Citi's Asia results: up on Q4, but not like last year's

The bank reports a net profit of $1.6 billion for the first quarter, but the common stockholder doesn't get a share of the earnings.

On Friday, Citi reported a net profit for the first quarter of $1.6 billion -- a significant improvement from the $17.3 billion loss it made in the fourth quarter last year and the $5.1 billion loss in the first quarter of 2008. But for the common shareholder it still amounted to a loss per share of $0.18. The bank's Asia results were also certainly better than the fourth quarter of last year, but on a year-on-year basis, the firm still has some catching up to do to match 2008.

The loss for common shareholders is because the bank had to cut out the $1.3 billion it paid to reset the conversion price of preferred stock issued in January 2008, take away another $1.2 billion in preferred dividends and book a cost of $53 million related to its participation in the government's Troubled Asset Relief Program, leaving the bank with a bottom-line loss of $966 million.

This underscores the downside of issuing preferred stock in an effort to bolster its capital protection against bad loans and trading calls that went the wrong way. But that news aside, the first quarter results reflect the fact that total revenues increased 99% compared to the first quarter of 2008 to $24.8 billion, with sequential improvement across all regions. They also show that the bank has streamlined its operating margins, resulting in a 23% reduction in expenses since the first quarter of 2008 -- thanks largely to the reduction of 13,000 jobs since the fourth quarter of 2008 to 309,000.

Furthermore, Citi's deposit base remained relatively stable at $763 billion compared to the fourth quarter 2008, despite the challenging environment. While deposits declined 8% from the first quarter 2008, the bank says that was due to the sale of the German retail banking operations and the impact of foreign exchange. US deposits increased $8 billion sequentially and $28 billion year-on-year.

Citi's overall securities and banking revenues were $7.2 billion, driven by positive trading results and lower net write-downs and losses of $2.2 billion. The firm said its fixed income markets revenues of $4.7 billion reflected strong trading performance, as high volatility and wider spreads in many products created favourable trading opportunities. Interest rates and currencies and credit products also helped its revenue growth.

However, revenues were partially offset by net write-downs of $2.3 billion on subprime-related direct exposures; private equity and equity investments losses of $1.2 billion; downward credit value adjustments of $1.1 billion related to exposure to monoline insurers; net write-downs and impairments of $490 million on Alt-A mortgages; and write-downs of $186 million on commercial real estate positions.

While equity markets revenues increased by 94% to $1.9 billion, reflecting strength in derivatives, convertibles and equity trading, lending revenues declined $948 million to a negative $364 million, primarily driven by losses on credit default swap hedges.

Net investment banking revenues were $1.2 billion versus a negative $1.7 billion in the prior-year period. Advisory revenues were $230 million, down 25%, no doubt as a result of lower volumes and continued difficult market conditions. Equity underwriting revenues were down 15% to $194 million, which again is a reflection of continued low volumes. Debt underwriting revenues of $847 million were up significantly, primarily due to the absence of write-downs on highly leveraged finance commitments.

In Asia, revenues of $3.8 billion were up sequentially from the 2008 fourth quarter figure of $1.9 billion, but were down from the $4.6 billion Asia reported in the first quarter of 2008. A spokesman for the bank said that its institutional clients group had strong results from flow business such as FX and local markets.

The bank's revenues from credit cards in Asia declined 19%, as the bank noted that continued growth in revenues was more than offset by the impact of foreign exchange and the absence of an $81 million gain on Visa shares in the prior-year period. Purchase sales were down 20%, which is proof that consumers are spending less. And average loans declined 9% as, again, the bank said growth in loans was more than offset by the impact of foreign exchange.

On the consumer banking front in Asia, excluding Japan, revenues were down 25%, mainly driven by a significant decline in investment revenues, as investment sales decreased 66% reflecting a continued decline in equity markets across Asia, as well as a slight impact from foreign exchange. Credit costs increased 22% due to higher net credit losses, which were up by 45% or $57 million. As with the fourth quarter, higher credit costs were mainly driven by a continued deterioration in the credit environment in India. The net credit loss ratio increased 81 basis points to 1.79%. Net income declined 47% to $152 million.

In Japan, consumer banking revenues declined 40%, reflecting a decline in net interest revenues as the portfolio continues to be managed down. Average loans were down 15% and the net credit loss ratio increased 253bp to 16.86%.

On the global transaction services side of business in Asia, revenues were down 13%, which again the bank said was "mainly due to the impact of foreign exchange" but also due to lower volumes and assets under custody in securities services, due to difficult market conditions and lower valuations.

The bank's wealth management revenues in Asia declined 29%, which the bank said was because "market conditions continued to be challenging, leading to a significant decline in investments and capital markets revenues". These declines were higher than the 17% reduction in North America, but better than Europe, Middle East and Africa's revenue decline of 26% and Latin America's drop of 40%.

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