NEW YORK - Citigroup joined the growing list of
banks to boost reserves for bad energy loans Friday, but said it saw no
signs the energy bust was spreading to the broader economy.
Citigroup net income for the first quarter dropped 26.6 percent to $3.5 billion
"I wouldn't say that this quarter is going to be by far the
largest quarter as yet," said chief financial officer John Gerspach.
But Gerspach said there is no evidence the oil bust is spreading to other sectors.
"We haven't seen any credit deterioration in any of our
books outside of that which is energy-related," Gerspach told reporters
on a conference call.
"We're not seeing any migration of the energy-related issues into the consumer book at all."
The remarks came as Citigroup reported a 26.6 percent
decline in first-quarter earnings to $3.5 billion, as revenues tumbled
11.4 percent to $17.6 billion.
Results were marred by a 27 percent drop in investment banking
revenue and lower revenues from several key trading divisions, including
equity markets and fixed-income markets.
The bank's "market-sensitive products clearly suffered from
weak investor sentiment during the quarter," said chief executive
Michael Corbat.
Still, results translated into $1.10 per share, seven cents
better than analyst expectations. Citigroup benefited from about a $360
million reduction in expenses and boasted of increased lending to core
clients.
The bank's set-asides for dodgy petroleum-related loans came
on the heels of similar announcements earlier this week by JPMorgan
Chase and other big banks as oil producers and contractors reel from the
fall in oil prices above $100 a barrel in mid-2014 to roughly $35 a
barrel in much of the first quarter.
Citigroup reclassified $730 million in loans in its
institutional clients group as "non-accrual," or more likely to default,
even though about two-thirds of this group are still performing,
Gerspach said.
About $500 million of the $730 million in the group is energy-related.
"We think it's appropriate to classify them as non-accrual given the
overall difficulties we see in that industry," Gerspach said.
If oil prices were to stay in the $30 to $35 a barrel range,
Gerspach predicted the total cost of credit for oil-related loans would
be $1.4 billion for all of 2016. The bank booked about $400 million of
this in the first quarter, he said. The rest would come in subsequent
quarters.
Those figures could fall if oil prices stay at current levels around $40 a barrel or move higher.
"If oil stays well above $40, then it's probably a different picture," he said.
Citigroup shares rose 1.1 percent to $45.47 in morning trade.
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