Breadth Shelters Citigroup From Banks Slowdown

Citigroup (C) Tuesday posted an impressive 11% gain in fourth-quarter profits as its broad range of businesses helped it sidestep some of the bank sector's current trouble spots.

Citigroup posted earnings of $3.3 billion, or 65 cents a share, including a charge for a loan provision. That was up from $3 billion, or 58 cents a share, a year ago. The EPS number was in line with the First Call/Thomson Financial consensus estimate.

Softness in the bank's capital markets business and higher credit costs associated with its acquisition of Associates First Capital were offset by strength in its global consumer division, particularly in North America.

The bank said it took a charge of $146 million, or 3 cents a share, for a provision for Associates' truck loan and leasing portfolio. Citigroup acquired consumer finance business Associates First Capital in September for over $30 billion. Many viewed the move to shore up reserves as pro-active given Citigroup's reputation for healthy credit quality.

"They took a good look at Associates in terms of commercial credit quality where there was a weak portfolio," says David Berry, banks analyst at Keefe Bruyette & Woods. (He rates Citi a buy and his firm hasn't done any underwriting for the bank.) "They still reported the number I was looking for," he adds.

Indeed, at a time when a number of other banks are struggling with problem loans, the bank said that aside from Associates' truck portfolio, the bank saw "spectacular improvement in credit in 2000" that is only now beginning to tip worse, according to a Citigroup spokesman.

One area where the bank did experience some industrywide weakness was in its Salomon Smith Barney unit, which includes underwriting and trading revenue. Citigroup now reports Salomon's results combined with its Global Relationship Bank. Berry said he had been expecting Salomon to report income of $500 million and GBR to post $250 million, for a combined total of $750 million. Instead, the $716 million total was lighter than he expected and down considerably from $824 million a year ago.

Berry adds that though the combination makes sense because the businesses are increasingly integrated, it also makes it more difficult to assess Salomon's performance separately. He notes that a drop in private client revenues, heavily dependent on trading volume, also contributed to the weakness in Salomon's bottom line but was offset by gains in emerging markets corporate banking, among other business lines.

Elsewhere the North American credit cards division experienced healthy gains, producing income of $408 million, up from $324 million a year ago. The bank's Traveler's insurance unit was also a strong performer with record annuity sales contributing to a $160 million jump in income. Berry says "broad-based strength in emerging markets" and other individual businesses are "where the earnings came from to cover up" the hit it took for Associates' loan portfolio.

>To order reprints of this article, click here: Reprints