Citigroup Settlement With Justice Department Slashes Earnings
Citigroup Inc. (NYSE:C) reported second-quarter results before markets opened Monday. The investment bank and financial services giant posted adjusted diluted earnings per share (EPS) of $1.24 on revenue of $19.3 billion. In the same period a year ago, Citi reported EPS of $1.34 on revenue of $20.5 billion. Second-quarter results also compare to the consensus estimates for EPS of $1.05 on revenue of $18.93 billion. (See how shares of Goldman Sachs, J.P. Morgan and Bank of America reacted to these results.)
On a GAAP basis Citi's diluted EPS totaled $0.03, which includes a $3.8 billion charge announced Monday morning to settle claims related to residential-backed mortgage securities and collateralized debt obligations structured or underwritten by Citi between 2003 and 2008. Citi will pay $4.5 billion in cash the U.S. Department of Justice ($4 billion) and the FDIC and several states ($500 million) to resolve the civil claims.
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When the bank began settlement talks, the government was seeking a payment of around $12 billion, so even though the announced deal was much higher than analysts had predicted, it is good news for Citi, and that was reflected in the bank's share price in the premarket.
Second-quarter revenues declined 6% year-over-year as a result of weakness in both fixed-income revenues and lower U.S. mortgage financing. Net income -- excluding the $3.8 billion in charges -- increased to $3.9 billion, up 1% year-over-year. Again excluding the settlement charge expenses were lower by 3% this year.
The bank's CEO said:
Our businesses showed resilience in the face of an uneven economic environment. During the quarter, we continued to grow loans in our core businesses, reduce operating expenses by simplifying our products and processes and utilize our deferred tax assets.
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Citi increased its estimated Basel III Tier 1 common ratio to 10.6% in the second quarter, up from 10.4% in the first quarter. Its estimated Basel III supplementary leverage ratio is 5.7%, a gain of 0.1% sequentially. The bank also raised its tangible book value per share 7% to $56.89.
The bank did not offer guidance in its press release, but the consensus estimates call for third-quarter EPS of $1.12 on revenues of $18.72 billion. The EPS estimate for the 2014 fiscal year is now $4.53, down $0.18 since the bank reported first-quarter results.
Shares traded about 3.9% higher in the premarket Monday, at $48.82. The current 52-week range is $45.18 to $55.28. Thomson Reuters had a consensus analyst price target of around $58.25 before the results were announced.
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