Citigroup (NYSE:C) reported its first quarter earnings on Monday, and the global banking group tried to show that the strength of its business is still intact following its recent failure of the Federal Reserve’s stress test. The results went a long way in helping to ease investor concerns, as revenues of $19.4 billion for the quarter were just shy of the number a year ago and a 13% improvement over Q4 2011.  The bank also reported net income of just under $3 billion in Q1 2012 – more than three times its earnings in the difficult Q4 2011.
We have updated our price estimate for Citigroup’s stock from $35 to just above $36, which is slightly above the market price, to factor in the upside from an improved trading environment.
Securities Business Shows Remarkable Improvement
Citigroup’s investment banking and trading performance improved greatly from the dismal second half of 2011, as the securities business roped in $5.3 billion in revenues – including a $1.3 billion loss from a revaluation of its own debt. Excluding this accounting adjustment Citigroup actually surpassed its figures from the profitable Q1 2011. That’s a remarkable recovery, more so considering the fact that revenues for the division nearly doubled from the previous quarter.
The fixed income trading operations emerges as a big winner here, roping in $4.7 billion for the group – up from $1.7 billion in Q4 2011 and $4 billion in Q1 2011.
Transaction Services Continues Its Positive Growth Trajectory
Our analysis of Citigroup shows that its global transaction services business contributes to more than a quarter of its value, making it the most valuable division. In the first quarter, transaction services revenues increased by 5%, while expenses fell by 9% compared to the prior quarter. This allowed the division to post income of just under a billion dollars – a 20% increase from Q4 2011.Notes: