CEO Vikram Pandit, a Morgan Stanley alumni, gets yet another chance this quarter to provide excuses as to why Citigroup is so lousy. Never mind Pandit isn’t a banker and the incomprehensibility of him continuing to lead this disaster. At this point in Citigroup history, financial performance has been mixed: containing some good, some bad, mostly adequate.
The good last quarter was earnings per share, net revenues, operating income, net income, operating margin, and net margin rebounded strongly. Operating expenses decreased. The capital ratio did decrease slightly, but this was mostly the result of an increase in deposits.
The bad last quarter was first and foremost the wild card and game-changer: CVA/DVA1 was a -$1.3 billion loss, resulting from the tightening of credit spreads. No matter the current quarter estimates, this nuclear bomb could detonate again and wipe out a significant portion of operating gains. If the bomb doesn’t ignite, a decent to strong quarter could randomly occur.
Citigroup goes through the meaningless exercise of releasing schedules and qualifying statements with this valuation adjustment excluded. That’s like showing a what-if box score excluding the other team’s 5 home runs.
Other concerns: Last quarter results were and the current quarter is projected to reveal year-ago performance deterioration. This can however be regained in one stronger quarter, but we are still waiting for that. The asset mix is negatively trending, net loans are decreasing while cash & investments are increasing in proportion to total assets. Return on assets is flat. Credit losses and claims are historically low, but slightly increased after the Q4 2011 multi-year low.
At 3-31-12, I have rated Citigroup a “D-” on a scale of A+ to G-. The median rating is “D” and the average rating was “C”. Financial position strength is weighted more than financial performance. The bank ratings review is here.
For the current Q2 2012, the average analysts’ EPS estimate is $0.89, which is a dip of -6% QoQ and a drop of -18% YoY. If Citigroup doesn’t rally and beat the Street, more financial ground is lost. CEO Pandit must then call for yet another retreat and retrenchment.
Estimated QE June 2012 Earnings per Share
Yahoo Finance Estimates: $0.89 avg, $0.82 low, $1.03 high, 15 analysts
Prior Quarter: $0.95
Prior Year: $1.09
Outlook: none provided
Prior Quarter: Citigroup Earnings Rebound on Adequate Results
Citigroup Income Statement Q1 2012 Citigroup financial performance rebounded with net revenues of $19.41 billion, net income of $2.93 billion, and earnings per share of $0.95. From the prior quarter Q4 2011, these were +13%, +207%, and +206%, respectively. From the prior year Q1 2011, these were -2%, -2%, and -4%, respectively. Both the operating margin and net margin increased QoQ but decreased slightly YoY to 20.96% and 15.10%, respectively. The operating expense ratio dipped to 49% and is near the historical average.
Citigroup Balance Sheet Q1 2012 Citigroup total assets increased to $1.94 trillion. Return on assets was steady at +0.57%, which is low but adequate. The capital to assets ratio decreased slightly to 9.45%. The regulatory Tier 1 capital ratio is 14.2% and the Tier 1 common ratio is 12.4%. All the capital ratios are adequate.
1 Credit valuation adjustment (CVA) on derivatives, net of hedges, and debt valuation adjustment (DVA) on Citigroup’s fair value option debt