By Sweta Singh and David Henry
(Reuters) - Citigroup Inc's quarterly profit plunged 27 percent, dragged down by lower revenue from trading and investment banking as well as costs to shrink some businesses and cover bad loans to the energy industry.
The No.4 U.S. bank by assets also said on Friday that it could incur another $1 billion in credit costs this year if oil slipped to below $35 per barrel.
Citigroup has reported the biggest drop in profit among big U.S. banks that have released first-quarter results so far, but lower operating expenses helped the bank beat Wall Street's low expectations.
Citigroup's shares rose as much as 3.5 percent in morning trading.
Banks globally have had a tough start to the year amid near-zero interest rates and a slowdown in China. Adding to the pain are loans to energy companies as a slump in oil prices drives many oil and gas producers to the brink of bankruptcy.
"We still feel like we have a very good book of energy loans that compares well versus competitors," Chief Financial Officer John Gerspach said on a post-earnings call.
The bank set aside $340 million in the first quarter to cover losses related to its energy loans, an increase of 36 percent from the fourth quarter.
MACRO HEADWINDS
The challenging macro environment hurt revenue in Citigroup's "market sensitive businesses, namely fixed income and equity markets, investment banking and our wealth management business in Asia," Gerspach said.
Investment banking fees across the industry fell 29 percent in the period, the slowest first quarter since 2009, according to Reuters data.
Citigroup's revenue from fixed income markets fell 11.5 percent to $3.09 billion, while investment banking revenue slumped 27.2 percent to $875 million.
The bank, like its rivals, has resorted to aggressive cost controls to underpin earnings over the past several quarters as revenue remains weak. Its operating expenses declined 3.3 percent to $10.5 billion.
Citigroup, which has more assets in emerging markets than other U.S. banks, has been exiting less-profitable markets and cutting jobs to become more efficient. The bank recorded $491 million in so-called "repositioning" charges.
Citi Holdings, the "bad bank" that holds businesses marked for sale, reported a steep 31 percent drop in revenue as assets in the unit shrank 4 percent.
The better-than-expected results come two days after Citigroup won a huge endorsement from regulators, who said the bank was the only one of eight reviewed to have a credible plan to deal with a potential bankruptcy without relying on public money.
The endorsement gives investors reason to believe that the bank will win approval in June from the U.S. Federal Reserve to return more money to shareholders.
Citigroup's net income fell to $3.5 billion, or $1.10 per share, in the quarter ended March 31, beating the average analyst estimate of $1.03 per share, according to Thomson Reuters I/B/E/S.
Revenue declined 11 percent to $17.56 billion, but topped the average estimate of $17.48 billion.
Citigroup's shares were up 0.6 percent at $45.25 in late morning trading. Up to Thursday's close, the stock had fallen 13 percent this year.
(Reporting by Sweta Singh in Bengaluru; Editing by Kirti Pandey)
