Citigroup, Inc. (C) Q2 2010 Earnings Call Transcript July 16, 2010 11:00 am ET Executives John Andrews – Head of IR Vikram Pandit – CEO John Gerspach – CFO Analysts Guy Moszkowski – Bank of America/Merrill Lynch James Mitchell – Buckingham Research Moshe Orenbuch – Credit Suisse Matt O’Connor – Deutsche Bank Chris Kotowski – Oppenheimer & Co. Mike Mayo – CLSA Presentation Operator
Vikram PanditJohn, thank you and good morning everybody. I am very pleased that we have produced solid operating results for the second consecutive quarter. We continue to execute diligently on our strategy and our plans. There were some very tough decisions we had to make in 2008-2009 and we are seeing the results, including the wind down of our non-core assets in Citi Holdings. During the second quarter, we reduced holding assets by $38 billion. These assets now stand at $465 billion and are now less than 25% of Citigroup’s total assets. At the same time, Citicorp, our core operating business earned $3.8 billion this quarter. While we have maintained expense discipline, we are reinvesting in our core businesses, that is Citicorp’s businesses, including making significant investments in technology. We’re also seeing a number of positive trends in our businesses. First, credit losses improved for the fourth consecutive quarter and are down 31% from the second quarter 2009 peak and we had a loan loss reserve release this quarter. We feel good about the credit story internationally. In the U.S., we’re all watching job creation closely. Second, in line with our growth in emerging markets, we continue to see good underlying performance in Citicorp’s international businesses, particularly in Regional Consumer Banking and Transaction Services. Despite the market environment and the impact of the U.K. bonus tax, Securities and Banking still earned $1.7 billion this quarter and $4.9 billion for the first half. Our profitability is a positive to our capital strength. We remain one of the best capitalized large banks in the world with the Tier 1 ratio of 12% and Tier 1 common ratio of 9.7%. Loan loss reserves of $46.2 billion and we continue to maintain significant liquidity. Going forward, Citi is well aligned with the economic growth trends we see around the world and despite economic conditions, I believe that decisions and execution by our management team have put in place all the elements for sustained profitability.
I’ll come back at the end before we take questions, but with that let me turn it over to John Gerspach.John Gerspach Thank you, Vikram, and good morning, everyone. Starting on slide two, Citigroup reported second quarter net income of $2.7 billion or earnings per diluted share of $0.09. Our Securities and Banking results were in line with market conditions and activity. Revenues of $22.1 billion were down 13% sequentially, mainly due to lower revenues in Securities and Banking in Citicorp and lower positive net marks in the Special Asset Pool in Citi Holdings. Expenses of $11.9 billion were up from last quarter, primarily related to the U.K. bonus tax of approximately $400 million, as well as continued investments in Citicorp businesses, partially offset by a decline in Holdings. Net credit losses of $8 billion improved for the fourth consecutive quarter and we recorded a net loan loss reserve release of $1.5 billion pre-tax, as credit continued to improve. Also, please remember for comparison purposes that the second quarter of last year included the $11.1 billion pre-tax gain on the sale of Smith Barney. Now, turning to Citicorp and Citi Holdings on slide three. Both segments benefited from a continued improvement in credit costs. Citicorp reported revenues of $16.5 billion and net income of $3.8 billion. Citi Holdings showed sustained improvement in expenses and credit costs and reported a $1.2 billion loss. We also made good progress on asset reduction in the quarter with Citi Holdings assets down $38 billion to $465 billion. On Slide #4, we show a nine quarter trend for Citicorp’s results. CVA on the derivatives books and on our own debt was $255 million, essentially unchanged from last quarter. Excluding CVA, Citicorp’s revenues were $16.2 billion down 11% sequentially, reflecting the weak environment for Securities and Banking. Read the rest of this transcript for free on seekingalpha.com