Bengaluru/New York — Citigroup reported a 46% plunge in quarterly profit on Wednesday as the bank set aside nearly $5bn to prepare for an expected flood of defaults on loans due to a virtual halt in economic activity caused by the coronavirus pandemic.
The Covid-19 crisis has temporarily shuttered businesses around the world, put millions out of work in the US alone, and is expected to cause the deepest recession in recent memory.
Wall Street banks are bracing themselves for a sharp rise in loan defaults as rising unemployment rates leave Americans cash- strapped and unable to make payments on their credit cards, mortgages and other loans.
Lenders with more exposure to unsecured loans, such as credit cards, are more susceptible to hefty writedowns, as credit card delinquencies have historically risen in lockstep with unemployment.
Citigroup recorded a $4.89bn expense in the quarter, up from $20m in the period a year ago, to boost reserves against anticipated losses on loans, primarily in its credit card division.
JPMorgan Chase said on Tuesday that its profit plunged by more than two-thirds, mostly because of a $7bn addition to loan-loss reserves, half of which is for credit cards.
“Our earnings for the first quarter were significantly impacted by the Covid-19 pandemic,” Citi’s CEO Michael Corbat said in the earnings statement. “The deteriorating economic outlook and the transition to the new current expected credit loss (CECL) financial standard caused us to build significant loan-loss reserves.”
The blow to earnings was cushioned by a surge in fees as trading desks cashed in on the turbulent markets in February and March. Both equities and fixed-income trading reported a 39% jump from a year earlier.
Total revenue rose to $20.73bn, topping Wall Street’s estimate of $19bn, according to Refinitiv data.
Total net income fell to $2.52bn, or $1.05 per share, in the three months ended March 31, from $4.71bn, or $1.87 per share, a year earlier. Earnings per share were also boosted by a 10% reduction in shares outstanding.
Analysts, on average, had expected Citigroup to earn $1.04 per share.
Total end-of-period loans grew 8%, excluding foreign-exchange fluctuations, while deposits jumped 17%.
Shares fell 4% in pre-market trading as concerns about rising credit costs overshadowed the trading gains, which are expected to fade following government intervention to stabilise markets.
Reuters
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