Citigroup 10-Q 2011
Documents found in this filing:
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
For the quarterly period ended March 31, 2011
Commission file number 1-9924
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:
Common stock outstanding as of March 31, 2011: 29,206,440,560
Available on the web at www.citigroup.com
FIRST QUARTER 2011FORM 10-Q
Citigroup operates, for management reporting purposes, via two primary business segments: Citicorp, consisting of Citi's Regional Consumer Banking businesses and Institutional Clients Group; and Citi Holdings, consisting of Citi's Brokerage and Asset Management and Local Consumer Lending businesses, and a Special Asset Pool. There is also a third segment, Corporate/Other. For a further description of the business segments and the products and services they provide, see "Citigroup Segments" below, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 to the Consolidated Financial Statements.
Throughout this report, "Citigroup", "Citi" and "the Company" refer to Citigroup Inc. and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q should be read in conjunction with Citigroup's Annual Report on Form 10-K for the year ended December 31, 2010 (2010 Annual Report on Form 10-K). Additional information about Citigroup is available on the company's Web site at www.citigroup.com. Citigroup's recent annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, as well as its other filings with the SEC are available free of charge through the company's Web site by clicking on the "Investors" page and selecting "All SEC Filings." The SEC's Web site also contains periodic and current reports, proxy and information statements, and other information regarding Citi at www.sec.gov.
Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's presentation.
Within this Form 10-Q, please refer to the tables of contents on pages 2 and 80 for page references to Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements, respectively.
The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results above.
Citigroup reported first quarter of 2011 net income of $3.0 billion, or $0.10 per diluted share. Citigroup's income declined $1.4 billion from the first quarter of 2010, but more than doubled from the prior quarter.
Citigroup revenues, net of interest expense, were $19.7 billion, down $5.7 billion, or 22%, from the first quarter of 2010. Net interest revenues of $12.2 billion were 16% lower than the prior-year period, largely due to declining loan balances in Local Consumer Lending within Citi Holdings. Net interest revenues also included a $245 million pre-tax charge during the first quarter 2011 to increase reserves related to customer refunds in Japan Consumer Finance. Non-interest revenues were $7.5 billion, down 31% from the prior-year period, principally driven by lower Securities and Banking revenues, negative credit valuation adjustments (CVA), and a $709 million net charge resulting from the transfer of certain assets in the Special Asset Pool from held-to-maturity to trading assets (see "Citi HoldingsSpecial Asset PoolReclassification of HTM Securities to Trading" and Note 11 to the Consolidated Financial Statements).
Citicorp net income of $4.1 billion declined 19% from the prior-year period, but was up 69% from the prior quarter. Year-over-year, lower revenues and increased expenses were partially offset by improvement in credit costs. Citicorp's international operations accounted for 72% of first quarter 2011 net income.
Citicorp revenues were $16.5 billion, down $2.0 billion, or 11%, from the first quarter of 2010. Net interest revenues of $9.5 billion declined 4% from the prior-year period, principally driven by North America Regional Consumer Banking and Securities and Banking. Non-interest revenues declined 19% to $7.0 billion, largely due to the decline in Securities and Banking revenues, including negative CVA.
Regional Consumer Banking revenues of $7.9 billion were 2% lower year-over-year, mostly due to lower cards balances in North America, the impact of The Credit Card Accountability Responsibility and Disclosure Act (CARD Act), and continued spread compression in Asia and Latin America. Average retail banking loans increased 11% year-over-year to $121.4 billion, and average deposits increased 6% to $307.0 billion, both driven by Latin America and Asia. Citi-branded cards average loans declined 2% year-over-year to $110.3 billion, as growth in Latin America and Asia was offset by lower balances in North America. Cards purchase sales grew 8% from the prior-year period to $64.9 billion, and international investment sales increased 5% to $25.4 billion.
Securities and Banking revenues declined 25% year-over-year, driven principally by lower revenues in fixed income markets and CVA of negative $229 million in the current quarter (compared to positive $285 million in the prior-year period). Excluding CVA, fixed income markets revenues decreased 22% year-over-year, largely due to declines in revenues from rates and currencies and credit and securitized products, and equity markets revenues were 9% lower mainly driven by lower trading revenues related to principal positions. Investment banking revenues were down 19% from the prior-year period, primarily reflecting lower revenues from municipal and investment grade debt underwriting.
Transaction Services revenues were $2.6 billion, up 5% from the prior-year period, driven by growth in Latin America and Asia. Average deposits and other customer liabilities grew 11% year-over-year to $355 billion, with growth in every region. Strong growth in business volumes was partially offset by continued spread compression.
Citicorp end of period loans increased 10% year-over-year to $418 billion, with 6% growth in consumer loans and 16% growth in corporate loans.
Citi Holdings net loss of $608 million was 31% less than the net loss of $886 million in the first quarter of 2010, and down 40% from the net loss of $1.0 billion in the prior quarter, as continued improvement in credit costs and lower expenses more than offset the decline in revenues, as discussed below.
Citi Holdings revenues declined 50% to $3.3 billion from the prior-year period. Net interest revenues declined 40% year-over-year to $2.6 billion, largely driven by lower loan balances in Local Consumer Lending and the higher reserve build related to customer refunds in Japan Consumer Finance during the current quarter. Non-interest revenues declined 70% to $653 million from the prior-year period, reflecting the $709 million net pre-tax charge related to the asset transfer in Special Asset Pool, lower positive marks on subprime related direct exposures, and a repurchase reserve build of $122 million related to North America residential real estate in Local Consumer Lending, partially offset by gains on private equity investments.
Citi Holdings assets declined 33% from the first quarter of 2010 to $337 billion at the end of the first quarter of 2011. The decline reflected $106 billion in asset sales and business dispositions, $49 billion in net run-off and amortization, and $10 billion in net cost of credit and net asset marks. Sequentially, Citi Holdings assets declined 6% from $359 billion in the fourth quarter of 2010. At the end of the first quarter of 2011, Citi Holdings assets comprised approximately 17% of total Citigroup GAAP assets and 31% of risk-weighted assets.
Citigroup total provisions for credit losses and for benefits and claims of $3.2 billion declined $5.4 billion, or 63%, from the prior-year period. Net credit losses of $6.3 billion were down $2.1 billion, or 25%, from the first quarter of 2010. Consumer net credit losses declined $2.6 billion, or 32%, to $5.4 billion, driven by continued improvement in credit in North America Citi-branded cards in Citicorp, and retail partner cards and residential real estate lending in Citi Holdings. Corporate net credit losses increased $485 million to $849 million year-over-year, primarily due to higher cost of loan sales as well as losses from loans to specific counterparties for which reserves had previously been established and were released in the current quarter.
The net release of allowance for loan losses and unfunded lending commitments was $3.3 billion in the first quarter of 2011, compared to $53 million in the first quarter of 2010. The $2.0 billion net Consumer reserve release was mainly driven by retail partner cards and North America Citi-branded cards. The $1.4 billion net Corporate reserve release reflected releases for the overall portfolio, as credit trends continued to improve, as well as the release of previously established reserves for specific loans that offset charge-offs taken in the current quarter.
Citigroup expenses increased $808 million, or 7%, year-over-year to $12.3 billion, reflecting higher legal and related costs, the impact of foreign exchange and inflation, continued investment spending and increased business volumes, partially offset by a decline in Citi Holdings as well as productivity saves across the firm.
Citicorp expenses of $9.6 billion grew 12% from the prior-year period. More than half of the increase in Citicorp expenses was due to higher investment spending, with the remainder roughly split between the impact of foreign exchange in the translation of local currency results into U.S. dollars for reporting purposes (as used throughout this Form 10-Q, FX translation) and inflation and higher legal and related costs. Higher expenses from increased business volumes were generally offset by continued productivity saves.
Citi Holdings expenses were down 22% year-over-year to $2.0 billion, principally due to the continued decline in assets and therefore lower operating costs.
Citigroup continues to expect variability in its operating expenses during the remaining quarters of 2011 as it continues investing in Citicorp while rationalizing Citi Holdings. Certain expenses, particularly legal costs and the impact of foreign exchange, will remain difficult to predict.
Capital and Loan Loss Reserve Positions
Citigroup's Tier 1 Capital ratio was 13.3% at quarter-end, and its Tier 1 Common ratio was 11.3%.
Citigroup's total allowance for loan losses was $36.6 billion at quarter-end, or 5.79%, of total loans, down from $48.7 billion, or 6.80%, in the prior-year period. The decline in the total allowance for loan losses reflected asset sales, lower non-accrual loans, and overall improvement in the credit quality of the loan portfolio.
The Consumer allowance for loan losses was $32.7 billion, or 7.47%, of total Consumer loans, at quarter-end, compared to $41.4 billion, or 7.84%, at March 31, 2010.
Citigroup's non-accrual loans of $14.8 billion declined 48% from the prior-year period. At the end of the first quarter of 2011, the allowance for loan losses was 247% of non-accrual loans.
Citigroup Inc. and Consolidated Subsidiaries
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The following tables show the income (loss) and revenues for Citigroup on a segment, business and product view:
CITIGROUP INCOME (LOSS)
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Citicorp is the Company's global bank for consumers and businesses and represents Citi's core franchise. Citicorp is focused on providing best-in-class products and services to customers and leveraging Citigroup's unparalleled global network. Citicorp is physically present in approximately 100 countries, many for over 100 years, and offers services in over 160 countries and jurisdictions. Citi believes this global network provides a strong foundation for servicing the broad financial services needs of large multinational clients and for meeting the needs of retail, private banking, commercial, public sector and institutional clients around the world. Citigroup's global footprint provides coverage of the world's emerging economies, which Citi believes represent a strong area of growth. At March 31, 2011, Citicorp had approximately $1.3 trillion of assets and $784 billion of deposits, representing approximately 68% of Citi's total assets and approximately 91% of its deposits.
Citicorp consists of the following businesses: Regional Consumer Banking (which includes retail banking and Citi-branded cards in four regionsNorth America, EMEA, Latin America and Asia) and Institutional Clients Group (which includes Securities and Banking and Transaction Services).
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Regional Consumer Banking (RCB) consists of Citigroup's four RCB businesses that provide traditional banking services to retail customers. RCB also contains Citigroup's branded cards business and Citi's local commercial banking business. RCB is a globally diversified business with over 4,200 branches in 39 countries around the world. At March 31, 2011, RCB had $333 billion of assets and $314 billion of deposits.
North America Regional Consumer Banking (NA RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses in the U.S. NA RCB's approximate 1,000 retail bank branches and 13.0 million retail customer accounts are largely concentrated in the greater metropolitan areas of New York, Los Angeles, San Francisco, Chicago, Miami, Washington, D.C., Boston, Philadelphia, and certain larger cities in Texas. At March 31, 2011, NA RCB had $33.0 billion of retail banking and residential real estate loans and $143.6 billion of average deposits. In addition, NA RCB had 21.1 million Citi-branded credit card accounts, with $73.2 billion in outstanding card loan balances.
1Q11 vs. 1Q10
NA RCB revenues, net of interest expense, decreased 12% to $3.3 billion mainly due to lower volumes in branded cards and the net impact of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) on cards revenues, as well as lower mortgage-related revenues.
Net interest revenue was down 11% to $2.6 billion driven primarily by lower volumes in cards, with average loans down 7% from the prior-year quarter. In addition, cards net interest revenue was negatively impacted by the CARD Act.
Non-interest revenue decreased 16% to $710 million from the prior-year quarter mainly due to lower gains from mortgage loan sales and lower net mortgage servicing revenues.
Operating expenses increased 4% to $1.7 billion from the prior-year quarter, primarily driven by higher marketing costs and technology spending. Management currently anticipates that, assuming credit continues to improve in NA RCB (see below), it will further increase investment spending in its NA RCB businesses.
Provisions for loan losses and for benefits and claims decreased $1.4 billion, or 63%, primarily due to a net loan loss reserve release of $649 million in the current quarter and lower net credit losses in the Citi-branded cards portfolio. Cards net credit losses were down $732 million, or 35%, from the prior-year quarter, and the net credit loss ratio decreased 325 basis points to 7.42%.
EMEA Regional Consumer Banking (EMEA RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, primarily in Central and Eastern Europe, the Middle East and Africa. Remaining activities in respect of Western Europe retail banking and cards are included in Citi Holdings. The countries in which EMEA RCB has the largest presence are Poland, Turkey, Russia and the United Arab Emirates. At March 31, 2011, EMEA RCB had 297 retail bank branches with 3.6 million customer accounts, $4.7 billion in retail banking loans and $9.7 billion in average deposits. In addition, the business had 2.5 million Citi-branded card accounts with $2.9 billion in outstanding card loan balances.
1Q11 vs. 1Q10
Revenues, net of interest expense declined 2% to $398 million from the prior-year period due to lower lending revenues on the continued liquidation of non-strategic customer portfolios, unrest in Middle East markets and lower contribution from an equity investment in Turkey.
Net interest revenue was $228 million, or 8%, lower than the prior-year period due to the continued decline in the non-strategic portfolio, lower retail bank average loans and spread compression in the cards portfolio.
Non-interest revenue increased by 8% to $170 million, reflecting higher investment sales and cards fees offset by a lower contribution from an equity investment in Turkey. Investment sales grew 43% year-over-year and assets under management grew 20%.
Operating expenses increased 9% to $308 million, reflecting account acquisition-focused investment spending, expansion of the sales force and higher regulatory expenses.
Provisions for loan losses decreased 82% to $16 million. Net credit losses decreased 49% to $49 million, while the loan loss reserve release increased from $10 million in the first quarter of 2010 to $33 million in the first quarter of 2011, reflecting the ongoing improvement in credit quality during the period.
Latin America Regional Consumer Banking (LATAM RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, with the largest presence in Mexico and Brazil. LATAM RCB includes branch networks throughout Latin America as well as Banco Nacional de Mexico, or Banamex, Mexico's second largest bank, with over 1,700 branches. At March 31, 2011, LATAM RCB had 2,196 retail branches, with 26.6 million customer accounts, $23.5 billion in retail banking loan balances and $45.6 billion in average deposits. In addition, the business had 12.7 million Citi-branded card accounts with $13.5 billion in outstanding loan balances.
1Q11 vs. 1Q10
Revenues, net of interest expense increased 11% to $2.3 billion, driven by higher loan and deposit volumes as well as the impact of FX translation.
Net interest revenue increased 8% to $1.6 billion, driven by higher loan volumes, primarily in the retail business, and the impact of FX translation, which was partially offset by spread compression.
Non-interest revenue increased 19% to $735 million, driven by higher cards fee income from increased customer activity as purchase sales increased by 25%.
Operating expenses increased 16% to $1.4 billion as compared to the prior-year period, primarily driven by new investments and the impact of FX translation. Higher operating expenses also reflected an increase in business volumes, partially offset by productivity saves.
Provisions for loan losses and for benefits and claims decreased 27% to $299 million, reflecting a $102 million, or 20%, decrease in net credit losses in spite of the incremental $5.3 billion loan volumes and changes in FX rates. This progress was driven mainly by improved portfolio quality in Mexico cards. Additionally, loan loss reserve releases of $146 million were $10 million higher than the previous year, driven by retail banking loan losses.
Asia Regional Consumer Banking (Asia RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, with the largest Citi presence in South Korea, Japan, Taiwan, Singapore, Australia, Hong Kong, India and Indonesia. At March 31, 2011, Asia RCB had 707 retail branches, 16.2 million retail banking accounts, $108.1 billion in average customer deposits, and $64.1 billion in retail banking loans. In addition, the business had 15.4 million Citi-branded card accounts with $20.0 billion in outstanding loan balances.
1Q11 vs. 1Q10
Revenues, net of interest expense increased 6% to $1.9 billion, driven by higher cards purchase sales, investment sales, loan and deposit volumes, and the impact of FX translation. This was partially offset by lower spreads and a $70 million charge for the anticipated repurchase of certain securities.
Net interest revenue increased 5% to $1.3 billion, mainly due to higher lending and deposit volumes and the impact of FX translation, partially offset by lower spreads.
Non-interest revenue increased 6% to $575 million, primarily due to higher investment revenues, higher cards purchase sales, and the impact of FX translation, partially offset by the charge for the anticipated repurchase of certain securities and cards partnership payments.
Operating expenses increased 22% to $1.1 billion, due to continued investment spending, incremental legal and related expenses, and the impact of FX translation. Higher operating expenses also reflected an increase in business volumes, partially offset by productivity saves.
Provisions for loan losses and for benefits and claims decreased 26% to $178 million, mainly due to a 23% decline in net credit losses. These declines were partially offset by the impact of FX translation. The decrease in provision for loan losses and for benefits and claims also reflected continued credit quality improvement across the region, particularly in India, partially offset by increasing volumes.
Institutional Clients Group (ICG) includes Securities and Banking and Transaction Services. ICG provides corporate, institutional, public sector and high-net-worth clients with a full range of products and services, including cash management, trade finance and services, securities services, trading, underwriting, lending and advisory services, around the world. ICG's international presence is supported by trading floors in approximately 75 countries and a proprietary network within Transaction Services in over 95 countries. At March 31, 2011, ICG had $997 billion of assets and $470 billion of deposits.