Citigroup Inc. has long boasted of its international scope. It has a presence in 140 countries, more than any other U.S. bank.
Now, its presence in emerging markets is helping the bank overcome sluggish growth in the U.S. and turmoil in the European markets.
Strong growth in loans extended to customers in Asia and Latin America and fewer loan losses in the U.S. helped bolster Citigroup's profits. The company said half of its revenue came from emerging markets in the second quarter. Deposits in Asia and Latin America were up 13 percent, while loans grew 27 percent over the same quarter last year. Nomura Equity Research's banking analyst Glenn Schorr believes Citi's growth will continue to be driven partly by the strength of its overseas loan and deposit growth.
U.S. customers helped improve results in other ways, namely by paying on time. Mortgage and credit card loans that were delinquent by 90 days or more stood at $9.9 billion, down 46 percent from the same period last year. That has helped reduce losses from bad loans by 35 percent during the quarter to $5.4 billion. The bank released $2 billion from its loan loss reserves, boosting income for the quarter.
Citigroup's net income rose 24 percent to $3.3 billion, or $1.09 cents per share, on revenue of $20.6 billion. That compares to net income of $2.7 billion, or 90 cents per share, during the same quarter last year. Citigroup's earnings per share was adjusted to account for a reverse split, where 10 Citi shares were exchanged for one this May. Analysts surveyed by FactSet had predicted Citigroup would earn 96 cents per share.
Citi shares closed down 1.6 percent, or 64 cents, at $38.38.
Citigroup's investment banking operations also grew. Its revenue from debt and equity underwriting and mergers and acquisitions advisory work grew 61 percent, to $1.1 billion from last year. The bank's chief financial officer John Gerspach noted in a conference call with journalists that in the closely-watched ranking of investment banking activity, Citi ranked third in IPO issuance.
However, Citi's securities trading income fell 29 percent, to $1.2 billion, and revenue fell by 8 percent, to $5.5 billion. Much of the decline came from an 18 percent drop in fixed income trading. Investors slowed down trading in the quarter largely because of the uncertainty around the protracted European debt crisis.
Going forward, Citigroup CEO Vikram Pandit said he is worried about the uncertainly in the global economic environment. "We are concerned with impact the near-term economic environment will have on the industry for the second half of the year," said Pandit, in a conference call with analysts.
The second quarter results are an improvement for Citigroup, considered one of the institutions hardest-hit by the 2008 financial crisis. By reporting a profit for the sixth straight quarter on Friday, the New York bank also showed that it was on the path to recovery after the U.S. government sold the last of its stake in the company last December. The government had owned as much as 36 percent of Citigroup as part of its $45 billion bailout during the financial crisis.
Pandit has managed to grow profits in the past year, but to do so, he has relied more heavily than other banks on money being released from reserves.