 were down by 10% and 12% from 2Q2011.

Citigroup 2Q2012 Results

2Q2012

1Q2011

% change

2Q2011

% change

Revenues ($B)

18.6

19.4

-4.1%

20.6

-9.7%

Net Income ($B)

2.95

2.93

0.7%

3.34

-11.7%

EPS ($)

0.95

0.95

0.0%

1.09

-12.8%

Net Income Margin (%)

2.81

2.9

-3.1%

2.82

-0.4%

Deposit Growth ($B)

914

906

0.9%

866

5.5%

Loan Growth ($B)

527

514

2.5%

480

9.8%

Revenues of $18b from Citicorp largely remained unchanged from the prior year. Revenues from Global Consumer Banking remained flat at $9.8b, compared to the prior year. Revenues of $2.8b accruing from Transactional Services grew by 5%, which were offset by a decline of 2% in revenues from the Securities and Banking Division. Under the Securities and Banking Division, revenues from equity and fixed income markets decreased by 39% and 41%, owing to weak capital market activity. Despite no change in revenues, Citicorp's bottom line witnessed an increase of 6%, reflecting a decline in operating expenses and total credit costs.

Revenues from Citi Holdings plunged by a massive 62%, compared to the prior year, reflecting a decline in Special Asset Pool and Local Consumer Lending revenues. The bottom line from this segment remained in losses of $920mn.

Top line from Corporate/Other plunged by $528mn, resulting in a loss of $265mn, reflecting a loss from the sale of Akbank.

Driven by a low interest rate margin, the bank earned an interest rate margin of 2.81%, which is below what it earned during the first quarter of this year. The bank was able to increase its deposits by 90bps, which is very much in line with Well's Fargo's deposit growth of 110bps. Citigroup was able to grow its loans at a higher rate as compared to WFC. Citigroup grew its loans at 2.5%, while WFC was able to grow its loans base by only 1.1%.

Earlier, when we analyzed the Citigroup, its unparalleled global foot print and its renewed focus on cost cutting to self-fund new investments were the reasons why were recommended a long position. Today, when the bank reported its second quarter earnings, both the aforementioned factors have been found to have played a key role, which is why the bank presented better than expected results. We maintain our buy rating for Citigroup.

Source: Why You Need To Buy Citigroup