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Citigroup (C) Q2 2014 Earnings Conference Call Transcript

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Edited Transcript of Citigroup Q2 2014 Earnings Conference Call..

Company: Citigroup, Inc. (C)

Event Name: Q2 2014 Results Earnings Conference Call

Date: July 14, 2014 10:00 AM ET

Citigroup Q2 2014 – Webcast audio


Operator: Hello and welcome to Citi’s second quarter 2014 earnings review with Chief Executive Officer, Mike Corbat and Chief Financial Officer, John Gerspach. Today’s call will be hosted by Susan Kendall, head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks at which time you will be given instructions for the question-and-answer session. Also as a reminder, this conference is being recorded today. If you have any objection, please disconnect at this time. Ms. Kendall, you may begin.

Susan Kendall – Head of Citi Investor Relations

Thank you, Regina. Good morning, and thank you all for joining us. On our call today, our CEO, Mike Corbat, will speak first, then John Gerspach, our CFO will take you through the earnings presentation, which is available for download on our website, citigroup.com. Afterwards, we’ll be happy to take questions.

Before we get started, I would like to remind you that today’s presentation may contain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results, and capital and other financial condition may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our discussion today and those included in our SEC filings, including, without limitation, the Risk Factors section of our 2013 Form 10-K.

With that said, let me turn it over to Mike.

Mike Corbat – Chief Executive Officer

Susan, thank you and good morning everyone. Earlier today, we reported earnings of $181 million for the second quarter of 2014. Excluding the impact of the legacy mortgage settlement CVA and DVA, net income was $3.9 billion, up slightly from last year or $1.24 per share.

Before I get into our operating performance, I want to discuss our legacy mortgage settlement. The comprehensive settlement announced today with the U.S. Department of Justice, the State AGs and the FDIC resolves all pending civil investigations related to our legacy RMBS and CDO underwriting, structuring and issuance activities. We also have now resolved substantially all of our legacy RMBS and CDO litigation. We believe that this settlement is in the best interest of our shareholders and allows us to move forward and to focus on the future in serving our clients.

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During this quarter, our institutional businesses performed well outside of markets where macro uncertainty and historically low volatility reduced client activity, clearly impacting our fixed income and equities revenues. Corporate investment banking revenues strengthened, led by strong equity and debt underwriting and our treasury and trade solutions businesses again saw underlying revenue growth as volumes continued to increase.

In consumer banking, year-over-year comparisons continued to be affected by lower mortgage refinancing activity and our repositioning efforts in Korea. But we believe these businesses have now stabilized and we’re better positioned for growth in the second half of the year. We grew our consumer loans despite the uneven economic environment and saw continued signs of progress in our U.S. cards business.

Excluding the settlement announced today, Citi Holdings turned to profit for the first time since its formation and we announced agreements to sell our consumer businesses in Greece and Spain which will further reduce holdings assets in the third quarter. The holdings profit actually helped drive DTA consumption which totaled $1.1 billion in the quarter and $2.2 billion for the first half of 2014. And despite the impact of the legacy mortgage settlement on our net income, our capital position strengthened to a Tier 1 common ratio of 10.6% on a Basel III basis and our tangible book value also increased.

During the first half of this year, we generated $10 billion in capital despite today’s settlement. Throughout the organization we’re focused on strengthening our capital planning process, improving our execution and increasing our efficiency. We’re engaged in a firm-wide effort that includes improving our target client model, streamlining our structure, processes and technology platforms and optimizing our real estate footprint.

These actions create a capability to make investments in our business, regulatory and compliance activities and strength in our capital planning process. They also allow us to reduce our operating expenses both quarter-on-quarter and year-on-year.

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While this effort is ongoing, we are already making some good headway. For example, during the second quarter, we reduced our headcount by 3,500 people to 244,000 and it is now down nearly 7,000 for the first half of 2014 and 15,000 people since the fourth quarter of 2012. We continued to simplify our product offerings and we further rationalized our footprint, shrinking retail branches by nearly 140 while reducing consumer support sites by another 31 locations.

Looking ahead, for the second half of this year, I feel good about how we’re positioned and I believe we should see an improved revenue picture. On the consumer side, the U.S. economy is gaining strength as job creation and consumer spending increases. Internationally, our franchise is performing well and we believe the headwinds facing our retail business in Korea are abating.

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