(Bloomberg) -- Citigroup Inc., the third-biggest U.S. bank, reported second-quarter profit that beat analysts’ estimates on revenue from advising on mergers and underwriting stocks and bonds.
Net income declined 12% to $2.95 billion, or 95 cents a share, from $3.34 billion, or $1.09, a year earlier, the New York-based bank said today in a statement. Excluding accounting adjustments and a loss from the sale of a stake in a Turkish bank, earnings were $1 a share, compared with the average estimate of 89 cents in a Bloomberg survey of 18 analysts.
Revenue from advising clients on mergers and acquisitions helped Chief Executive Officer Vikram Pandit, 55, manage declines in trading stocks and bonds amid fallout from the European sovereign-debt crisis. Citigroup’s 21% drop in investment-banking revenue was smaller than the 35% decline JPMorgan Chase & Co., the biggest U.S. bank, reported last week. Citigroup’s stock slid 25% during the period, the worst performance among the biggest U.S. lenders, as regulators struggled to contain the crisis in Europe.
“While Citigroup’s shares are again trading in line with broader euro zone developments, the company’s underlying fundamentals continue to evidence improvement,” Jason Goldberg, an analyst at Barclays Plc, wrote in a July 9 note to clients. The bank has “moved toward a more customer-driven model and run down its legacy problem assets, which should ultimately reduce its risk and free up capital.”
Expenses Drop
Revenue excluding the accounting adjustments and the sale of Akbank TAS in Turkey, was $18.8 billion, 7% lower than a year earlier, while expenses dropped 6% to $12.1 billion.
Citigroup rose to $27.16 in New York trading at 8:11 a.m. from $26.65 on July 13. The stock is up 1.3% this year through last week.
Revenue from advising clients on mergers and acquisitions rose 2% to $201 million from the same period last year. Richard Staite, a London-based analyst with Atlantic Equities LLP, had estimated $130 million. Fees from managing bond sales fell 21% to $486 million, a smaller drop than predicted by David Trone, an analyst at JMP Securities LLC., who estimated $331 million. Equity-underwriting fees tumbled 39% to $167 million.
Express Scripts
Citigroup was among the lead advisers to Express Scripts Holding Co., the largest U.S. processor of drug prescriptions, on its $29.1 billion purchase of Medco Health Solutions Inc. on April 2.
Raymond J. McGuire runs Citigroup’s merger advisory business while Tyler Dickson oversees underwriting. Both report to Jamie Forese, head of the bank’s securities and banking division.
Revenue from trading stocks and bonds fell 9% excluding the accounting adjustment, to $3.37 billion, less than the $3.5 billion predicted by Moshe Orenbuch, an analyst at Credit Suisse Group AG. Trading revenue at JPMorgan declined 15% to $4.54 billion.
Fixed-income trading declined 4% to $2.82 billion, Citigroup said. The bank had gains in Anil Prasad’s currency- trading business and so-called rates, interest-rate products such as Treasuries, inflation-protected bonds and interest-rate swaps. Credit-trading, led by Carey Lathrop, and securitized products declined, the lender said, without giving more details.
Stock Trading
Revenue from trading shares fell 29% to $550 million. That compared with JPMorgan’s equity-trading revenue, which fell 9% to $1.04 billion for the same period.
Derek Bandeen runs equity-trading in London. Pandit overhauled the unit in January, shutting a so-called proprietary-trading unit and appointing new global heads of equity derivatives, cash equities and “Delta One” trading. The Delta One desk typically helps clients speculate on or hedge the performance of a group of securities.
Revenue at the bank’s global consumer-banking business was little changed at $9.77 billion. International revenue at the unit, which is run by Manuel Medina-Mora, fell 4% to $4.6 billion, reflecting the impact of foreign exchange, the bank said. Total profit fell 1% to $1.99 billion.
Citigroup may have taken a “hit” as currencies in some of its biggest markets declined against the U.S. dollar during the quarter, Charles Peabody, an analyst at Portales Partners LLC, said in June. The Mexican peso, Brazilian real and Indian rupee are among currencies that have weakened, which could lead to “value destruction” for the lender, said Peabody, who has a sell rating on Citigroup shares.
Consumer Banking
The consumer-banking unit also increased the amount of money set aside for future losses on loans outside North America by $86 million, Citigroup said. That contributed to a 12% drop in the division’s international profit to $795 million. Pandit told shareholders in a March 9 letter that the bank has an “intense focus on capturing emerging-market trade.”
Citigroup said last month it would retreat from an effort to win Federal Reserve approval to boost payouts to shareholders this year. Pandit had vowed in March to seek approval for a “meaningful” payout after the Fed objected to its initial submission for 2012.
Pandit scrapped Citigroup’s dividend in 2009 after the bank almost collapsed and took a $45 billion bailout from U.S. taxpayers. The lender has since repaid the rescue funds, and last year it resumed a 1-cent quarterly payment.
JPMorgan said last week that fees from advising on mergers and acquisitions tumbled 41% to $356 million. Debt- underwriting fees slid 26% to $639 million while revenue from handling share sales declined 45% to $250 million.
Wells Fargo & Co., the fourth-biggest lender, said last week that profit rose 17% to a record $4.62 billion on strength in new mortgage loans. Bank of America Corp., the second-biggest, will probably report a $1.97 billion profit July 18, according to the average estimate of 10 analysts surveyed by Bloomberg.
