Citi profit falls 32 percent

Citigroup Inc's first-quarter profit fell 32 percent as bond trading revenue plunged and operating expenses jumped. The results were better than analysts expected, but Citigroup shares were just 0.9 percent higher in late morning trading at $4.46.
It was the fifth consecutive quarterly profit for Citigroup, which teetered on the brink of failure during the financial crisis. But the third-largest US bank generated profit in large part because it dipped into funds previously set aside to cover bad loans, releasing $3.37 billion of reserves in the quarter. Revenue fell 22 percent to $19.7 billion, and operating expenses rose 7 percent, in part because of higher compensation and legal costs.
"We're not seeing a lot of revenues being thrown off by main businesses. ... They haven't been able to turn recovery into growth," said Len Blum, a managing partner of investment firm Westwood Capital, who personally owns bank stocks. Citigroup said it earned $3.0 billion, or 10 cents per share, down from $4.4 billion, or 15 cents per share, a year earlier.
Analysts on average had expected 9 cents per share, according to Thomson Reuters I/B/E/S. The bank's higher expenses came from several areas, including spending more on compensation and benefits compared with the same quarter last year, and rising legal expenses. On a conference call with reporters, Chief Financial Officer John Gerspach declined to say why legal expenses had changed.
But he said the bank will incur about $25 million to $30 million in annual costs, as well as one-time charges of $45 million to $50 million over the "next few quarters," related to a foreclosure-related settlement with bank regulators. The foreclosure mess that began in the fourth quarter of 2010, with borrowers accusing major banks of repossessing homes without having the right paperwork in place, will increase costs at several large US banks.
Citigroup was one of 14 US housing lenders that have agreed to overhaul their mortgage operations and compensate borrowers who were wrongly foreclosed upon, as part of a settlement with three bank regulators. Gerspach also said the bank would hire up 500 people as part of the settlement. The higher compensation expenses may be linked to the bank's interest in investing in business opportunities, which Gerspach told reporters is a priority to be balanced with being disciplined on expenses.