Credit gains drive Citigroup profit

April 18, 2011, 4:12 PM UTC

Citigroup’s unlikely recovery continued Monday, as the bank beat Wall Street estimates with its fifth straight quarterly profit.

Citi (C) made $3 billion, or a dime a share, for the first quarter of 2011. That compares with a year-ago profit of $4.4 billion, or 15 cents a share. Revenue fell to $19.7 billion from $25.4 billion a year earlier.

Roller coaster ride

Wall Street analysts were calling for a 9-cent profit on revenue of $20.6 billion.

Citi’s earnings were driven by a seventh straight quarterly improvement in credit trends, including a 32% drop in consumer credit losses. Citi said it released $3.4 billion from its previously set-aside loan loss reserves into profits, accounting for the lion’s share of the first quarter’s gains.

The bank also continued to shrink the book of bad loans at Citi Holdings, the unit holding the assets that nearly drove the company into insolvency during the financial crisis.

“Citi Holdings losses continued to decrease; we are investing in our core businesses in Citicorp; our capital strength improved; and the mix of revenues reflects the diversity of our businesses and our depth in both the emerging and developed markets,” said CEO Vikram Pandit.

Of course, it’s worth noting that Citi’s performance is strong mostly on a relative basis. Revenue did fall a staggering 22%  from a year ago, as the trading free for all that lifted all the big banks last year has ended and new rules have put an end to repeated $35 overdraft fees.

Raising more revenue without driving customers away is a challenge shared by all the banks. On that note, Citi has been overtaken in recent quarters by Bank of America (BAC) as the bank that looks most likely to put the “too-big-to-fail” slogan to the test.

While Citi slogs along, putting its mistakes behind it and preparing for a presumably brighter future, driven by its strong business in fast-growing places like India and Brazil, BofA appears to be falling apart at the seams, trying to cajole regulators into letting it raise its dividend and shuffling executives in and out in a bid to restore long lost investor faith.

Citi hopes to further buff up its image with a reverse stock split that’s due to take effect this spring. It should bring Citi shares back above $40 for the first time since the financial crisis started at the tail end of 2007. With any luck the bank has learned by now that just because the music is still playing it doesn’t mean you have to keep dancing.

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