IT IS hard to overstate the symbolic importance of Citigroup’s first quarter earnings, which have smashed analyst expectations. Of those banks that managed to survive the banking crisis, it was by far the biggest casualty. “On the brink” is a phrase that is used far too much in the wake of the near-meltdown – but Citi really was facing oblivion just 18 months ago.
Having booked net income of $4.4bn or 5 cents a share in the first quarter, up from $1.6bn or a loss of 18 cents a year in the same period last year, it is now able to draw a line under the most troubled episode in its relatively short 12-year history.
Like JPMorgan and Bank of America Merrill Lynch, which both announced strong earnings last week, Citi has its investment banking division to thank for improving fortunes.
Revenues at its Securities and Banking division more than doubled to $8bn from $3.3bn in the fourth quarter of 2009, providing yet another riposte to those who support a reincarnation of the now-defunct US Glass-Steagall Act that separated retail and investment banks.
This is good news for all American banks, with the exception of regional players that will struggle to meet high hopes. The sector is up by over a third since mid-December, but there is still scope for it to grind higher, due to improving credit quality and a benign interest rate environment.
President Obama’s plans for reform are obviously a dark spot on the horizon, but investors should not let this cloud their view of underlying improvements.