Citigroup reported a 27% drop in first-quarter profit on Friday, as the bank grappled with higher expenses related to employee severance and a contribution to replenish a government deposit insurance fund. Despite the decline in earnings, the bank's revenue topped analysts' estimates, driven by better-than-expected results in its investment banking and trading operations.
The bank posted a net income of $3.4 billion, or $1.58 per share, for the three months ended March 31, compared with $4.6 billion, or $2.19 per share, a year earlier. Adjusting for the impact of FDIC charges, as well as restructuring and other costs, Citi earned $1.86 per share, surpassing the $1.23 per share expected by analysts, according to LSEG, formerly known as Refinitiv.
Revenue slipped 2% to $21.10 billion, mostly driven by the impact of selling an overseas business in the year-earlier period. However, this figure still exceeded the $20.4 billion expected by analysts.
Citigroup CEO Jane Fraser, who has been overseeing a sweeping corporate overhaul since September, said in the earnings release, "Last month marked the end to the organizational simplification we announced in September. The result is a cleaner, simpler management structure that fully aligns to and facilitates our strategy."
The bank expects a headcount reduction of 7,000 and $1.5 billion in annualized savings from the reorganization, according to its investor presentation. Shares of Citigroup were down less than 1% in early trading following the earnings release.
Citigroup's investment banking and trading divisions were bright spots in the first quarter. Investment banking revenue jumped 35% to $903 million, driven by rising debt and equity issuance, topping the $805 million estimate from StreetAccount. Fixed income trading revenue fell 10% to $4.2 billion, edging out the $4.14 billion estimate, while equities revenue rose 5% to $1.2 billion, surpassing the $1.12 billion estimate.
The bank also posted an 8% gain to $4.8 billion in revenue in its Services division, which caters to the banking needs of global corporations, thanks to rising deposits and fees.
However, Citigroup's earnings were weighed down by higher expenses and credit costs. The bank paid $251 million into a Federal Deposit Insurance Corp (FDIC) fund that was drained last year after three regional lenders failed. Credit costs of $2.2 billion were driven by higher non-conforming loans of $1.9 billion.
For the full year, Citigroup expects expenses between $53.5 billion and $53.8 billion, excluding the FDIC's special assessment fees. The bank's forecast includes about $700 million to $1 billion of repositioning costs and restructuring charges, of which roughly $483 million was recorded in the first quarter.
Despite the challenges, investors have rewarded Fraser's efforts to streamline the bank, with Citigroup's stock rising 18% this year, outperforming peers and beating the benchmark S&P 500. However, the bank still faces regulatory hurdles, including consent orders from the U.S. Federal Reserve and the Office of the Comptroller of the Currency from 2020, which direct the bank to address deficiencies in its risk management, data governance, and internal controls.
