Citigroup profit rises, but shares slide on credit fears

By Greg Morcroft, MarketWatch

NEW YORK (MarketWatch) -- Citigroup said Friday its second-quarter profit rose 18%, driven by strong growth in international and alternative investments businesses.

Citi reported net income rose 18% to $6.23 billion, or $1.24 a share, from $5.27 billion, or $1.05 a share, in the year-earlier period.
Revenue rose 20% to $26.63 billion, from $22.18 billion.
"We continued to generate revenue and volume growth in our U.S. consumer franchise, while making excellent progress in re-weighting Citi toward our other businesses, especially our international franchises, where revenues and net income increased over 30%," CEO Chuck Prince said in a news release.
Analysts polled by Thomson First Call had expected the company to earn $1.13 a share on revenue of $24.89 billion.

Despite the earnings growth, Citi shares fell 1.6% on widespread concerns in the market about credit issues. Citigroup Inc. is bracing for the possibility that it will be left holding more leveraged loans for corporate buyouts, the company's chief financial officer said Friday. Citigroup was unable to sell debt to investors on four deals in the second quarter, leaving the world's biggest bank and its peers holding so-called bridge loans on their balance sheets, said CFO Gary Crittenden. Citigroup and other lenders will have to pay more to get investors to swallow the risky debt, and the bank took a revenue hit in the second quarter as a result, he said. See full story.
Citi posted healthy gains in several businesses and said that for its international businesses, revenue and net income rose 34% and 35%, respectively.
The firm said its alternative investment unit, which includes the firm's proprietary trading, posted revenue and net income gains of 77%. Second-quarter revenue at the unit rose to $1.03 billion from $584 million, and net income jumped to $456 million from $257 million.
"Revenue and net income growth was primarily driven by higher revenue from proprietary activities, up 87%. Revenue growth reflected both realized and mark-to-market gains across private equity, hedge fund and other portfolios," Citi said in a news release.
Citi said operating expenses rose 16% in the quarter, driven by increased business volumes and acquisitions.
Credit costs rose to $934 million in the quarter, including a $259 million rise in credit losses and a $465 million charge to increase loan loss reserves. The $465 million net charge compares to a net reserve release of $210 million in the prior-year period, the company said.
"The main negative is a large year-over-year increase in credit costs, though the increase linked quarter was not as bad," Deutsche Bank analysts wrote in a Friday research report.
Citigroup's corporate and investment bank generated $8.96 billion in revenue, up 33% from a year earlier. Net income rose 64% at the unit, to $2.83 billion.
At the global wealth management division, which includes Smith Barney and the private bank, profit climbed 48% and revenue rose 28%.
Smith Barney's revenue climbed 31% to $2.61 billion. Revenue at the private bank rose 17%, to $586 million.
The gains in the wealth management business include results of Japan's Nikko Cordial. Citi raised it stake in Nikko Cordial to about 68% earlier this year. End of Story