New York, NY Citigroup Inc. (NYSE: C) today reported net income for the second quarter of 2009 of $4.3 billion, or $0.49 per diluted share. Second quarter revenues were $30.0 billion. These results include an $11.1 billion pre-tax ($6.7 billion after-tax) gain associated with the Morgan Stanley Smith Barney joint venture transaction, which closed on June 1, 2009.
Today's results reflect Citigroup's previously announced realignment into two principal segments, Citicorp and Citi Holdings. A third segment, Corporate/Other, consists of various corporate level activities. An organizational chart detailing the businesses in Citicorp and Citi Holdings is attached in Appendix A.
"For many quarters we have been consistently and successfully executing our plan to build financial strength and return Citi to sustained profitability and growth. We have made significant progress in recent quarters as evidenced in the significant decline in expenses, headcount, assets, including Citi's riskiest assets, as well as our 12.7% Tier 1 capital ratio," said Vikram Pandit, Chief Executive Officer of Citi.
"This quarter also marks a key milestone in our plan, as we are now reporting our financial results to reflect the separation of Citi into two primary operating segments: Citicorp and Citi Holdings.
"Citicorp is our core franchise and will be the source of Citi's long term profitability and growth. Citicorp is unique with institutional and consumer businesses operating on an unmatched global footprint. We will manage our businesses and assets in Citi Holdings to optimize their value over time. We have already announced the sale of a number of businesses within Citi Holdings, and its assets have been reduced by approximately $250 billion since the first quarter of 2008.
"Our financial results today reflect the incredibly dedicated efforts of all of our people around the world and their success in implementing our plan. Our earnings of $4.3 billion reflect the benefit of the closing of the Smith Barney joint venture with Morgan Stanley, which was a key element in our Citi Holdings strategy. This quarter's results underscore the earnings power of Citicorp, with over $3 billion of net income.
"As we look forward, we will continue the same relentless focus on executing our plan. We remain optimistic that our turnaround of Citi will gain speed. Our institutional business has a strong client franchise. Our most significant challenge now remains consumer credit. Losses in our consumer businesses have been growing for some time, but we see some positive signs of moderation in those loss trends. Sustainable profitability remains our primary goal," said Pandit.
Citicorp revenues were $15.0 billion, down 11% from the year ago period driven by the impact of foreign exchange, greater credit losses flowing through the card securitization trusts in North America and lower volumes. Operating expenses were $7.8 billion, down 21% from the prior year period, primarily due to re-engineering initiatives, the impact of foreign exchange and reduced marketing.
Credit costs were $2.8 billion, up 57% from the second quarter of 2008, reflecting $1.6 billion of net credit losses and a $1.2 billion reserve build. Citicorp's income was $3.1 billion, down 10% from the prior year period, as expense reductions offset a large portion of the decline in revenues and increase in credit costs.
Regional Consumer Banking revenues were $5.6 billion, down 19% from the prior year period, driven by increasing credit losses flowing through the card securitization trusts in North America, the impact of foreign exchange, and lower loan and investment volumes. Expenses were $3.5 billion, down 17% from the prior year period, reflecting the impact of foreign exchange, re-engineering initiatives, headcount reductions and lower marketing expenditure. Credit costs of $2.0 billion were up 46% from year ago levels, and included $1.4 billion of net credit losses and $0.6 billion reserve build. Credit costs were up most significantly in North America and EMEA.
Citi Holdings revenues were $15.8 billion, up from $2.1 billion in the prior year period on the Smith Barney gain on sale and favorable net revenue marks relative to the prior year period, partially offset by lower volumes and greater credit losses flowing through the card securitization trusts in North America. Operating expenses were $3.8 billion, down 28% from the second quarter of 2008 on reengineering initiatives, lower headcount, and reduced marketing, partially offset by higher real estate owned and collection expenses. Credit costs were $9.9 billion, up 86% from the prior year period as net credit losses increased significantly and $2.7 billion was added to reserves. Citi Holdings assets have declined 22% to $649 billion reflecting asset run-off and management actions. Net income was $1.4 billion versus a loss of $5.3 billion in the prior year period primarily due to Smith Barney gain on sale. Positive revenue marks and expense reductions also contributed, partially offset by credit deterioration and lower volumes.
Corporate/Other revenues of negative $741 million are largely due to hedging activities. The net loss of $30 million is due to higher tax benefits held at Corporate.
Discontinued operations net loss was $142 million versus a loss of $94 million in the year-ago period. The $142 million net loss largely reflects Nikko Cordial Securities, which is now classified as discontinued operations.
"Managed" financial metrics, including managed revenues, net interest margin, average loans and leases, net credit loss ratio and tangible common equity are non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure, as well as other information required by the SEC, is included in Appendix D.
Vikram Pandit, Chief Executive Officer, and John Gerspach, Chief Financial Officer, will host a conference call today at 11:00 AM (EDT). A live webcast of the presentation, as well as financial results and presentation materials, will be available at http://www.citigroup.com/citi/fin. A replay of the webcast will be available at http://www.citigroup.com/citi/fin/pres.htm. Dial-in numbers for the conference call are as follows: (877) 594-1392 in the U.S.; (706) 643-0278 outside of the U.S. The passcode for all numbers is 13445980.
Citigroup, the leading global financial services company, has approximately 200 million customer accounts and does business in more than 140 countries. Through its two operating units, Citicorp and Citi Holdings, Citigroup provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Additional information may be found at www.citigroup.com or www.citi.com.
Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Financial Supplement. Both the earnings release and the Financial Supplement are available on Citigroup's website at www.citigroup.com or www.citi.com.
Certain statements in this document are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors. More information about these factors is contained in Citigroup's filings with the Securities and Exchange Commission.