For Citigroup (NYSE:C), which has perfected the art of the not great, not terrible quarterly profit, second-quarter results were more positive than past efforts.
Like its largest rivals, the nation's third-largest bank is still struggling with sluggish investment banking volumes, anemic consumer loan demand and uncertainty in Europe. But coming days after JPMorgan Chase (JPM) tried again to explain just exactly how it misplaced billions of dollars in London, Citigroup's profits — or at least its lack of massive trading losses — looked less controversial in comparison.
The overall report was somewhat messy, yet again, as Citigroup's earnings were clouded by accounting adjustments and a loss from the sale of a stake in Turkey's Akbank. Net income fell 12% to $2.95 billion, or 95 cents a share, from $3.34 billion, or $1.09, a year earlier; excluding the adjustments, Citigroup made $1 per share, handily beating analysts' estimates of 89 cents per share.
"We made a solid showing in what continues to be a tough environment," Chief Executive Vikram Pandit told employees in an internal memo.
He and Chief Financial Officer John Gerspach hosted two conference calls Monday morning, defending Citigroup's steady-if-slow recovery from the financial crisis — and pointing out all the problems the bank doesn't currently have. Here are the four most important lessons from the bank's earnings.
Citigroup is not JPMorgan Chase — and for once, that's a relief.
The comparison with its larger rival, which survived the financial crisis much more unscathed, usually doesn't work out in Citigroup's favor. But since JPMorgan Chase gradually unveiled the extent of the trading losses in its chief investment office, a mere slowdown in investment banking revenues seems like the best possible bad news for Citigroup and other large banks struggling with low volumes.
Securities and trading revenue at Citigroup fell 2%, excluding the accounting adjustments, to $5.2 billion, from a year earlier. Gerspach told reporters that Citigroup had actually gained "wallet share" in investment banking, but added that the bank is keeping a close eye on both expenses and risks.
"We are managing our expenses closely … and we have been measuring our risks very tightly," as worries persist about the European debt crisis and broader economic uncertainty, he said.
Citigroup is not Barclays. Really.
Scrutiny has been increasing on Citigroup and other large banks ever since British rival Barclays admitted that it manipulated Libor, or the London interbank offered rate, by underreporting its own borrowing costs. Citigroup has previously disclosed various regulatory agencies' inquiries into in its own Libor submissions, but executives on Monday tried to deflect further comparisons with Barclays.
"Do not infer from the situation of one Libor-submitting bank that every bank is in the same or a similar position," Pandit told investors and analysts.
Gerspach told reporters earlier that Citigroup is fully cooperating with the previously-disclosed requests for information about its Libor submissions, but he declined to comment further or discuss a timeline of when to expect more resolution.
Citigroup is prepared for more fallout in Europe.
"One of the biggest issues we face remains the uncertain macro environment and in particular the European sovereign debt issues," Pandit told investors during the conference call.
Executives said that Citigroup is "prepared" for the breakup of the Euro or the exit of some countries from the Euro zone, but acknowledged that uncertainty about the region's debt crisis is slowing investment banking activity around the globe.
"Trading volumes are off around the world. Clearly from an investment bank point of view, there's lower activity in Europe at this time," Gerspach told reporters, adding that worries about Europe are even depressing "investment sales" in Citigroup's Asian retail banking operations.
Citigroup's strength has always been its massive international operations; in recent years, its growing businesses in Latin America and Asia have offset the sluggish activity in the U.S., where Citi maintains a relatively small branch footprint. Executives said that growth in its Latin American retail operations were strong this quarter, despite the negative effects of foreign exchange rates, but Asian retail businesses slipped, in part due to economic concerns in China.
Citigroup is not counting on high mortgage returns to stick around forever.
Like JPMorgan Chase and Wells Fargo (WFC), Citigroup is benefitting from increased refinancing activities, as homeowners take advantage of low interest rates and federal programs. Retail banking revenues in Citigroup's main "Citicorp" unit grew 32% to $1.6 billion from a year earlier, in what the bank attributed "largely" to higher mortgage revenues.
But Gerspach cautioned that the bank is not counting on that activity continuing indefinitely.
"From a mortgage point of view, there's certainly some question as to how long the current levels of gains are sustainable," he told reporters, though he added that Citigroup expects to see the benefits of increased refi volume "continuing into the next quarter."
On the other hand, mortgages are also a source of uncertainty and losses; the bank posted a pre-tax loss of $1.2 billion from real estate consumer lending in its Citi Holdings unit it is trying to sell or wind down.
Gerspach also warned of higher mortgage-related costs resulting from the Office of the Comptroller of the Currency's consent orders and the national mortgage settlement. Because of requirements imposed by those deals, mortgage "expenses are going to be increasing at all the banks."
Other types of consumer lending were sluggish, with bank-wide consumer loans falling 7% from a year earlier, to $409 billion.
"In the U.S., consumer demand and thus loan demand remained low, as consumers continue to deleverage," Pandit told investors. But, he added, "We are diversified, and while the negatives will pop up here and there … we're on top of the things we can control."