Hit by energy volatility, Citigroup sees pain ahead

New York / AFP

Citigroup joined the growing list of banks to boost reserves for bad energy loans, but said it saw no signs the energy bust was spreading to the broader economy.
The US banking giant lifted its reserves for loan losses by $233 million due to energy-related loans as company officials signaled they expect further hits to results throughout 2016 from pain in the oil patch.
“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 bigbanks 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.
However, Citigroup shares rose slightly by 1.1 percent to $45.47 in the morning trade.