The American multinational banking and financial services corporation announced a massive increase in its Q1 profits which is supposedly the highest in the last 8 years. The profits have been attributed to legal and restructuring cost plunge, and Citi’s (C, Financial) strategically done streamlining of its business model. Shares rose on the upbeat news by 2.3% to close at $54.45.
The profits so far
The third-biggest U.S. bank by assets posted a 16% rise in quarterly profits with the help of cost cuttings and simplifying its business by selling its retail operations in many countries including Japan, Turkey Czech republic and Hungary. One such was the selling of OneMain Financial consumer finance unit to Springleaf Financial.
Formed by one of the biggest mergers in the world between banking giant Citicorp and Travelers Group in 1998, the company’s formula has been cutting costs wherever possible and shedding the non-core assets as well as those that are not very important for its main businesses. In particular, Citi sold off its retail business in U.S. branch network, too. The company has also been able to cut staff in its bank from 248,000 people last year to 239,000 at the end of first quarter.
The company has also been spending less on advertising and marketing along with cuts in employee compensations as well. Through this, the company managed to decrease operating expenses by 10% to $10.88 billion in the first quarter. This figure also matched the expectations of slashing operating expenses to 55% of the total revenue. To add to it, the legal and restructuring costs were also reduced from $1.16 billion to $403 million.
There was a rise of 14% equaling to $1.20 billion recorded for revenues from investment banking division of the company which is a part of company’s institutional client group. Along with that, it had a 1.05% increase in return on assets too last year. Adjusted net income saw a plunge of 16% to close at $4.82 billion equaling to $1.52 per share which was above the expectations of analysts. In the past years as well, the company has been working towards its brand value in the market which fetched it the 20th rank in size in the Fortune 500 list of 2012.
The fewer losses
Not only the total revenues from institutional client group fell 1% to $9.03 billion due to lower fixed income trading revenue, but the global consumer banking revenues also fell 2% to $8.66 billion. The company’s adjusted revenues fell 2% to $19.81 billion and fixed income trading revenue declined 11% to $3.48 billion. Companies like Goldman Sachs Group Inc. (GS, Financial) and JPMorgan Chase & Co. (JPM, Financial) were an exception and earned higher profits from fixed income trading.
Future plans
By continuing to streamline its business areas, Manhattan-based Citigroup Inc. plans to return more capital to shareholders for which steps have already been taken since March as the Federal Reserve approved their plans to raise dividends and buyback shares. The company is said to have grown with the help of loans and deposits in itscore banking businesses and is quite hopeful of achieving their annual financial targets with ease. The consistent performance by Citigroup both in the first and second quarters will play a key role in developing trust and confidence among investors and shareholders of the company.
