Citi Results: Any Reason to Cheer?

Highlights include Citigroup Inc. (C - Analyst Report), Goldman Sachs Group, Inc. (GS - Analyst Report), JPMorgan Chase & Co., Inc. (JPM - Analyst Report) and BB&T Corp. (BBT - Analyst Report).

Citigroup Inc. (C - Analyst Report) today announced that it made a net profit of $1.6 billion, compared with a net loss of $5.1 billion a year earlier. But after taking into account the conversion and dividend on preferred stock, the loss was $0.18 per share for common shareholders, which was better than the consensus estimate of a loss of $0.34 per share.

The results benefited from strong trading income and favorable accounting rules.

Like Goldman Sachs (GS - Analyst Report) and JP Morgan (JPM - Analyst Report), Citigroup also benefited strong revenues in fixed income trading, resulting from high volatility and wider spreads in many products. The fixed income markets group had revenues of $4.7 billion. However, of this revenue, a net $2.5 billion came from an accounting rule adopted in 2007, which allowed the company to benefit from the widening of its credit default swap (CDS) spreads.

The company also benefited from the recent change in FASB rule on "other than temporary impairments" (FAS 115), which resulted in approximately $631 million pre-tax of lower impairment charges and a $413 million after-tax increase in retained earnings (with an offset in other comprehensive income).

However the credit costs rose sharply, as we saw the other banks’ results declared so far, like JP Morgan and BB&T (BBT - Analyst Report), etc . Credit costs of $10.3 billion, up 76%, consisted of $7.3 billion in net credit losses, a $2.7 billion net loan loss reserve build, and $332 million of policyholder benefits and claims. Net credit losses increased $3.6 billion, primarily driven by primarily driven by Consumer Banking and Cards.

Revenues in three of the bank’s main businesses were also down -- Global Card revenues declined 10%, consumer banking revenues 8% and wealth management revenues 20%. Net interest margin of 3.30% increased 50 and 8 basis points year-over-year and on sequential basis, respectively.