Citigroup: Earnings Winner Again

NEW YORK ( TheStreet) -- Citigroup ( C) was again the winner among major banking names on Monday, with shares rising 4% to close at $46.66.

The broad indices all bounced back after Monday's brutal hammering and showing resurgence after the terrible events in Boston.

The Bureau of Labor Statistics on Tuesday reported that the Consumer Price Index fell 0.2% in March after increasing 0.7% in February. Economists polled by Reuters were expecting the CPI to remain unchanged. Excluding food and energy costs, the CPI rose 0.1% in March after increasing 0.2% in February. The consensus estimate was for the CPI, excluding food and energy, to rise 0.2%.

The inflation numbers added fuel to the fire for the continuance of the Federal Reserve's "highly accommodative" policy of keeping the short-term federal funds rate in a range of zero to 0.25%. The central bank has also been making monthly purchases of $85 billion in long-term securities in an attempt to hold long-term rates down.

After an epic two-day decline of 14%, gold for June delivery on the COMEX rose $26.30, or 1.9%, to $1,387.40 an ounce. When discussing the previous two days' drop in a note to clients early Tuesday, Bank of America Merrill Lynch metals strategist Michael Widmer said "fears of central bank gold sales in the Eurozone and poor economic data out of China have been key triggers, with forced margin sellers likely exacerbating the spectacular downward move."

"The sharp drop in gold prices comes at a time when disinflationary pressures are starting to build in different pockets of the global economy," Widmer wrote. The analyst removed his $2,000 an ounce target price for gold in 2014, but added that "medium-term, jewelry demand should support $1,500/oz."

Please see TheStreet's Gold Page for continuing coverage of this story.

The KBW Bank Index ( I:BKX) was up over 1% to close at 55.64, with all but two of the 24 index components seeing gains for the session.

Citi Rides Earnings

Investors continued to cheer Citigroup's first-quarter results, which were reported on Monday. The company reported first-quarter earnings of $3.81 billion, or $1.23 a share, compared to earnings of $1.2 billion, or 38 cents a share, in the fourth quarter, and $2.93 billion, or 95 cents a share, in the first quarter of 2012.

The company in the fourth quarter was hit with $1 billion in pretax expenses tied to CEO Michael Corbat's expense reduction initiative announced in December. The moves included the elimination of 11,000 jobs.

Citi's first-quarter revenue, excluding credit and debit valuation adjustments (CVA and DVA) and minority interests, totaled $20.81 billion, compared to $18.66 billion the previous quarter, and $20.22 billion a year earlier.

The company saw a seasonal increase in fixed income and equity trading during the first quarter, along with a continued increase in investment banking revenue, and the utilization of $700 million in deferred tax assets (DTA). Citi's DTA arising from losses from the credit crisis and foreign tax credits disallowed from equity capital totaled $49.805 billion as of March 31. As the bank continues its profit streak and the strengthening of its balance sheet, investors over the long haul view the potential release of the entire DTA as the catalyst for a very large return of capital to shareholders.

Another highlight for Citigroup was the continued improvement of credit quality, which led to a $652 million reserve release during the first quarter, including $350 million in mortgage loan loss reserves.

Please see TheStreet's earnings coverage for full details on Citigroup's first quarter results, including the mortgage credit quality improvement within Citi Holdings, the company's runoff subsidiary.

Citigroup reported that its net interest margin (NIM) -- the difference between the yield on loans and investments and the average cost for deposits and borrowings -- widened to 2.95% during the first quarter, from 2.94% the previous quarter. While a one basis point improvement in the margin is quite small, it runs counter to the trend for most of the large banks that have reported their first-quarter results so far. Another notable exception is Comerica of Dallas, which on Tuesday reported a slight sequential increase in its NIM.

KBW analyst Frederic Cannon late on Monday reiterated his "outperform" rating for Citigroup, with a price target of $55, while raising 2013 earnings estimate for the company to $4.75 from $4.50. Cannon also raised his 2014 EPS estimate quite significantly, to $5.45 from $5.10, saying in a note to clients that the estimate boosts were "largely based on our expectation for improving credit and a smaller drag from Citi Holdings."

"We view the recent relative weakness in bank stocks as an opportunity to buy shares of Citigroup," Cannon wrote, adding that "Citigroup offers investors the best restructuring opportunity in large-cap financials over the next 3-5 years."

Please see As Citi Gets Boring, Shareholders Get Excited for more on Citigroup's transformation.

Citi's shares have returned 18% this year, following a 51% return during 2012. The shares trade for 0.9 times their reported March 31 tangible book value of $52.35, and for 8.8 times the consensus 2014 earnings estimate of $5.31 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $4.68.

C Chart C data by YCharts

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

Next Up: Bank of America

Bank of America ( BAC) will announce its first-quarter results on Wednesday at 7:00 a.m. ET.

The consensus among analysts is for the company to report first-quarter EPS of 22 cents, compared to profits of just 3 cents a share in both the fourth quarter and in the first quarter of 2012. Bank of America's fourth-quarter pretax results were nearly wiped out by $2.5 billion in costs for independent foreclosure reviews, and $2.7 billion in charges related to the company's $10.3 billion settlement of a long-term dispute with Fannie Mae ( FNMA), over mortgage repurchase claims.

The silver lining from the Fannie Mae settlement will be a great reduction in the outstanding mortgage repurchase claims against Bank of America. Investors' mortgage repurchase claims against the company totaled $28.3 billion as of Dec. 31. Bank of Americas fourth-quarter earnings presentation implied that the Fannie Mae settlement would reduce the putback claims by roughly $12.2 billion, leaving about $16.1 billion in claims.

With the housing market continuing to recover, investors on Friday will be looking for solid credit leverage from Bank of America, including a reduction in mortgage repurchase claims, irrespective of the Fannie Mae settlement, along with loan loss reserve releases and a decline in litigation and loan servicing expenses.

Please see TheStreet's earnings preview for more on what to expect when Bank of America reports.

Bank of America's shares rose 2.5% to close at $12.28.

BAC Chart BAC data by YCharts

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

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

>Contact by Email.

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 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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