Citigroup (C) Earnings: Credit Cost Spike

For the second quarter Citigroup, credit costs increased to $12.4 billion, including an addition of $3.9 billion to loan loss reserves, bringing the total allowance for loan losses to 5.6% of total loans. That overshadowed much of the rest of the Citi results.

The bank today reported net income for the second quarter of 2009 of $4.3 billion, or $.49 per diluted share. Second quarter revenues were $30 billion. These results include an $11.1 billion pre-tax ($6.7 billion after-tax) gain associated with the Morgan Stanley Smith Barney joint venture transaction, which closed on June 1, 2009.

Total revenue was up $12.4 billion from the second quarter of 2008, due primarily to the Smith Barney gain on sale and favorable net write-ups and gains (“revenue marks”) relative to the prior year period in Citi Holdings.

Operating expenses were $12.0 billion, down 21% from the second quarter of 2008, reflecting ongoing re-engineering efforts, expense control, and the impact of foreign exchange. Headcount declined by approximately 30,000 from the first quarter of 2009, to 279,000, mainly driven by the Smith Barney transaction. Headcount is now approximately 96,000 below peak levels. June was the 20th consecutive month of headcount decline.

Capital position continued to improve during the quarter. Tier 1 capital ratio was approximately 12.7%, versus 8.7% in the second quarter of 2008 and 11.9% in the first quarter 2009. Tangible common equity grew by $9.1 billion during the quarter.

Douglas A. McIntyre