Citigroup posted a $4.4 billion Q1 profit today, the bank’s biggest profit since the beginning of the financial crisis. Like Bank of America and JP Morgan Chase, Citi raked in profits by borrowing at rock bottom interest rates, then investing that money into higher-yielding bonds, commodities, and other securities. The New York Times has more:
The earnings, which handily beat analyst expectations and were the bank’s best since the financial crisis began, were the result of the resurgence in the bond market and improvements in the economy, particularly overseas. Both play to Citigroup’s strengths as a major player in fixed income and emerging markets, and come as some of its rivals benefited from similar trends. JPMorgan Chase and Bank of America both reported big first-quarter earnings from hefty trading profits and from adding less money to their loan loss reserves.
The bank is by no means out of the woods…New accounting rules forced the bank to bring billions of dollars of off-balance sheet assets back on its books, however. As a result, Citigroup’s asset levels grew about 8 percent this quarter to about $2 trillion. Citigroup executives said that had masked some of the progress that Mr. Pandit made reducing the size of Citigroup’s balance sheet.
Citigroup must contend with tougher oversight from Washington, including new credit card regulations, and it is still seeking a coherent strategy for Citigroup’s North American consumer banking franchise, which has struggled for years. Losses in that business, during the first quarter, remain high.
Perhaps his biggest challenge yet is figure out how to grow Citigroup’s earnings while its balance sheet shrinks. With nearly 28 billion shares outstanding — a side effect of the government’s extraordinary intervention — it will remain difficult to move the share price higher.
Citigroup has also been in discussions with SEC regulators about mortgage issues, according to the Times. Nobody is certain whether the bank will also face charges, writes the Times. How serious the SEC threat is depends on how serious the SEC itself is (see Naked Capitalism for a good analysis of this).