Citigroup: Financial Winner

NEW YORK ( TheStreet) -- Citigroup ( C) was the winner among the largest U.S. financial names on Monday, with shares rising 2% to close at $34.00.

The major U.S. equity indices were mixed, following a report from the Commerce Department that retail sales increased 0.8% in March, compared with a rise of 1% in February. Excluding auto purchases, sales also rose 0.8%, topping estimates, compared with an increase of 0.9% in February.

Also on Monday, the National Association of Home Builders said that its April housing market index declined three points to 25, its first decline in seven months, "where it was in January, which was the highest level since 2007."

NAHB chairman Barry Rutenberg said that "although builders in many markets are noting increased interest among potential buyers, consumers are still very hesitant to go forward with a purchase, and our members are realigning their expectations somewhat until they see more actual signed sales contracts ."

The KBW Bank Index ( I:BKX) rose over 1% to close at 47.66.

As for Citigroup, before the opening bell, the company reported a first-quarter profit excluding items of $1.11 a share, beating the average estimate of analysts polled by Thomson Reuters for earnings of $1 per share.

Citi's revenue came in short, though, at $19.4 billion vs. the consensus estimate of $19.81 billion -- however, the story improved upon deeper examination.

Leaving out credit valuation adjustments (CVA) and debit valuation adjustments (DVA) for all periods, Citigroup's first-quarter revenue was $20.7 billion, increasing from $17.2 billion in the fourth quarter and $20.0 billion during the first quarter of 2011.

The Institutional Clients Group saw total fourth-quarter revenue of $8.0 billion, compared to $5.8 billion the previous quarter, and $8.6 billion a year earlier. The group's first-quarter profit totaled $2.2 billion, increasing from $633 million in the fourth quarter, but declining from $2.5 billion in the first quarter of 2011, on lower revenue from principal transactions.

For the Global Consumer Banking division, total first-quarter revenue was $10.0 billion, increasing from $9.9 billion the previous quarter, and $9.6 billion, a year earlier. The division's profit grew 27% sequentially and 14% year-over-year, to $2.2 billion, mainly because credit costs continued to decline.

Retail banking revenue grew 9% sequentially and 15% year over year to $4.5 billion, "largely due to improved results in mortgages," following the industry trend, with President Obama's expanded Home Affordable Refinance Program, or HARP 2, allowing certain mortgage borrowers to refinance their entire loan balances at today's low rates, no matter how much the value of the underlying homes have dropped.

Following the solid mortgage numbers reported on Friday by JPMorgan Chase and Wells Fargo, FBR analyst Paul Miller on Monday said that that "HARP has not fully ramped up," so investors are likely to expect a strong second quarter for Citigroup's mortgage operations.

Citigroup's card revenue declined 4% sequentially and 2% year-over-year, to $5.5 billion, as "Citi-branded cards revenues declined 6% to $2.1 billion, and Citi retail services revenues declined 3% to $1.5 billion, both versus the prior year period."

During the company's earnings conference call CFO John Gerspach said the decline in card revenues reflected "spread compression in branded cards, due to the continued impact of the look back provisions of card act and the higher promotional balances as well as lower average card loans."

Citi's shares have now returned 29% year-to-date, following a 44% drop during 2011.

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The shares trade for 0.7 times the company's reported March 31 tangible book value of $50.90 a share, and for a relatively low seven times the consensus 2013 EPS estimate of $4.67. The consensus 2012 EPS estimate is $4.09.

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

Shares of Bank of America ( BAC) rose over 1% to close at $8.79. The shares have now returned 58% year-to-date, following a 58% decline last year.

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Bank of America's shares trade for 0.7 times their reported Dec. 30 tangible book value of $12.95, and for eight times the consensus 2013 EPS estimate of $1.06. The consensus 2012 EPS estimate is 70 cents.

The company is slated to report its first-quarter results on Thursday. The consensus among analysts is for the company to post first-quarter earnings of 12 cents, declining from fourth-quarter earnings of 15 cents and a profit of 17 cents during the first quarter of 2011.

In light of JPMorgan's earnings report on Friday, which included a recovery in trading revenue and strong mortgage banking revenue, KBW analyst Fred Canon on Monday said that "JPM's quarter as a mostly neutral event with some slight positive upside to BAC's results in the areas of mortgage banking, investment banking and trading ," with a penny or two upside to KBW's six-cent first-quarter earnings estimate.

KBW analyst Jefferson Harralson has a market perform rating on Bank of America shares with a $9 price target.

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

Shares of KeyCorp ( KEY) of Cleveland rose 1% to close at $8.04. The shares have now risen 5% year-to-date, following a 12% decline during 2011.

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The shares trade for 0.9 times their reported Dec. 30 tangible book value of $9.11, and for 10 times the consensus 2013 EPs estimate of 81 cents. The consensus 2012 EPS estimate is 77 cents.

The company announced in March that its board of directors had authorized up to $344 million in common share repurchases, and would consider raising its quarterly dividend by two cents to five cents, at its May meeting.

Based on the current three-cent quarterly payout, the shares have a dividend yield of 1.5%.

KeyCorp slated to report its first-quarter results on Thursday, with analysts expecting the company to post EPS of 19 cents, dipping slightly from earnings of 20 cents a share during the fourth quarter, and matching the 19-cent profit during the first quarter of 2011.

Barclays Capital analyst Jason Goldberg rates KeyCorp underweight with a $9 price target, and on April 5 reiterated his rating, saying "with a provision/loans ratio already below its "normalized" target, KEY needs to show it has other earnings levers to pull," meaning that the company will not be able to continue padding its earnings by allowing loan loss reserves to wind down.

During the fourth quarter, KeyCorp transferred $22 million from loan loss reserves, and a total decline in reserves of $127 million, directly boosted operating earnings.

Interested in more on KeyCorp? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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