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NEW YORK: Citigroup Inc’s first-quarter profit beat Wall Street expectations on Friday as it earned more from borrowers paying higher interest on loans.

While its net interest income rose 23% to $13.3 billion, Citi also set aside $241 million to cover potential loan losses, from $138 million a year earlier. It joined other banking giants in preparing for a potential recession and the likelihood of consumers and businesses falling behind on payments later this year.

Citi earned $1.86 per share in the first quarter, beating analysts’ average estimate of $1.67, according to Refinitiv data. Net income rose 7% to $4.6 billion, or $2.19 per share, in the three months to March 31 from $4.3 billion, or $2.02 per share, a year earlier.

Thomas Hayes, chairman and managing member at Great Hill Capital, said Citi “reported the weakest growth of the three (banks reporting on Friday) - but still better than expected - and managed to buy back $1B of stock. Today’s bank earnings put dagger in the heart of the bears.” Citi also benefited from selling assets, with revenue from its legacy franchises unit climbing 48% to $2.9 billion. The bank on March 1 announced the sale of its Indian consumer business to Axis. At the time, the bank said the transaction would result in a benefit of $1.4 billion.

The banking sector was jolted by the collapse of Silicon Valley Bank and Signature Bank last month, which wiped out billions of dollars in market value. In Europe, Credit Suisse was rescued by rival UBS Group AG in a government-backed takeover.

The lender’s deposit growth was flat at $1.33 trillion from a quarter as well as a year ago as investors moved their cash into money market funds to chase greater yields.

Its loans also fell marginally to $652 billion.

Analysts expect an economic slowdown to curb demand for loans and depress net interest margins (NIM) across the industry in the coming quarters.

“The banking crisis may take attention from the efforts for a short period of time, but in the long run, this crisis will show where Citigroup’s strengths lie by acting as a major stress test and will assist in simplifying operations in the long run,” said Mona Dajani, a partner at New York-based law firm Shearman & Sterling LLP.

Citi’s investment banking revenue sank 25% from $774 million a year ago, weighed down by the most sluggish market for deals in more than a decade.

It slipped four rungs to the ninth position in 2023 in the list of financial advisors based on deal value, according to data from Dealogic.

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