Citigroup Inc., the third-biggest U.S. bank, rose in New York trading after first-quarter profit and revenue from fixed-income trading and investment banking exceeded analysts’ estimates.
The shares climbed 2.7% to $45.97 at 10:33 a.m. in New York, the biggest gain on the 24-company KBW Bank Index. Net income jumped 30% to $3.81 billion and per-share profit excluding an accounting adjustment was $1.29, beating the $1.17 average estimate of analysts in a Bloomberg survey.
Chief Executive Officer Michael Corbat, 52, who oversaw his first full quarter since replacing Vikram Pandit in October, is firing workers and closing branches as he seeks to make Citigroup more efficient. Bond-trading and investment-banking revenue was aided by a decline in reserves for loan losses, which bolstered earnings.
“You can’t say it wasn’t a good quarter,” said Charles Peabody, an analyst at Portales Partners LLC in New York. Peabody cited revenue gains, the release of loan-loss reserves and the use of deferred tax assets to trim the New York-based bank’s tax bill. “Those three things are what people are focused on in a positive way.”
Revenue climbed to $20.5 billion from $19.4 billion in the same quarter last year and was $20.8 billion excluding accounting adjustments. The average estimate of analysts in a Bloomberg survey was $20.2 billion. Expenses rose 1% to $12.4 billion, “mainly reflecting an increase in legal and related costs and repositioning charges,” the bank said.
JPMorgan Chase & Co., the biggest U.S. bank, last week reported a 33% jump in first-quarter net income to $6.53 billion. Wells Fargo & Co., the fourth-biggest, said profit rose 22% to $5.17 billion. Both lenders used expense cuts to boost their earnings as revenue fell.
The division that contains Citigroup’s trading and investment-banking units, overseen by Co-President Jamie Forese, reported a $2.31 billion profit, compared with $1.28 billion a year earlier.
Revenue from trading bonds declined 3% to $4.6 billion, excluding adjustments, from the same period last year, Citigroup said. David Trone, an analyst with with JMP Securities LLC, had estimated $3.2 billion. Moshe Orenbuch, a Credit Suisse Group AG analyst, predicted $4.2 billion.
The bank cited growth in “securitized products” for the performance in fixed-income trading. The unit, run by Jeffrey Perlowitz and Mark Tsesarsky, deals in products such as mortgage-backed securities. Revenue from rates trading and currencies declined, the bank said.
Investors “looking for yield” helped drive gains in securitized products during the quarter, especially for mortgage-related products, Chief Financial Officer John Gerspach said on a conference call with journalists.
Citigroup’s fixed-income trading business was the second- biggest in the world in 2012, according to research from analytics firm Coalition Ltd. The division employs Andy Morton, interest-rates trading head, Carey Lathrop, head of credit- trading, and Howard Marsh, who leads municipal bond trading.
Corbat oversaw a loan-loss reserve release of $652 million, allowing his bank to boost profit with funds that had been designated to cover future costs on bad loans. Trone had expected a $420 million release while Richard Staite, an analyst in London with Atlantic Equities LLP, had predicted $175 million.
Citi Holdings, the part of the bank that contains distressed and unwanted assets, posted a $794 million loss, down from $1.02 billion a year earlier. Assets at the division, overseen by Eugene “Gene” McQuade, 64, fell 29% to $149 billion.
The bank had a loan-loss reserve release of $351 million in the Citi Holdings unit.
“We believe investors are responding to the emergence of two long-awaited trends, including a mortgage loan-loss reserve release in Citi Holdings and DTA utilization, albeit both by modest amounts,” Jason Goldberg, an analyst with Barclays Capital Inc. in New York, said in an e-mail.
Investment banking, which includes advising clients on mergers and acquisitions and helping them sell shares and bonds to the public, posted revenue of $1.1 billion, a 22% increase. Staite at Atlantic Equities had estimated revenue of $920 million.
Citigroup’s underwriting unit, run by Tyler Dickson, benefited as investors bought more junk bonds and shares through public offerings. The bank helped clients sell $12.3 billion of junk bonds in the quarter, compared with $10.6 billion a year earlier, according to data compiled by Bloomberg.
The firm underwrote $14.2 billion of global share sales, 23% more than the same quarter in 2012, the data show.
The consumer bank, run by Co-President Manuel Medina-Mora, 62, posted a $1.95 billion profit, compared with $2.18 billion in the same quarter last year. Staite had predicted $2.1 billion.
Revenue at the division, which had operations in almost 40 countries last year, was almost unchanged at $10 billion. Staite had estimated $10.3 billion.
Citigroup’s advisory unit, overseen by Raymond J. McGuire, garnered $204 million in fees from advising clients on mergers and acquisitions in the quarter, compared with $110 million a year earlier.