billion, up 42% from a year earlier, beating analyst estimates as
securities underwriting and trading revenue and loan demand from
emerging markets improved.
The results show progress in the bank's efforts to expand abroad and
to shrink the businesses it no longer sees as fitting into its global
strategy. Revenue rose strongly in capital markets—where underwriting
and trading revenue is generated—while consumer revenue continued its
strong growth from Latin America, even as Citi said it is expecting
emerging markets to grow more slowly than it had expected.
Second-quarter revenue rose 12%, to $20.5 billion from a year earlier,
more than analysts had expected. And per-share earnings of $1.25 beat
average analyst estimates of $1.17 as tracked by Thomson Reuters, even
excluding a $477 million gain for a valuation adjustment on Citi's own
debt.
Citi's shares rose 1% in late-morning trading to $51.32. The stock,
which lost much of its value during the financial crisis, has risen
almost 30% this year as of the close of trading Friday.
Citi's main strategic focus has been on overseas expansion,
particularly in emerging markets. But China's slowing economic growth
could ripple through Asia, where Citi is generating significant
revenue. Investors have been worried that slower economic growth in
emerging markets could challenge Citi's revenue and profit.
"The uncertainty about international economic growth in the second
half of the second quarter has weighed on shares of Citigroup," Keefe,
Bruyette & Woods analyst Frederick Cannon wrote in a research note
before Citi reported earnings.
Higher legal costs continue to reflect the impact of the financial
crisis, and Citi battled falling loan yields resulting from low
interest rates, falling revenue from its U.S. mortgage business and
volatile currencies around the world. Despite turmoil in emerging
markets, Citi showed firm footing, with revenue rising in Asia and
Latin America.
"We certainly adjusted expectations down" for economic growth in
emerging markets, Chief Financial Officer John Gerspach said. Economic
growth in Mexico, for example, is much slower than the bank expected.
Still, Mr. Gerspach reiterated that emerging-markets economies, even
at a slower growth pace, will expand faster than Europe and the U.S.
Capital markets, however, did best in Europe, the Middle East and
Africa in the second quarter, as the company recovered somewhat from
the impact of Europe's slow growth on last year's capital-markets
results.
Revenue in that region rose 34% in the second quarter from a year
earlier and 16% from the first quarter, to $2.2 billion, and its
profit there more than doubled from a year earlier and rose 77% from
the first quarter, to $787 million.
Overall, capital-market revenue, which also includes lending to large
corporations, rose 25% from a year earlier but fell 2% from a strong
first quarter, to $6.8 billion. Consumer-banking revenue rose 2% from
a year earlier, to $9.7 billion, and remained flat from the first
quarter. Headwinds from the U.S. mortgage business, and from falling
loan yields, are expected to continue, Mr. Gerspach said during a
conference call with the media.
Citi also is shrinking, through the sale of businesses that no longer
fit its strategy. The bank shed $18 billion worth of assets in the
second quarter, including $4 billion of sales that boosted revenue. In
June, it also sold the rest of its Morgan Stanley Smith Barney
brokerage joint venture to Morgan Stanley.
In addition, expenses remain a key focus for most investors, and Chief
Executive Michael Corbat announced late last year the bank will cut
11,000 jobs as one way to reduce costs.
Citi's operating expenses rose 1% from a year earlier and fell 1% from
the first quarter, to $12.1 billion. Mr. Gerspach said the bank is on
track to deliver the promised cost saves.
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