Citigroup Inc reported net income for the third quarter 2012 of $468 mn, or $0.15 per diluted share, on revenues of $14.0 bn. CVA/DVA was a negative $776 million in the third quarter, resulting from the improvement in Citi’s credit spreads, compared to a positive $1.9 billion in the prior year period. Third quarter results also included a pre-tax loss of $4.7 billion ($2.9 billion after-tax) from the previously announced sale of a 14% interest and other-than-temporary impairment of the carrying value of Citi’s remaining 35% interest in the Morgan Stanley Smith Barney (MSSB) joint venture.
In addition, third quarter results included a $582 million tax benefit related to the resolution of certain tax audit items. Excluding CVA/DVA and the loss on MSSB, third quarter revenues were $19.4 billion, up 3% from the prior period. Excluding CVA/DVA, the loss on MSSB and the tax benefit, earnings were $1.06 per diluted share, up 26% from the prior year period.
Vikram Pandit, Citi’s Chief Executive Officer, said: “Our core businesses showed momentum during the quarter as we increased lending and generated higher operating revenues. These earnings highlight the strength of Citicorp and its diversification by product and region. For the third straight quarter, we had positive operating leverage in each of our three core businesses. Citigroup in total also had positive operating leverage as Citi Holdings had a smaller impact on our overall results.
"Last month’s price agreement on MSSB has given us more certainty on our exit from that business and added to the reduction of Citi Holdings, which is now only 9% of our balance sheet. We generated additional capital during the quarter, and our Tier 1 Common Ratio was estimated at 8.6% on a Basel III basis at the end of the period. We are managing risk very carefully given global economic conditions so we can continue to grow our businesses safely and soundly,” concluded Mr. Pandit.
Citigroup revenues of $19.4 bn, excluding CVA/DVA and the loss on MSSB, were 3% above the prior year period, driven by 5% growth in Citicorp revenues, offset by a 10% decline in Citi Holdings revenues primarily resulting from the ongoing wind down of those assets. Citi Holdings revenues represented 5% of total Citigroup revenues, excluding CVA/DVA and the loss on MSSB.
Citicorp revenues of $17.6 billion in the third quarter 2012 included $(799) mn of CVA/DVA reported within Securities and Banking. Excluding CVA/DVA, Citicorp revenues were $18.4 billion, 5% above the prior year period with 15% growth in Securities and Banking revenues and 2% growth in Global Consumer Banking (GCB) revenues, partially offset by a 2% decline in Transaction Services revenues.
Citi Holdings revenues of $(3.7) billion in the third quarter 2012 included $23 mn of CVA/DVA and the $4.7 billion pre-tax loss on MSSB. Excluding CVA/DVA and the loss on MSSB, Citi Holdings revenues were $971 million compared to $1.1 billion in the prior year period. Lower revenues in Local Consumer Lending and in Brokerage and Asset Management drove the decline in Citi Holdings revenues from the prior year period, partially offset by an increase in Special Asset Pool revenues. The decline in Local Consumer Lending revenues reflected the ongoing decline in assets while the decline in Brokerage and Asset Management reflected a lower equity contribution from MSSB and lower private equity marks. The Special Asset Pool revenues grew versus the prior year period due to lower funding costs as well as an improvement in asset marks. Total Citi Holdings assets of $171 billion declined $76billion, or 31%, from the third quarter 2011. Citi Holdings assets at the end of the third quarter 2012 represented approximately 9% of total Citigroup assets.
Citigroup's net income declined to $468 million in the third quarter 2012 from $3.8 bn in the prior year period. Excluding the impact of CVA/DVA, the loss on MSSB and the tax benefit in the third quarter 2012, Citigroup net income was $3.3 billion, 27% higher than the third quarter 2011. Operating expenses of $12.2 billion were 2% lower than the prior year period. Citigroup’s cost of credit in the third quarter 2012 was $2.7 bn, 20% below the prior year period, reflecting a $0.5 billion improvement in net credit losses and an $87million increase in net loan loss reserve releases. Citigroup’s net credit losses in the third quarter 2012 included approximately $635 million of incremental mortgage charge-offs in Citi Holdings required by new OCC guidance regarding the treatment of mortgage loans where the borrower has gone through Chapter 7 bankruptcy. The vast majority of the charge-offs were related to loans that were current. The incremental $635 million of charge-offs was substantially offset by a related reserve release of approximately $600 mn, and thus did not have a significant impact on reported net earnings. Citigroup’s provision for income taxes was a benefit of $1.5 bn in the third quarter 2012 (including the $582 million tax benefit), compared to an expense of $1.3 billion in the prior year period.
Citigroup's allowance for loan losses was $25.9 billion at quarter end, or 4.0% of total loans, compared to $32.1 billion, or 5.1%, in the prior year period. The $1.5 billion net release of loan loss reserves in the quarter increased 6% versus the prior year period. Reserve releases in Citicorp of $696 mn were 22% lower than the third quarter 2011, predominantly reflecting lower releases in North America GCB partially offset by a net reserve release in Securities and Banking. Reserve releases in Citi Holdings of $813mn were 52% higher than the prior year period, primarily reflecting approximately $600 million of reserve releases in Local Consumer Lending specifically related to the incremental charge-offs resulting from the OCC guidance mentioned above, partially offset by lower loan loss reserve releases in the Special Asset Pool. Citigroup asset quality continued to improve as total non-accrual assets fell 5% to $12.7 billion compared to the third quarter 2011. Corporate non-accrual loans fell 42% to $2.4 billion, while consumer non-accrual loans grew 25% to $9.8 billion, predominantly reflecting the new OCC guidance mentioned above which added $1.5 billion to consumer non-accrual loans. Consumer loans that were 90+ days delinquent, excluding the Special Asset Pool, fell 13% versus the prior year period to $8.0 bn, or 2.0% of consumer loans.
Citigroup's capital levels and book value continued to increase versus the prior year period. At the end of the third quarter 2012, book value per share was $63.59 and tangible book value per share was $52.70, 5% and 6% increases respectively versus the prior year period end. Citigroup’s Tier 1 Capital Ratio was 13.9%, its Basel I Tier 1 Common Ratio was 12.7%, and its Basel III Tier 1 Common Ratio was estimated at 8.6%.