Citigroup Inc. CEO Discusses Q3 2010 Results - Earnings Call Transcript

Citigroup Inc. CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Citigroup Inc. (

C

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Q3 2010 Earnings Call Transcript

October 18, 2010 11:00 am ET

Executives

John Andrews – Head, IR

Vikram Pandit – CEO

John Gerspach – CFO

Analysts

John McDonald – Sanford Bernstein

Glenn Schorr – Nomura

Guy Moszkowski – Bank of America/Merrill Lynch

Matt O'Connor – Deutsche Bank

James Mitchell – Buckingham Research

Betsy Graseck – Morgan Stanley

Jason Goldberg – Barclays Capital

Moshe Orenbuch – Credit Suisse

Ron Mandle – GIC

Mike Mayo – CLSA

Ed Najarian – ISI Group

Presentation

Operator

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» Citigroup Inc. Q3 2009 Earnings Call Transcript

Hello, and welcome to Citi’s third quarter 2010 earnings review with Chief Executive Officer, Vikram Pandit, and Chief Financial Officer, John Gerspach. Today’s call will be hosted by John Andrews, Head of Citi Investor Relations.

We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Mr. Andrews, you may begin.

John Andrews

Thank you, operator. Good morning and thank you all for joining us. On the call today, our CEO, Vikram Pandit, will speak first, followed by John Gerspach, our CFO, who will take you through the earnings presentation, which is available for download on our website, citigroup.com. Afterwards, we will be happy to take your questions.

Before we get started, I would like to remind you that today’s presentation may contain forward-looking statements. Citi’s financial results may differ materially from these statements. So please refer to our SEC filings for a description of the factors that could cause our actual results to differ from expectations.

With that said, let me turn it over to Vikram. Vikram?

Vikram Pandit

Thank you, John. And good morning, everybody. As you saw, we earned $2.2 billion this quarter. This was our third consecutive quarter of operating profitability, and we have earned $9.3 billion for the first nine months of the year. Achieving our third straight quarter of positive operating earnings is continued evidence that we are successfully executing our strategy, and we believe we have put in place all the elements for continued profitability. We remain completely focused on serving our clients the best of our abilities and capturing the growth potential inherent in the core businesses within Citicorp. Overall, Citicorp earned $3.5 billion this quarter.

Consumer banking improved from the previous quarter in the US and internationally. International deposits, loans and accounts, all grew during this quarter. I’m also pleased that we continue to attract top talent to the business, as recently highlighted by the hiring of Cece Stewart and Jud Linville, who will take leadership roles by running our US Consumer Bank and Citi Cards respectively.

On the institutional side, investment in corporate banking improved, as Citi executed transactions such as the Petrobras offering and the Tomkins LBO. In the third quarter, Citi won mandates for several key transactions, which are scheduled for this quarter. Among them are the Michelin equity capital raise and four out of five of the largest Asian IPOs, including AIA and GLP.

While our fixed income trading was impacted by lower volumes, our equity trading rebounded strongly. And despite a lower rate environment, our Global Transaction Services business continued its strong performance, as highlighted by its designation as paying agent and corporate trustee for BP's $20 billion compensation fund.

We also continue to make consistent progress in reducing the size of Citi Holdings as quickly and economically practical. With the completion of the sale of our student loan business currently anticipated in the fourth quarter, we expect that the total assets and holdings will be less than 20% of our balance sheet by the end of this year versus almost 40% at the beginning of 2008.

Now, regarding Basel, while we recognize there is a lot more work to be done, including the calibration of risk models, Citi will meet every capital requirement as the implementation details and guidelines are finalized. Once we have more clarity on the rules and definitions, we face important questions. How much capital do we need to have? When do we need it? And when can we begin returning capital to our shareholders? In my view, the answers to these questions are not driven by what can we do, but what should we do.

We believe our customer-focused and service-oriented business model is well suited to Basel’s capital standards. We also believe it is prudent to operate above the minimum capital standards. Given our businesses, our strategy, and our current understanding of Basel requirements, we believe the right level at which Citi should operate long-term is at a Tier 1 common ratio of 8% to 9%.

We currently expect to exceed these levels in 2012. As we have been saying, we believe that 2011 will be a year of rule-making in the US and model calibration across the industry. As a result, we anticipate that we should be in a position to return capital to our shareholders in 2012, of course subject to our regulators providing additional guidance to the industry.

As far as the liquidity coverage ratio called for under Basel, with our current liquidity positions, we believe that we are already in compliance with the requirements that are scheduled to come into effect in 2015, as we currently understand them.

Overall, I’m very pleased with the progress we are making as our team continues to execute the strategy, our unique footprint in the emerging market has us well aligned with the growth trends we see globally, and we continue to make investments in our franchise so they can serve our clients and our customer at the highest level all over the world.

I’m going to turn it over now to John Gerspach, and after that, we will be very happy to take your questions.

John Gerspach

Thank you, Vikram. And good morning, everyone. Starting on slide two, Citigroup reported third quarter net income of $2.2 billion or $0.07 per diluted share. Net income from continuing operations was $2.6 billion, or $0.08 per diluted share. Discontinued operations include the announced sale of Student Loan Corporation. Revenues of $20.7 billion were down 6% sequentially, driven primarily by lower revenues in Citi Holdings.

Citicorp revenues were down 1% sequentially. Expenses at $11.5 billion were down 3% from last quarter, primarily due to the UK bonus tax of approximately $400 million in the second quarter. Excluding the UK bonus tax, expenses were up 1%, as continued investment spending in Citicorp was partially offset by expense reductions in Citi Holdings. Net credit losses of $7.7 billion improved for the fifth consecutive quarter. And we recorded a net loan loss reserve release of $2 billion primarily in Citi Holdings. Consumer credit trends continued to improve.

Turning now to Citicorp and Citi Holdings on slide three, both businesses continued to benefit this quarter from lower cost of credit in our consumer portfolios. Citicorp recorded revenues of $16.3 billion and net income of $3.5 billion. And Citi Holdings reported revenues of $3.9 billion and a net loss of $1.1 billion. We reduced assets in Citi Holdings by $44 billion to $421 billion in the quarter, not including the impact of selling Student Loan Corporation, which is currently expected to close by year-end.

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