Wednesday, April 13, 2011

Citigroup, Inc. (NYSE: C): Q1 Earnings Preview 2011

Citigroup, Inc. (NYSE: C) is scheduled to release first-quarter financial results before the market open on Monday, April 18, 2011. Analysts, on average, expect the company to report earnings of 9 cents per share on revenue of $20.55 billion. In the year-ago quarter, the company reported earnings of 15 cents per share on revenue of $25.42 billion.

Citigroup, Inc., a global financial services company, provides consumers, corporations, governments, and institutions with a range of financial products and services, including consumer banking, credit cards, corporate and investment banking, securities brokerage, and wealth management. In 2010, Citigroup recorded its first full-year profit since the crisis began — and untangled most of its remaining ties with Washington.

The bank, which struggled amid mounting losses on credit cards and mortgages, has been selling some of its assets from its Citi Holdings unit. Today, the pile of assets that Citi plans to sell or divest is down to $359 billion, less than half of its peak of $827 billion in early 2008. Meanwhile, Citigroup’s core business is progressing well and the international business is gaining momentum. 

In the preceding fourth quarter, the New York-based company’s net income was $1.31 billion, or $0.04 per share, compared to a net loss of $7.58 billion, or $0.33 per share in the previous year. Total revenues, net of interest expense, increased to $18.37 billion from last year's $5.41 billion and included negative credit value adjustments, or CVA, of $1.1 billion. Excluding CVA, revenues for the quarter were $19.5 billion. Analysts, on average, expected the company to report earnings of 8 cents per share on revenue of $20.58 billion.

All big US banks have returned to profitability amid easing loan losses. Lending is slowly picking up. The job market is slowly but steadily improving, which should lead to better credit quality for consumer loans.Even dividend increases have resumed at some institutions.

Recent comments by the management suggest that Citi has turned the corner. Last month, the bank announced that it would reinstate a one-cent quarterly dividend and engineer a reverse split to lift its stock out of the single digits. Increasing the share price tenfold, even if it is cosmetic, could lead individual shareholders to take another look at Citigroup’s stock, and make it easier to buy for institutional investors that have restrictions on owning shares priced under $5. It could also restore Citigroup’s place among the companies that make up indexes like the Dow Jones industrial average, which banished it once the stock started to fall. Citi will begin to pay a dividend of a penny per share in the second quarter, its first dividend since 2009. Citigroup is not expected to be able to buy back stock until 2012 at the earliest, because its financial condition remains weaker. Citi expects the split to take place after trading has closed on May 6, 2011. “Citi is a fundamentally different company than it was three years ago,” said CEO Vikram Pandit. “The reverse stock split and intention to reinstate a dividend are important steps as we anticipate returning capital to shareholders starting next year.”

However, trading revenue remains a wild card. According to industry experts, first quarter results at big banks will likely be held back by weak trading and investment banking results, as the stock market sagged on Middle Eastern political upheaval, a Japanese earthquake and tsunami sent the yen to record highs and markets were broadly unpredictable.

Recently, the company said that it plans to offer least 12 million shares of Primerica Inc., the life-insurance business it took public about a year ago. The company will receive all of the net proceeds from the offering. The shares are currently held by a Citigroup subsidiary.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 8.47. In terms of stock performance, Citigroup shares have lost nearly 4 percent since the beginning of the year.

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