Citi Rallies Despite Writedowns, Job Cuts

The company is also aggressively working toward a healthier balance sheet. Citi has raised more than $30 billion of capital in December and January. In addition, the company is slowly reducing some of its riskiest assets.

Within its subprime-related exposures, Citi reduced its gross lending and structuring exposures by 20% to $6.4 billion from the fourth quarter, and its net asset-backed securities collateralized debt obligation super senior exposures by 22% to $22.7 billion, it said.

On the leverage lending side, the company reduced its exposure by 13% to $37.7 billion. Roughly 45% of that was in funded commitments, the company said during the conference call.

Still, as the credit crisis lingers and housing's decline worsens, large banks like Citi, JPMorgan Chase(JPM Quote) and Wachovia(WB Quote) continue to take hits.

Citi's credit costs totaled $6 billion for the quarter, approximately $3.8 billion of which were for actual losses, while the company took a $1.9 billion provision to increase loan loss reserves. Citi's U.S consumer business -- which includes mortgage, credit cards and auto loans, among other things -- had the bulk of the losses.

Looking ahead, Pandit said that in the second quarter and going forward, the company will continue to divest nonstrategic assets and to "allocate capital to the products and regions that will drive increased revenues, enhance the value of our franchise, and ultimately, maximize shareholder value."

Several ratings agencies took action against Citi's debt ratings following the earnings report. Fitch Ratings downgraded the firm's long-term issuer default ratings to double-A minus from double-A.

"The potential depth of problems across Citi's U.S. consumer portfolio will likely make a restoration of desirable financial metrics a 2009 event at the earliest. This comes on top of financial challenges in Citi's securities and banking operations in both the near and intermediate terms as Citi looks to reduce problematic exposures, right size this business and focus activity on customer value-added transactions," Fitch said in a note.

"Citi's ratings continue to be underpinned by its solid funding structure and liquidity management as well as its diverse franchise by product and geography," it said. "Fitch may downgrade Citi further if sizable bottom line losses persist and capital falls below targeted levels."

Standard & Poor's placed the company's counterparty credit rating of double-A minus on a negative credit watch, while Moody's Investors Service affirmed its double-A3 ratings on Citi but lowered its outlook to negative.

Like many of its big peers on Wall Street, Citi's loss did not appear to rattle investors. Merrill Lynch(MER Quote) on Thursday posted a $1.97 billion loss in the first quarter on more than $6 billion in writedowns. The stock, however, closed up 4.1%.

JPMorgan Chase on Wednesday reported a 50% drop in profit, but beat expectations with earnings of $2.37 billion.

"Citi's miss vs. consensus today had more to do with rising credit costs and reserve build than the market-related losses," writes Betsy Graseck, an analyst with Morgan Stanley. "While Citi was $3 [billion] higher than our estimate, the Street was building in significantly higher write-downs."

Andrew Marquardt, an analyst at Fox-Pitt Kelton Caronia Waller, says the shares will react positively following no further dividend cut, capital markets-related hits that were less than last quarter and credit costs that were also less than last quarter, he writes.

"Bottom line is that capital markets-related negative marks were less than we expected at $12 billion pre-tax (we modeled closer to $20 billion and compares to $18 billion last quarter)," writes Marquardt. "Overall results were better than our low expectations, and while credit and market dislocations remain valid concerns, it appears management is properly addressing a still tough environment."