This summary is based on the second quarter fiscal 2007 earnings call conducted by Citigroup (C) on July 20, 2007.
Executives:
Art Tildesley - IR
Charles Prince - Chairman, CEO
Gary Crittenden - CFO
Robert Druskin - COO
Key Investors Issues
- Net income rose 18% from a year ago to $6.2 billion.
- EPS increased 18% from a year ago to $1.24.
- Revenues grew 20% from a year ago to $26.6 billion.
- Operating costs increased 16% from a year ago to $14.9 billion.
- Tier 1 capital declined marginally from 8.3% to 7.9%.
- Three international acquisitions were concluded, including upping stake in Japan’s Nikko.
Second Quarter 2007 Financial Results
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Revenues increased 20%, led by 34% growth in international revenues.
- International consumer revenues increased 16%.
- Deposits and loans grew 20% and 17%, respectively.
- Net interest margin declined 6 basis points versus the first quarter 2007, as the benefit from lower cost of funds was offset by growth in lower yielding trading assets.
Operating expenses increased 16%, driven by increased business volumes and acquisitions. Acquisitions contributed 10% or about 31,000 direct staff with the remainder coming from the net 530 branches opened.
- Management indicated performance within target on structural expense saves and total headcount reductions.
- Litigation reserves amounting to $300 million realeased reflecting continued progress in favorably resolving WorldCom/Research.
- Acquisitions contributed 4% to the 20% reported revenue growth.
New retail bank or consumer finance branches acquired or opened numbered 160, including 136 internationally and 24 in the U.S bringing yearly total to 1,001
Credit costs increased by 50% to $934 million, driven by an increase in net credit losses of $259 million and a net charge of $465 million to increase loan loss reserves.
Corporate loans amounted to $599 million on a total corporate loan portfolio of $192 billion.
Adjustable rate mortgages of $3 billion or approximately 4% of total reset with the majority in higher FICO and lower LTV categories.
Capital ratios:
- Tier 1 capital ratio was 7.9%, down from 8.3% in the first quarter in line with set target of above 7.5%.
- TCE to risk weighted managed assets declined marginally to 6.3%, down slightly from last quarter.
- Leverage ratio, declined to 4.4%, dfrom 4.8%, driven by acquisitions and organic asset growth.
Second Quarter Performance by Segment
Global Consumer Group - U.S. Consumer
- Revenues increased 3% from $7.6 billion in 2006 to $7.8 billion, driven by higher average deposits, up 20%, and managed loans, up 8%.
- Higher credit costs drove a 14% decline in net income to $1.77 billion.
- Revenues in consumer lending increased 23% to $1.6 billion driven by growth in net interest revenues and the acquisition of ABN AMRO Mortgage Group in March 2007.
Revenues in Commercial Business declined 14% from $516 million to $446 million as increased loan and deposit balances were offset by lower net interest margins.
A total of 15 new consumer finance branches and 9 new Citibank branches were opened increasing branch count to 180 versus the prior year.
Global Consumer Group - International Consumer
- Revenues rose 16% to $5.9 billion, driven by organic growth and the impact of recent acquisitions.
- Revenues in retail banking rose by 19% to $3 billion on increased deposits and loans.
- An additional 128 new branches were acquired or opened.
- Net income was down 16% from $1.22 billion to $1.02 billion..
Repositioning of the business resulted in closure of 273 branches and 101 automated loan machines since the third quarter of 2006 in Japan.
Markets & Banking - Securities and Banking
- Fixed income markets revenues increased 24% to $3.42 billion, driven by improved results across all products.
- Equity markets revenues grew 67% to $1.58 billion on higher results in cash trading, derivatives, equity finance, and convertibles.
- Net investment banking revenues increased 28% to $1.47 billion.
- Net income increased 52% to $2.15 billion.
Markets & Banking - Transaction Services
- Revenues increased 23% to $1.84 billion, driven by higher customer volumes and stable net interest margins.
- Assets under custody were up 22%.
- Net income increased 51% to $514 million.
Global Wealth Management
