Citigroup, GE Post Better-Than-Expected Earnings
April 17, 2009 - 6:15 AM<br />
Citigroup had its best quarter since 2007. The bank on Friday reported a first-quarter loss to common shareholders of $966 million after massive loan losses and dividends to preferred stockholders. However, before paying those dividends, which were tied to the government's investment in Citigroup, the bank earned $1.6 billion.
The results were better than expected. Citigroup reported a loss per share of 18 cents, which was narrower than the 34 cents analysts predicted. A year ago, the company suffered a loss of more than $5 billion, or $1.03 a share. Shares rose 12 percent in pre-market trading.
Meanwhile, General Electric Co. said Friday its first-quarter earnings fell 36 percent on sharply lower profits at its troubled finance arm, but the results beat Wall Street forecasts in a glimmer of good news for the struggling company.
GE, which has a stake in almost every sector of the economy, from light bulbs to locomotives, posted earnings from continuing operations of $2.92 billion or 26 cents per share. That surpassed the 21 cents per share forecast by analysts. GE shares rose 44 cents, or 3.7 percent, to $12.27 in pre-market trading.
Citigroup's revenue doubled in the first quarter from a year ago to $24.8 billion thanks to strong trading activity in its investment bank. Its credit costs were high, though -- at $10 billion -- due to $7.3 billion in loan losses and a $2.7 billion increase in reserves for future loan losses.
Citigroup has been the weakest of the large U.S. banks, posting quarterly losses since the fourth quarter of 2007. But in March, CEO Vikram Pandit triggered a stock market rally after he said that January and February had been profitable for Citigroup.
It was one of the first signals that the banking industry might not be as sick as many believed. Earlier that month, fears that banks would need to be nationalized sent stocks plunging to 12-year lows.
Citigroup's better-than-expected report on Friday come after surprisingly solid earnings from JPMorgan Chase & Co., Goldman Sachs Group Inc., and Wells Fargo & Co. over the past several days. While recent results from these healthier banks have brought some relief to investors, many have been waiting to see how more troubled banks such as Citigroup have fared.
Pandit said in a statement Friday that he was "pleased" with Citigroup's performance.
"While we and the industry face challenges in the coming quarters as we work through the weak economy, we will remain focused on strengthening the Citi franchise," he said.
One concern among investors is that the strong trading activity seen by banks in the first quarter was a one-time event -- the first quarter saw a surge in corporate bond issuance as the credit markets started thawing from their frozen fourth quarter. Even JPMorgan CEO Jamie Dimon acknowledged Thursday that trading activity is unlikely to remain so robust.
The question is whether banks like Citigroup can find other ways to offset loan losses, which nearly all economists and bankers agree will keep rising throughout the year as the unemployment rate ticks higher. The global recession is causing defaults in mortgages, credit cards and commercial real estate loans -- and Citigroup is heavily exposed to all of these.
In early March, Citigroup stock hit an all-time low of 97 cents per share. It has since quadrupled, but remains down 40 percent for 2009. And at $4.01 a share Thursday, Citigroup stock was down 93 percent from its late 2006 peak.
Since late 2007, Citigroup has gotten a new CEO, a new chairman, and a new structure that splits its traditional retail and investment banking business from its consumer finance units, asset management, and risky mortgage-related assets. It's also been downsizing by selling off businesses and laying off a fifth of its employees. And it's gotten $45 billion in government funding and a federal backstop on roughly $300 billion in assets.
After paying preferred dividends, GE's net income totaled $2.74 billion, down from $4.30 billion, or 43 cents per share, a year earlier.
Revenue fell 9 percent to $38 billion, with sales down or flat in every division except GE's energy business. The broad recession has hurt many of GE's industrial businesses that make products like jet engines, oil field equipment and household appliances. Sales also declined at GE's entertainment division, which includes the NBC television network.
Earnings at GE Capital fell 58 percent, but still amounted to $1.12 billion, holding to GE's prediction last month that the segment would be profitable despite growing losses on its loans in areas like credit cards and commercial properties. GE said Friday that the unit is on track to turn a profit in 2009 despite its woes.
Jeff Immelt, GE's CEO, said the company still believes it won't have to raise new capital to prop up GE Capital. That has been a major worry for investors and contributed to a steep slide in GE's share price earlier this year.
GE gave investors an exhaustive review of GE Capital's finances in March in an attempt to rebuild confidence following a 60 percent slide in share prices from the start of the year. The company has warned that GE Capital, which once made up about half of GE's profits, could just break even this year if the economy continues to worsen. But GE also said it wouldn't have to plug more money into GE Capital, which has helped the share price recover somewhat.
The first quarter included some ignominious developments for GE, most of them caused by GE Capital. In late February, GE slashed its dividend by 68 percent, a move that GE expects will save it $9 billion in cash but was the first dividend cut since 1938. Two weeks later, GE lost its rare top 'AAA' Standard & Poor's credit rating.
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