Quarter in Detail
Revenues of Citigroup came in at $19.6 billion for the quarter, up 9% from the prior-year quarter. Excluding CVA/DVA, Citigroup revenues increased 10% from the prior-year period to $20.0 billion. The rise was primarily driven by higher revenues from Citicorp and Citi Holdings. Also, the revenue figure was above the Zacks Consensus Estimate of $19.02 billion.
At Citicorp, revenues came in at $18.0 billion, up 8% year over year. Excluding CVA/DVA, revenues were also up 8% from the prior-year quarter. Increased revenues in the Institutional Clients Group (ICG) and GCB led to this rise.
Further, Citi Holdings reported revenues of $1.6 billion, up 26% year over year. Revenues were up 30% year over year excluding CVA/DVA, mainly due to gains realized on the sales of consumer banking business in Greece and Spain as well as reduced funding costs. These positives were partially offset by losses on the redemption of debt related to funding Citi Holdings assets.
Operating expenses at Citigroup were up 6% year over year at $12.4 billion. Expenses included the impact of increased legal and related costs and repositioning charges in Citicorp, an adjustment to incentive compensation expense, and elevated regulatory and compliance costs. These were partially offset by continued cost reduction efforts and the overall decrease in Citi Holdings assets.
At quarter end, Citigroups end of period assets was $1.9 trillion, up 1% year over year. The companys loans and deposits decreased 1% year over year to $654 billion and $943 billion, respectively. Citi Holdings assets decreased 16% from the prior-year quarter level to $103 billion and represented just 5% of the companys total assets at third-quarter end.
Citigroups credit quality improved in the reported quarter. Total non-accrual assets declined 19% year over year to $8.0 billion. The company reported a 38% fall in corporate non-accrual loans and a decline of 13% was reported in consumer non-accrual loans.
Citigroups total allowance for loan losses was $16.9 billion at quarter end, or 2.60% of total loans, down from $20.6 billion, or 3.16%, in the prior-year period.
At the quarter end, Citigroups estimated Basel III Tier 1 Common Ratio was 10.7%, up from 10.5% in the prior-year quarter, mainly driven by retained earnings and deferred tax asset (DTA) utilization. The companys estimated Basel III Supplementary Leverage Ratio for third-quarter 2014 was 6.0%, up from 5.1% in the prior-year quarter.
As of Sep 30, 2014, book value per share was $67.31 and tangible book value per share was $57.73, up 4% and 6%, respectively, from the prior-year period end.
Following the earnings release, Citigroup disclosed findings related to an investigation into its Mexico subsidiary, Banamex that provided personal security services. The investigation detected illegal conduct, including fraud of around $15 million. The company has notified the issue to law enforcement bodies and regulators in the US and Mexico. The company is set to disband the unit and such services will be provided by the companys global security function wing.
Per Citigroup Chief Executive Officer, Michael Corbat, While the fraud is not financially material, the conduct of the individuals involved is appalling. Now that this investigation is complete, we intend to hold the individuals who conducted these activities accountable.
Following the dismal second-half 2013 performance, Citigroup began 2014 on a positive note. The reported quarter marked the third consecutive quarter of earnings beat for this banking major. On the whole, revenues and its profit level outpaced expectations.
Citigroups underlying franchises of the consumer businesses and revenues have continuously been under pressure for the past several quarters. While we believe that robust top-line expansion will remain elusive in the near term given the tepid economic recovery, we remain encouraged by the companys continuous restructuring efforts.
Moreover, improving credit trends are expected to counter the negatives. One can consider a strong brand like Citigroup to be a sound investment option over the long term, given its global footprint and attractive core business. However, amid rising expenses along with the thrust of new banking regulations, there will be pressure on fees and loan growth.
Citigroup currently carries a Zacks Rank #3 (Hold).
Among other Wall Street giants, Wells Fargo amp; Company (WFC – Analyst Report) earned $1.02 per share in third-quarter 2014, thereby surpassing 99 cents earned in the year-ago quarter. However, the reported figure was in line with the Zacks Consensus Estimate.
Bank of America Corp. (BAC – Analyst Report) and KeyCorp (KEY – Analyst Report) are set to report results on Oct 15.