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Last Update: 15-Oct-12 09:14 ET
Citigroup shares spike 2% following better than expected earnings
Citigroup (C) reported third quarter earnings of $1.06 per share, $0.07 better than the Capital IQ consensus of $0.99, while revenues riose 3% YoY and QoQ to $19.41 billion (ex-CVA/DVA and the loss on minority interest in the MSSB) vs. the $18.78 bln consensus; GAAP rev approxmately 33% YoY to $13.95 billion.
Revenue Breakdown
Impact of MSSB, CVA/DVA Citigroup reported net income for the third quarter 2012 of $468 million, or $0.15 per diluted share, on revenues of $14.0 billion. CVA/DVA was a negative $776 million in the third quarter, resulting from the improvement in Citi's credit spreads, compared to a positive $1.9 billion in the prior year period. Third quarter results also included a pre-tax loss of $4.7 billion ($2.9 billion after-tax) from the previously announced sale of a 14% interest and other-than-temporary impairment of the carrying value of Citi's remaining 35% interest in the Morgan Stanley Smith Barney (MSSB) joint venture. In addition, third quarter results included a $582 million tax benefit related to the resolution of certain tax audit items. Excluding CVA/DVA and the loss on MSSB, third quarter revenues were $19.4 billion, up 3% from the prior period. Excluding CVA/DVA, the loss on MSSB and the tax benefit, earnings were $1.06 per diluted share, up 26% from the prior year period. Citigroup revenues of $19.4 billion, excluding CVA/DVA and the loss on MSSB, were 3% above the prior year period, driven by 5% growth in Citicorp revenues, offset by a 10% decline in Citi Holdings revenues primarily resulting from the ongoing wind down of those assets. Citi Holdings revenues of $(3.7) billion in the third quarter 2012 included $23 million of CVA/DVA and the $4.7 billion pre-tax loss on MSSB. Excluding CVA/DVA and the loss on MSSB, Citi Holdings revenues were $971 million compared to $1.1 billion in the prior year period. Lower revenues in Local Consumer Lending and in Brokerage and Asset Management drove the decline in Citi Holdings revenues from the prior year period, partially offset by an increase in Special Asset Pool revenues.
Citigroup's cost of credit in the third quarter 2012 was $2.7 billion, 20% below the prior year period, reflecting a $0.5 billion improvement in net credit losses and an $87 million increase in net loan loss reserve releases.
Citigroup's net credit losses in the third quarter 2012 included approximately $635 million of incremental mortgage charge-offs in Citi Holdings required by new OCC guidance regarding the treatment of mortgage loans where the borrower has gone through Chapter 7 bankruptcy. The vast majority of the charge-offs were related to loans which were current. The incremental $635 million of charge-offs was substantially offset by a related reserve release of approximately $600 million, and thus did not have a significant impact on reported net earnings. Citigroup's allowance for loan losses was $25.9 billion at quarter end, or 4.0% of total loans, compared to $32.1 billion, or 5.1%, in the prior year period. Reserve Release The $1.5 billion net release of loan loss reserves in the quarter increased 6% versus the prior year period.
Citigroup's capital levels and book value continued to increase versus the prior year period. At the end of the third quarter 2012, book value per share was $63.59 and tangible book value per share was $52.70, 5% and 6% increases respectively versus the prior year period end. Citigroup's Tier 1 Capital Ratio was 13.9%, its Basel I Tier 1 Common Ratio was 12.7%, and its Basel III Tier 1 Common Ratio was estimated at 8.6%.
Revenue Breakdown
Impact of MSSB, CVA/DVA Citigroup reported net income for the third quarter 2012 of $468 million, or $0.15 per diluted share, on revenues of $14.0 billion. CVA/DVA was a negative $776 million in the third quarter, resulting from the improvement in Citi's credit spreads, compared to a positive $1.9 billion in the prior year period. Third quarter results also included a pre-tax loss of $4.7 billion ($2.9 billion after-tax) from the previously announced sale of a 14% interest and other-than-temporary impairment of the carrying value of Citi's remaining 35% interest in the Morgan Stanley Smith Barney (MSSB) joint venture. In addition, third quarter results included a $582 million tax benefit related to the resolution of certain tax audit items. Excluding CVA/DVA and the loss on MSSB, third quarter revenues were $19.4 billion, up 3% from the prior period. Excluding CVA/DVA, the loss on MSSB and the tax benefit, earnings were $1.06 per diluted share, up 26% from the prior year period. Citigroup revenues of $19.4 billion, excluding CVA/DVA and the loss on MSSB, were 3% above the prior year period, driven by 5% growth in Citicorp revenues, offset by a 10% decline in Citi Holdings revenues primarily resulting from the ongoing wind down of those assets. Citi Holdings revenues of $(3.7) billion in the third quarter 2012 included $23 million of CVA/DVA and the $4.7 billion pre-tax loss on MSSB. Excluding CVA/DVA and the loss on MSSB, Citi Holdings revenues were $971 million compared to $1.1 billion in the prior year period. Lower revenues in Local Consumer Lending and in Brokerage and Asset Management drove the decline in Citi Holdings revenues from the prior year period, partially offset by an increase in Special Asset Pool revenues.
Citigroup's cost of credit in the third quarter 2012 was $2.7 billion, 20% below the prior year period, reflecting a $0.5 billion improvement in net credit losses and an $87 million increase in net loan loss reserve releases.
Citigroup's net credit losses in the third quarter 2012 included approximately $635 million of incremental mortgage charge-offs in Citi Holdings required by new OCC guidance regarding the treatment of mortgage loans where the borrower has gone through Chapter 7 bankruptcy. The vast majority of the charge-offs were related to loans which were current. The incremental $635 million of charge-offs was substantially offset by a related reserve release of approximately $600 million, and thus did not have a significant impact on reported net earnings. Citigroup's allowance for loan losses was $25.9 billion at quarter end, or 4.0% of total loans, compared to $32.1 billion, or 5.1%, in the prior year period. Reserve Release The $1.5 billion net release of loan loss reserves in the quarter increased 6% versus the prior year period.
Citigroup's capital levels and book value continued to increase versus the prior year period. At the end of the third quarter 2012, book value per share was $63.59 and tangible book value per share was $52.70, 5% and 6% increases respectively versus the prior year period end. Citigroup's Tier 1 Capital Ratio was 13.9%, its Basel I Tier 1 Common Ratio was 12.7%, and its Basel III Tier 1 Common Ratio was estimated at 8.6%.
