Fitch: Citi's 1Q'15 Reports Much Improved Results

CHICAGO--(BUSINESS WIRE)-- Citigroup (Citi) reported a 1.05% return on assets (ROA) in the first quarter of 2015 (1Q'15), its strongest performance in years, and well within the company's target of 90 basis points (bps) to 110 basis points, according to Fitch Ratings. Earnings, on a sequential basis, were favorably impacted by revenue growth, especially in fixed income following a weak 4Q'14, as well as lower core expenses. Results were also aided by the absence of any large legal or repositioning charges, and a profitable quarter for Citi Holdings.

Over the past couple years, Citi's earnings during the first half of the year have started out favorably, only to be marred by material litigation costs or lower capital markets revenues later on. As such, Citi's ability to meet its full-year targets will likely hinge much more so on performance in the latter part of the year. There is still limited visibility into ultimate legal costs, especially as they relate to foreign exchange items, which may necessitate further provisioning.

Net income in both International Consumer Banking and North America Consumer Banking increased on a sequential basis due to expense declines outpacing lower revenues. From a year ago, North America retail banking revenues were up a significant 18% reflecting continued volume growth, higher mortgage origination activity, improved deposit spreads, and the impact of asset sales.

While Citi reported a strong improvement in fixed income revenues on a sequential basis, fixed income was down 11% from a strong 1Q'14. The year-over-year decline was attributed to weakness in spread products, only partially offset by strong client activity in rates and currencies. Citi also reported notable improvements in Investment Banking both on a linked-quarter basis and from a year ago.

Global Consumer Banking's reported loan losses decreased slightly to 2.2% during the quarter. Given Citi's higher loss content credit card book and emerging markets exposure, loan losses tend to be higher than peer averages. Citi reported higher net charge-offs (NCOs) in Mexico, Citi's largest credit exposure outside of the U.S., but a decent improvement in late stage delinquencies.

Citi continues to wind down its Citi Holding assets, and ended the quarter with $122 billion in total assets or roughly 7% of consolidated assets. In early March, Citi announced the sale of OneMain, comprising around 8% of Citi Holdings assets, is now the largest remaining business in Citi Holdings. Fitch notes that it may be more difficult for Citi Holdings to remain profitable after the transaction closes, given the absence of OneMain's earnings.

The impact of foreign exchange translation into U.S. dollars for reporting purposes was meaningful for this quarter's results as the dollar strengthened against major currencies. Citi hedges its CET1 exposure to fluctuations in currencies; however, movements in foreign currencies still resulted in a $5 billion deduction to CET1 capital, though there was nominal impact to Citi's ratio given corresponding impacts to Basel III RWA.

Citi's capital ratios continue to remain very good and generally above global peers. The company's estimated Common Equity Tier 1 under Basel III on a fully phased-in basis increased to 11% at quarter-end. The sequential 40bps improvement was due to both retained earnings and the utilization of $1.2 billion in deferred tax assets. Citi received no objection to its proposed capital plan during CCAR this year, and fared well from a quantitative perspective, especially relative to its large bank peers.

Citi also reported that it would already be in compliance with the supplementary leverage ratio at the holding company with a 6.4% ratio.

Additional information is available at 'www.fitchratings.com'.

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Fitch Ratings
Julie Solar, +1-312-368-5472
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Meghan Neenan, +1-212-908-9121
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1-212-908-0540
[email protected]
Elizabeth Fogerty, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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