By Orla McCaffrey 

Citigroup Inc. is shutting down most of its consumer-banking operations in Asia, Europe and the Middle East, the latest sign that the original financial supermarket is rethinking how to do business.

The bank on Thursday also reported a sharply higher first-quarter profit, though that was largely because its year-ago results were hammered by pandemic preparations. Citigroup posted a profit of $7.9 billion, or $3.62 a share, well above the $2.60 a share forecast by analysts polled by FactSet. A year earlier, Citigroup had reported a quarterly profit of about $2.5 billion, or $1.05 a share.

The New York bank also said it would exit its consumer operations in 13 countries, mostly across Asia, to focus on wealth management and other businesses.

For Jane Fraser, who took over as chief executive officer last month, the change marks one of her first big moves at the bank's helm. Ms. Fraser said in a statement that those consumer banks were excellent businesses, but "we don't have the scale we need to compete." She said Citigroup would continue to invest in wealth management and in the businesses that work with corporate clients in Asia.

The Citigroup of today was created in 1998, a merger of the consumer-focused Citicorp and the highflying Wall Street bankers at Travelers Group. The company became the world's largest financial-services firm, and executives envisioned a one-stop shop where globe-hopping travelers could always find a Citi ATM.

But Citigroup's businesses continued operating as silos, and the imagined merger benefits didn't materialize as hoped. The bank nearly collapsed in the 2008 financial crisis under the weight of risky mortgage securities, and it has been slimming down since then. Ms. Fraser's predecessor jettisoned consumer banking operations in parts of Latin America.

Now, Citigroup is a giant on Wall Street, but it is relatively small in U.S. consumer banking, a combination that some analysts and investors have criticized. The bank has lagged behind rivals in some key metrics like long-term stock growth. And despite its large Wall Street operations, its results Thursday showed parts of its investment banking and trading units falling behind rivals like Goldman Sachs Group Inc. and JPMorgan Chase & Co.

Ms. Fraser said in January that the bank would restructure the businesses that manage money for wealthy customers, with the goal of getting to clients earlier and keeping them as they grow richer. The bank said Thursday that it will operate consumer banking in four "wealth centers" where it expects strong growth for the wealth-management business: Singapore, Hong Kong, the United Arab Emirates and London.

Citigroup's brand in some overseas markets is strong, but the consumer banks there are relatively small and costly. Revenue from the operations the bank is winding down accounted for about $4 billion of Citigroup's 2020 revenue of roughly $74 billion. Their expenses totaled about $3 billion, compared with 2020 total expenses of about $43 billion.

"We're looking to be very clinical in looking at the businesses that we want to retain and where we can secure leading market positions," Chief Financial Officer Mark Mason said on a call with reporters.

In the first quarter, Citigroup's total revenue fell 7% to $19.3 billion. That was still ahead of the $18.8 billion analysts had expected.

During the same period a year ago, the coronavirus pandemic was taking hold in the U.S., and big banks including Citigroup set aside billions of dollars to prepare for potentially bad loans.

The reserves weighed on earnings for much of last year, but the big loan losses so far haven't materialized, thanks in part to government stimulus measures that have kept the economy afloat. Banks' first-quarter results have soared partly because their year-earlier results were hit so hard by the rainy-day stockpiling.

Citigroup released $3.85 billion in reserves, a major driver of its first-quarter earnings. The bank released $1.5 billion in the fourth quarter.

A crazy quarter in markets, marked by a boom in special-purpose acquisition companies and stock-market records, helped power other big Wall Street banks. JPMorgan and Goldman Sachs both reported record quarterly profits on Wednesday.

Citigroup didn't catch all the same waves. It enjoyed a 46% jump in investment-banking revenue, largely from a surge in underwriting new initial public offerings, SPACs and other sales of stock.

But Citigroup's revenue from advising companies on deals was down, while its competitors at JPMorgan, Goldman and Bank of America Corp. all notched gains.

Citigroup's trading revenue was essentially flat, rising 1%. Trading revenue rose 47% at Goldman and 25% at JPMorgan. Adjusted trading revenue rose 17% at Bank of America.

Mr. Mason said lingering economic uncertainty among corporate clients, coupled with high liquidity levels, weighed on the firm's Wall Street operations.

"Going forward, I think the clients agree that the recovery and growth will be asynchronous," Mr. Mason said. "And they, too, are looking at many of the same signs that we've talked about, in the way of signals for recovery."

Expenses increased 4% to $11.1 billion, in part because of the bank's effort to revamp its risk and control systems. Investors have been watching that line closely after regulators ordered Citigroup to make significant changes in its risk system.

Earnings in the institutional clients group, which includes investment banking and trading, rose 64% to $5.9 billion, but revenue fell 2% to $12.2 billion.

The consumer bank reported a profit of $2.2 billion, compared with a loss a year earlier of $740 million. But revenue fell 14% to $7 billion.

Citigroup shares fell slightly on Thursday, but they have risen about 18% since the beginning of the year. The KBW Nasdaq Bank Index, which tracks shares of the largest lenders, is up 26% so far this year, compared with a 10% gain in the S&P 500.

Write to Orla McCaffrey at orla.mccaffrey@wsj.com

 

(END) Dow Jones Newswires

April 15, 2021 12:54 ET (16:54 GMT)

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