Citigroup Inc.'s corner-turning first-quarter performance reflected more than just a boffo bond trading business and a well-timed economic recovery in overseas markets.

The best showing for Citi [C] in 11 quarters also validated Chief Executive Vikram Pandit's decision more than a year ago to split Citi into a good bank and a bad bank, a strategy that has helped keep the company's trouble spots from muddying the focus on healthier businesses, while giving executives breathing room as they try to figure out the best ways to dispose of unwanted assets.

"Part of Citi's recovery was waiting out the financial panic, giving them enough time to see asset valuations recover from the ultra-harsh fair-value markets that were seen a year ago," said Gary Townsend, the CEO of Hill-Townsend Capital LLC in Chevy Chase, Md. "I think, in retrospect, maybe the important thing was that they articulate a plan that was reasonably coherent. They articulated one, and they've acted on it."

Revenue for Citicorp, the collection of businesses that Citi intends to keep, jumped 35% from the previous quarter, driven by growth in securities and banking.

Meanwhile, Citi Holdings, custodian of the assets slated to be sold or wound down, reported a 26% revenue increase and narrowed its loss considerably, as a broad recovery in the markets let the company mark up the value of subprime-related securities and the like.

At the bottom line, Citi earned $4.4 billion — 15 cents a share — surpassing analysts' average forecast of a break-even quarter. And the numbers were clean enough to render them virtually unrecognizable as Citi's, at least to anyone who had grown accustomed to seeing laundry lists of one-time gains and charges that challenged analysis and defied the steadfast optimism that Pandit always projected to investors.

This time, Pandit had the goods to back up his enthusiasm for the company's prospects.

Revenue from the banking and securities division more than doubled from the previous quarter; expenses fell 6%, and net credit losses contracted for a third consecutive quarter.

And though Pandit's rechristening of Citi as "America's global bank" surely induced eyeball-rolling somewhere, his more matter-of-fact pronouncements about the company seemed beyond reproach Monday.

"Citi today is fundamentally a very different company from what it was only two years ago," said Pandit, who has overseen hundreds of billions of dollars in asset reductions, massive payroll cuts, several rounds of management shakeups and a series of dealings with regulators that yielded much drama but also the backing the company needed to weather the worst of the crisis.

Pandit addressed the public reverentially in a press release disclosing the company's results, saying Citi owes taxpayers "a huge debt of gratitude for assisting us at a critical time." But he also credited the company's own initiative. The first-quarter results "were clearly helped by strong capital markets and improving credit, but net income of $4.4 billion also reflects the hard work we've done to put the company in order," he told analysts on a conference call. "We have retained our expense discipline, and we continue to reduce the risk and size of many of our legacy portfolios."

Citi drained another $27 billion from the Citi Holdings pool during the quarter, about half of which comprised natural runoff of assets. The company also continued to make headway on asset sales. Between gains booked on sales of mortgage bonds and mark-to-market accounting writeups reflecting an overall rise in market values, Citi took about $800 million in writeups on its direct subprime exposures last quarter.

John Gerspach, Citi's chief financial officer, credited the Citi Holdings strategy with helping the company improve results since it was announced in early 2009.

"Our rationale for doing it at that point in time was to improve focus. It was a little hard to ask business managers to run a combination of assets we were trying to shrink and assets we were trying to grow," Gerspach said.

The company would be moving even faster to sell assets, but it wants to avoid taking a hit on price by dumping a large inventory into markets with limited liquidity, he added.

"We are brutal on ourselves in terms of trying to improve the pace of exiting Citi Holdings," he said. "We move forward as we can."

The risk that remains in the Citi Holdings portfolio is one reason Citi executives tempered their enthusiasm just a bit, with Pandit saying that, "realistically, we do not expect our performance to follow an invariable trend line upward."

In addition to the challenges within Citi Holdings, there are the ever-present risk of volatility in investment banking and capital markets businesses and continued economic headwinds in the U.S., where unemployment has kept up the pressure on Citi's credit card business.

Net credit losses for the North American consumer banking division rose 6% last quarter, to $2.2 billion. But companywide, net credit loss fell 16%, to $8.4 billion.

"There certainly will be a certain amount of variability within our results," Gerspach said. "But I think what this quarter demonstrates [is] that we turned a corner, and that we're executing against the strategy."

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