Citigroup Reports Record Profit
10/21/2003
Yesterday Citigroup reported a 20% increase in net income.
We recommended this company in May of this year and the stock
has increased 23.4% in value (an annualized rate of 57%).
Meanwhile, the S&P 500 is only up 12.8%. The company's
press release follows:
10/20/2003
New York, NY — Citigroup Inc. (NYSE:C) today reported income
from continuing operations for the three months ended September
30, 2003 of $4.69 billion, a 27% increase over the prior year
period and a record for the company. Income per diluted share
from continuing operations was $0.90, rising 25% over the
third quarter of 2002. Net income, also $4.69 billion, rose
20% from the third quarter of 2002, which included the operating
income from Travelers Property Casualty, which was spun off
to shareholders in August of 2002.
For the first nine months of 2003, Citigroup’s
income from continuing operations increased 19% to $13.09
billion, or $2.51 per diluted share. Net income for the same
period was also $13.09 billion, rising 2% over $12.85 billion
in the first nine months of 2002, which included the operating
income from Travelers Property Casualty up until August 20,
2002, as well as the initial public offering gain. Revenues
totaled $57.29 billion, a 7% increase over the prior year
period.
“The strengthening global economy, together
with the power of our franchise and our diversified earnings
sources resulted in record income of $4.69 billion from continuing
operations, nearly $400 million higher than our previous record
performance. Two-thirds of our businesses posted double-digit
earnings increases. The excellence of our products and the
strides we continue to make in increasing market share in
our key businesses drove exceptional revenue growth of 10%
for the third quarter,” said Sanford I. Weill, Chairman of
Citigroup.
“All of our businesses made solid progress.
Strong equity markets contributed to good growth in Private
Client Services, where client assets rose 17%. Our Corporate
and Investment Bank ranked #1 in Global Debt and Equity Underwriting
for the eighth consecutive quarter. The Global Consumer Group
has continued to expand organically and through select acquisitions,
as we closed on the purchase of the Home Depot private label
portfolio in the quarter, and continued to see benefits from
the addition of Golden State Bancorp as well as strong mortgage
activity. Global Investment Management, despite charges related
to Argentina, posted 17% income growth, led by another record
quarter for the Private Bank. The strength of our global platform
was evidenced by Citigroup International’s 29% income growth,
led by 47% growth in the EMEA region and 22% growth in Asia.”
“I am more confident than ever in the strength
of our model and our ability to continue to deliver for our
shareholders, our customers and our employees. This is the
right time to turn management over to Chuck Prince and Bob
Willumstad, and I look forward to having them lead our company
into the future,” concluded Weill.
“I am confident that we will continue to
produce outstanding results as we move forward under new leadership.
The talent and commitment of our more than 260,000 employees
is what will enable us to extend our market share in the businesses
and regions that we operate,” said Charles O. Prince, Chief
Executive Officer of Citigroup. “I am excited about the opportunities
that lie ahead for our company and I look forward to our future.”
Highlights of the quarter included:
- Revenue growth of 10%, reflecting record
revenues of $19.4 billion, with exceptional growth in Retail
Banking, up 17%, the Private Bank, up 23% and Life Insurance
and Annuities, up 48%.
- Expense growth in the quarter was 14%.
Increased compensation expenses in the GCIB, as well as
increased expenses reflecting the additional cost of expensing
options, higher pension and insurance costs, and an increase
in the amortization of deferred acquisition costs accounted
for $436 million of the $1.17 billion increase in expenses.
- Improving credit quality contributed
to the company’s results in the third quarter, as the total
provision for credit losses fell 40% from $2.69 billion
to $1.61 billion. Loss rates in the Global Consumer loan
portfolio (excluding Commercial Markets) declined 44 basis
points from the prior year to 2.31%, reflecting stable loss
rates in North America Cards and improvements in International
Cards, which offset higher losses in retail banking in Germany
and consumer finance in Japan. In Argentina, $100 million
of consumer reserves were released due to improving credit
quality in that country. Consumer delinquency ratios as
measured by loans 90 days past due also improved from both
the prior quarter and the prior year. In the Global Corporate
and Investment Bank, cash basis loans improved $143 million
from the prior year and $415 million from the prior quarter,
to $3.79 billion as a result of write-offs against previously
established reserves, as well as paydowns. The provision
for loan losses fell 89%, to $76 million in the third quarter.
Corporate reserves for credit losses declined from $4.60
billion in the second quarter to $4.33 billion at the end
of the third quarter, due to net credit losses of $331 million,
which included $196 million in writedowns against previously
established reserves, as well as a reduction in reserves
of $35 million in Mexico, $32.5 million in North America,
$16.25 million in Asia, and $16.25 million in Latin America
to reflect the improving credit environment.
- Results included $95 million in net after-tax
charges related to actions in Argentina, including charges
associated with the mandatory exchange of promissory notes
received from the government, a writedown of deferred acquisition
costs and restructuring of liabilities in the Retirement
Services business in that country, partly offset by a reduction
in the credit card and retail banking reserve for credit
losses and reserve for settlement of customer liabilities
of $140 million pre-tax, or $87 million after-tax, previously
established for Argentina. Results also included a $106
million writedown of an investment security in Mexico, which
was offset by a credit recovery of $64 million.
- Results included a $200 million release
of tax reserves that had been held at the legacy Associates’
businesses and was deemed to be in excess of expected tax
liabilities.
- During the third quarter, Citigroup closed
on the acquisition of the private label portfolio of Home
Depot, which added $6.0 billion in receivables and 12 million
accounts. Citigroup has received regulatory approval for
the purchase of the Sears credit card business, the acquisition
of which is expected to close in November. Following this
acquisition, Citigroup will become the leading private label
card issuer in the United States.
- Citigroup’s total stockholders’ equity
and trust preferred securities was $102.1 billion at September
30, 2003, and the company’s return on equity was 20.2%.
Citigroup repurchased 5.7 million shares during the quarter,
bringing the total number of shares repurchased year to
date to 48.9 million.
GLOBAL CONSUMER
Income of $2.52 billion for the third
quarter, up 14%. Highlights included:
- Cards income advanced 16% to $985
million. North America cards income of $819 million represented
a 13% increase, driven by net interest margin expansion
as well as stable credit quality. North America cards net
receivables increased 3% over the prior year, including
the addition of $6.3 billion in receivables associated with
the Home Depot portfolio, and the net interest margin rose
25 basis points, reflecting the company’s recent shift away
from low-introductory interest rate balance consolidations,
as well as lower cost of funds. International cards income
rose 37%, on the strength of 25% receivables growth, which
drove strong revenue growth particularly in Europe and Asia.
The provision for credit losses decreased due to improvements
in Hong Kong and Taiwan, and the release of loan loss reserves
in Argentina, partially offset by deterioration in the UK
and Korea.
- Consumer Finance income declined 13%
to $467 million, the result of a decline in income from
the company’s consumer finance business in Japan. In North
America, income rose 9%, to $372 million. Average loans
increased by $8 billion, or 13% inclusive of the auto finance
business of GSB, and the net interest margin remained stable,
driving revenue growth of 11%. Expenses were 13% higher,
primarily due to increased volumes from the GSB acquisition
and higher credit collection costs. The net credit loss
rate increased 14 basis points from the prior year, although
it declined slightly from the second quarter. International
consumer finance income fell 52%, to $95 million, driven
by portfolio contraction and continued high credit losses
in Japan, which offset strong growth in Europe.
- Retail Banking income of $1.09 billion
represented a 26% increase over the prior year, as the business
now serves 48 million accounts through over 3,000 branches
globally. In North America, income increased 23% to $705
million, reflecting the addition of Golden State Bancorp
as well as exceptionally strong performance in the mortgage
business, which originated a record $37 billion in mortgage
loans in the third quarter. Results in Mexico were negatively
impacted by a writedown of an investment security, which
was partially offset by a credit recovery. Deposits in Citibanking
North America rose 49%, including Golden State. International
retail banking income growth of 30% reflected continued
strong growth in EMEA and Asia, driven by higher loan volumes
and investment product sales. International results also
reflected improvements in Latin America primarily attributable
to improved credit conditions in Argentina, which resulted
in a $56 million release of credit reserves.
GLOBAL CORPORATE AND INVESTMENT
BANK
Income of $1.37 billion for the third quarter,
up 31%. Highlights included:
- Capital Markets and Banking income of
$1.17 billion rose 27% over the prior year. Revenue growth
of 4% reflected higher trading-related revenues as well
as higher underwriting revenues in both fixed income and
equities. Expenses increased 21%, driven by higher compensation
expense, reflecting an improved capital markets environment.
Expenses were 19%, or $493 million lower than the second
quarter of 2003, and the pre-tax profit margin was 42% in
the Global Corporate and Investment Bank. Credit costs were
substantially improved, as the provision for credit losses
declined by over $500 million from the third quarter of
2002.
- Transaction Services income was $203
million, rising 57% from the prior year, which included
higher credit costs related to Argentina in 2002. Revenues
declined 2% impacted by lower global interest rates as well
as lower securities activity. Expenses declined 2% from
the prior year, and credit costs improved substantially.
PRIVATE CLIENT SERVICES
Income of $203 million for the third quarter,
up 8% over the prior year, and 12% over the second quarter.
Results reflected an improved level of customer activity versus
the prior year, as well as higher asset values. Revenues increased
4% over the prior year, led by 7% growth in transactional
revenues. The pre-tax profit margin improved to 22% in the
quarter and net flows were $5 billion. Revenue per Financial
Consultant increased 8% to $481,000, the highest level in
5 quarters. Balances in Smith Barney’s bank deposit program
reached $42 billion at the end of the third quarter.
GLOBAL INVESTMENT MANAGEMENT
Income of $367 million for the third quarter,
up 17%. Highlights included:
- Life Insurance and Annuities income increased
83% to $152 million over the prior year period, including
the benefit of lower realized losses as compared to the
prior year period. Travelers Life and Annuity rose $159
million as a result of lower realized insurance investment
losses, favorable investment yields and higher business
volumes that offset an increase in amortization of deferred
acquisition costs. Individual annuity, group annuity and
life insurance account balances all reached record levels,
increasing 16%, 10% and 23%, respectively. A loss of $77
million was recorded by International Insurance, reflecting
$131 million in charges taken primarily related to the mandatory
exchange of promissory notes received from the Argentine
government and the restructuring of liabilities in the Voluntary
Annuities business. Citigroup’s joint venture with Mitsui
Sumitomo Life generated a record $1 billion in variable
annuity deposits.
- The Private Bank’s income increased 22%
to $143 million, the seventh consecutive quarter of record
earnings. Client trading and lending revenues were particularly
strong, driving 23% total revenue growth. Regionally, the
Private Bank generated double-digit income growth in North
America, Asia, Japan and Latin America. Client business
volumes reached $186 billion, rising 14%.
- Income for Asset Management, which
includes Retirement Services, declined 37% to $72 million,
reflecting the impact of charges related to Argentina of
$51 million taken in Retirement Services. Excluding these
losses, income rose 8%. Revenues declined 2%, as the impact
of positive net flows and improvements in global equity
markets were offset by product mix changes. Assets under
management increased 12% to $495 billion over the third
quarter of 2002, boosted by cumulative net flows of $17
billion, excluding U.S. retail money market net flows, and
positive market action. Citigroup Asset Management’s share
of proprietary distribution channels was 74% in Primerica
Financial Services, 30% in Smith Barney, and 36% in Citibanking
North America.
CITIGROUP INTERNATIONAL
Income for Citigroup’s international operations
increased 29% to $1.23 billion from the third quarter of 2002.
Results for the quarter, which are fully reflected in the
product disclosures above, included:
- Asia’s income totaled $475 million, increasing
22%. Consumer income reached a record $220 million, rising
13%. Revenue growth of 12% was led by growth in cards and
retail banking, with continued strong investment product
sales throughout the region. Income for the corporate and
investment bank rose 16%, with higher revenues from fixed
income and equities trading as well as higher investment
banking results.
- Europe, Middle East and Africa (EMEA)
income of $466 million increased 47% in the third quarter.
Income from the corporate and investment bank rose 90% driven
by strong trading and investment banking results, tight
expense controls and improved credit costs. Consumer income
rose 15% driven by continued growth in the installment loan
business in Germany.
- Income for Japan declined 54% over the
prior year period, to $164 million, largely driven by the
sharp decline in earnings from the company’s consumer finance
business there, reflecting high loss rates and portfolio
contraction. Pre tax income and loss rates for the consumer
finance business improved modestly from the prior quarter.
- Latin America recorded income of $128
million for the third quarter as compared to a loss of $109
million in the prior year period, despite losses in Argentina
of $95 million. Results reflected an improving credit situation
in Argentina, which benefited both the consumer group and
the corporate and investment bank, which was partially offset
by losses incurred in Investment Management in connection
with the mandatory exchange of promissory notes received
from the Argentine government as well as a writedown of
deferred acquisition costs and the restructuring of liabilities
within the International Insurance Manufacturing business.
PROPRIETARY INVESTMENT
ACTIVITIES AND CORPORATE/OTHER
For the third quarter of 2003, Citigroup’s
Proprietary Investment Activities recorded income of $96 million,
including an $80 million after-tax gain on an initial public
offering. Corporate/Other income of $136 million reflects
the benefit of a tax reserve release of $200 million that
had been held at the legacy Associates’ businesses and was
deemed to be in excess of expected tax liabilities, as well
as continued strong treasury performance as a result of the
low interest rate environment.
# # #
Citigroup (NYSE: C), the preeminent global
financial services company with some 200 million customer
accounts in more than 100 countries, provides consumers, corporations,
governments and institutions with a broad range of financial
products and services, including consumer banking and credit,
corporate and investment banking, insurance, securities brokerage,
and asset management. Major brand names under Citigroup’s
trademark red umbrella include Citibank, CitiFinancial, Primerica,
Smith Barney, Banamex, and Travelers Life and Annuity. Additional
information may be found at: www.citigroup.com.
A financial summary follows. Additional
financial, statistical and business-related information, as
well as business and segment trends, is included in a Financial
Supplement. Both the earnings release and the Financial Supplement
are available on Citigroup’s web site (http://www.citigroup.com).
This document can also be obtained by calling 1-800-853-1754
within the United States or 732-935-2771 outside the United
States.
Certain statements in this document are
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act. These statements are based
on management’s current expectations and are subject to uncertainty
and changes in circumstances. Actual results may differ materially
from those included in these statements due to a variety of
factors. More information about these factors is contained
in Citigroup’s filings with the Securities and Exchange Commission.
Click
here to access the complete press release and summary financial
information.
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