Citigroup reported net income for Q2 2014 of $181 million, or $0.03 per diluted share, on revenues of $19.3 billion. This compared to net income of $4.2 billion, or $1.34 per diluted share, on revenues of $20.5 billion for Q2 2013. Q2 2014 results included the impact of a $3.8 billion charge ($3.7 billion after-tax) to settle RMBS and CDO-related claims, which consisted of $3.7 billion in legal expenses and a $55 million loan loss revenue build, each recorded in Citi Holdings.
CVA/DVA was negative $33 million (negative $20 million after tax) in Q2 2014, compared to positive $477 million ($293 million after-tax) in the prior year period. Excluding CVA/DVA in both periods, Q2 revenues of $19.4 billion declined three percent from the prior year period. Excluding CVA/DVA and the impact of the mortgage settlement in Q2 2014, earnings were $1.24 per diluted share, a one percent decline from prior year earnings of $1.25 per diluted share.
Michael Corbat, Citi Chief Executive Officer:
“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. Despite the significant impact of today’s settlement on our net income, our capital position strengthened to an estimated Tier 1 Common ratio of 10.6% on a Basel III basis, and our tangible book value increased.”
Citigroup revenues of $19.3 billion in Q2 2014 declined 6% from the prior year period. Excluding CVA/DVA and the impact of the mortgage settlement, Citigroup net income of $3.9 billion increased 1% versus the prior year period driven by lower operating expenses and a decline in credit costs, partially offset by lower revenues. Operating expenses were $15.5 billion in Q2 2014, compared to $12.1 billion in the prior year period. Excluding the impact of the mortgage settlement, operating expenses were $11.8 billion in Q2 2014, three percent lower than the prior year period, driven by continued efficiency savings, the overall decline in Citi Holdings assets and lower legal expenses, partially offset by higher regulatory and compliance costs and higher repositioning expenses. Excluding the impact of the mortgage settlement, Citigroup’s cost of credit in Q2 2014 was $1.7 billion, a decrease of 17% from the prior year period, primarily reflecting a $419 million improvement in net credit losses. Excluding CVA/DVA and the impact of the mortgage settlement, Citi’s effective tax rate was 33% in both the current quarter and prior year period.
Citigroup’s allowance for loan losses was $17.9 billion at quarter’s end, or 2.7% of total loans, compared to $21.6 billion, or 3.38% of total loans, at the end of Q2 2013. Citigroup asset quality continued to improve as total non-accrual assets fell to $8.3 billion, an 18% reduction compared to Q2 2013. Corporate non-accrual loans declined 43% to $1.2 billion, while consumer non-accrual loans declined 12% to $6.7 billion.
Citigroup’s capital levels and book value per share increased versus Q2 2013. As of Q2 2014, book value per share was $66.76 and tangible book value per share was $56.89, six percent and seven percent increases, respectively, versus Q2 2013. At quarter’s end, Citigroup’s estimated Basel III Tier 1 Common ratio was 10.6%, up from ten percent in Q2 2013, largely driven by earnings and the utilization of deferred tax assets. Citigroup utilized approixmately $1.1 billion of DTA in Q2 2014 and $2.2 billion so far this year. Citigroup’s estimated Basel III Supplementary Leverage ratio for Q2 2014 was 5.7%, up from 4.9% in Q2 2013.
Citicorp revenues of $17.9 billion in Q2 2014 declined 8% from the prior year period. CVA/DVA was negative $32 million in Q2 2014 (negative $20 million after-tax), compared to positive $462 million ($284 million after-tax) in Q2 2013. Excluding CVA/DVA, revenues were down five percent from Q2 2013, reflecting revenues in both GCB and ICG revenues of three percent and seven percent, respectively. Corporate/Other revenues were $35 million versus $114 million in Q2 2013.
Citicorp net income decreased 23% from Q2 2013 to $3.7 billion. Excluding CVA/DVA, net income declined 18% compared to Q2 2013, as lower revenues and higher expenses were partially offset by an improvement in credit.
Citicorp operating expenses increased four percent from Q2 2013 to $11 billion primarily reflecting higher legal, related and repositioning charges as well as higher regulatory and compliance costs, partially offset by an improvement in credit.
Ciitcorp operationg expeneses increases four percent from Q2 2013 to $11 billion primarily reflecting higher legal, related and repositioning charges as well as higher regulatory and compliance costs, partially offset by efficiency savings.
Citicorp cost of credit of $2.4 billion in Q2 2014 declined 12% from Q2 2013. The decline reflected both a three percent decline in net credit losses as well as a higher net loan loss reserve released, which increased 42% versus Q2 2013. Citigroup’s consumer loans 90+ days delinquent increased six percent from Q2 2013 to $2.8 billion, but the 90+ days delinquency ratio remained roughly stable at 0.93% of loans.
Ciitcorp end of period loans grew eight percent versus Q2 2013 to $585 billion, with nine percent growth in corporate loans ot $283 billion and seven percent growth in consumer loans to $303 bilion. The growth in consumer loans included the impact of the acquisition of Best Buy’s US. credit card portfolio in Q3 2013.
Global Consumer Banking
GCB revenues of $9.4 billion declined three percent from Q2 2013, as lower U.S. mortgage refinancing activity, regulatory changes, repositioning actions in certain markets and the continued impactof spread compression globally more than offset the impact of the Best Buy portfolio acquistion and ongoing volume growth in most international businesses.
GCB net income declined 14% versus Q2 2013 to $1.6 billion, reflecting the decline in revenues and higher operating expenses, partially offset by a lower cost of credit. Operating expenses increased three percent versus Q2 2013, reflecting higher repostioning charges in Korea and the impact of the Best Buy portfolio acquisition, partially offset by ongoing cost reduction initiatives.
North American GCB revenues declined five percent to $4.8 billion versus Q2 2013 driven by lower retail banking revenues, partially offset by the impact of the Best Buy portfolio acquisition.
North American GCB credit quality continued its improvements as net credit losses of $1.1 billion decreased 10% versus Q2 2013. Net credit losses improved to 14% to $570 million in Citi-branded cards and three percent to $465 million in Citi retail services versus Q2 2013. Delinquency rates improved in Citi-branded cards and Citi retail services versus Q2 2013 and ended the quarter at historically low levels. The reserve release in Q2 2014 was $396 million, $45 million higher than in Q2 2013.
International GCB revenues declined one percent versus Q2 2013 to $4.6 billion on a reported basis. On a constant dollar basis, international GCB revenues were up one percent versus Q2 2013 as growth in Latin America offset declines in Asia and EMEA. In constant dollars, revenues in Latin America increased three percent to $2.3 billion as volume growth more than offset spread compression. In Asia, revenues decreased by two percent to $1.9 billion primarily due to the ongoing impact of regulatory changes as well as continued franchise repostioning in Korea and lower investment sales revenues reflecting weaker investor sentiment, partially offset by volume growth. In EMEA, revenues declined one percent in constant dollars to $359 million, primarily due to the previously-announced market exits in 2013.
International GCB net income declined 33% from Q2 2013 to $521 million on a reported basis and declined 30% in constatn dollars. On a constnat dollar basis, higher expenses and higher credit costs more than offset the higher revenues. Operating expenses in Q2 2014 increased 12% in constant dollars (increased 10% on a reported basis) driven by higher repositioning charges in Korea, partially offset by efficiency savings, while credit costs increased 10% versus the prior year (increased eight percent on a reported basis) mostly driven by portfolio growth and seasoning in Latin America.
International GCB credit quality reflected portfolio seasoning as well as the ongoing impact of fiscal reforms and slower economic growth in Mexico. On a reported basis, net credit losses rose 19% to $711 million, primarily refecting the impact of portfolio growth as well as portfolio seasoning in Latin America. The international net credit loss rate was 1.97% of average loans in Q2 2014, compared to 1.74% in the prior year period.
Institutional Clients Group
ICG revenues declined 11% from Q2 2013 to $8.5 billion. Excluding the impact of CVA/DVA, revenues were $8.5 billion, seven percent lower than Q2 2013, primarily reflecting a decline in Fixed Income Markets and Equity Markets revenues, partially offset by higher Investment Banking revenues.
Banking revenues of $4.5 billion increased six percent from Q2 2013, primarily reflecting growth in Investment Banking revenues. Investment Banking revenues increased 16% versus Q2 2013, driven by a 17% inrease in debt underwriting revenues to $748 million and a 31% increase in equity underwriting revenues to $397 million, partially offset by a 10% decline in advisory revenues to $193 million. Private Bank revenues increased two percent to $656 million from the prior year period as growth in client volumes was partially offset by the impact of spread compression. Corporate Lending revenues rose 12% versus Q2 2013 to $454 million primarily reflecting average loans growth. Treasury and Trade Solutions (TTS) revenues were flat versus Q2 2013. Excluding a one-time gain of $50 million in 2013, TTS revenues were up three percent versus Q2 2013 as volume and fee growth more than offsetthe impact of spread compression globally.
Markets and Securities Services revenues of $4.1 billion (exluding negative $31 million of CVA/DVA, versus positive $461 million in Q2 2013) declined 16% from Q2 2013. Fixed Income Markets revenues of $3 billion in Q2 2014 (excluding postiive $4 million of CVA/DVA) were down 26% versus Q2 2013, reflecting lower client activity and weak trading performance in EMEA. Security Services revenues were roughly flat versus Q2 2013 as higher client activity was offset by a reduction in high margin deposits.
ICG net income was $4.5 billion in Q2 2014. Excluding CVA/DVA, net income of $4.6 iblion decline nine percent from Q2 2013, primarily reflecting th decline in revenues, partially offset by a decline in operating expenses and improved credit cosdts. Operating expenses declined two percent to $4.9 billion driven by lower incentive compensation, partially offset by higher regulatory and compliance costs and legal and related expenses.
ICG average loans grew 10% versus Q2 2013 to $279 billion while deposits increased eight percent to $577 billion.
Citi Holdings revenues in Q2 2014 increased 33% versus Q2 2013 to $1.5 billion. Revenues in Q2 2014 included CVA/DVA of negative $1 million compared to positive $15 million in Q2 2013. Excluding CVA/DVA, Citi Holdings revenues increased 35% to $1.5 billion primarily driven by the absence of repurchase reserve builds for representation and warranty claims in Q3 2014, a higher levle of gains on asset sales compared to the prior year and lower funding costs. As of the end of Q2 2014, total Citi Holdings assets were $111 billion, 15% blow the prior year period, and represented approximately six percent of total Citigropu assets.
Citi Holdings’ net loss was $3.5 billion in Q2 2014, compared to a net loss of $582 million in Q2 2013. Excluding the mortgage settlement in Q2 2014, Citi Holdings’ net income was $244 million, reflecting higher revenues, lower operating expenses and lower credit costs. Excluding the impact of the mortgage settlement, operating expenses in Q2 2014 declined 51% from Q2 2013, principally reflecting lower legal and related costs ($15 million in Q2 2014, compared to $705 million in the prior year period) as well as the ongoing decline in Citi Holdings assets. Net credit losses decreased 48% ($371 million) from Q2 2013, primarily driven by improvements in the North America mortgage portfolio.
Citi Holdings allowance for credit losses was $5.4 billion at the end of Q2 2014 (6.57% of loans), compared to $8.2 billion ($8.15% of loans) in Q2 2013. 90+ days delinquent consumer loans in Citi Holdings decreased 22% to $2.5 billion (3.32% of loans).