Banks Bounce Back with Strong Earnings, but Questions Linger

The first quarter of 2009 may have been the best quarter for big banks like Citigroup, as they impressed investors with earnings reports that exceeded analyst expectations. Citigroup posted a first-quarter loss of $966 million, or 18 cents per share, which was narrower than the 34-cent forecast of analysts surveyed by Thomson Reuters. The bank's revenue doubled from a year ago to $24.8 billion, while before paying dividends to preferred stockholders, the bank earned $1.6 billion. However, despite the strong earnings, bank stocks are likely due for a breather, as loan losses are expected to worsen with rising unemployment. The government's "stress tests" in May will provide a better sense of the health of the banks.

Key Takeaways:

• Citigroup's first-quarter loss was $966 million, or 18 cents per share, narrower than the 34-cent forecast of analysts surveyed by Thomson Reuters.
• The bank's revenue doubled from a year ago to $24.8 billion.
• Before paying dividends to preferred stockholders, the bank earned $1.6 billion.
• Loan losses are expected to worsen with rising unemployment.
• The government's "stress tests" in May will provide a better sense of the health of the banks.
• Bank stocks are likely due for a breather after their strong bounce in March and April.
• JPMorgan Chase CEO Jamie Dimon warned that it's not reasonable to expect record results to continue at its investment bank.
• Citigroup's Chief Financial Officer Ned Kelly noted that "one swallow does not make a spring," indicating that the recent moderation in 30-day delinquencies in credit cards and mortgages may not be a long-term trend.
• The two biggest drivers offsetting loan losses at these banks were strong bond trading results and low borrowing rates.
• Borrowing rates may stay low for a while, but they can't get much lower.

Statistics:

• Citigroup's first-quarter loss was $966 million.
• The bank's revenue doubled from a year ago to $24.8 billion.
• Loan losses are expected to worsen with rising unemployment.
• The government's stress tests in May will provide a better sense of the health of the banks.
• Citigroup has $45 billion in government funding and a federal backstop on roughly $300 billion in assets.
• Since late 2007, Citigroup has gotten a new CEO, a new chairman, and a new structure that splits its traditional retail and investment banking business from its consumer finance units, asset management, and risky mortgage-related assets.
• Citigroup has downsized by selling off businesses and laying off a fifth of its employees.

Sources:

• The Associated Press
• Citigroup Inc.
• JPMorgan Chase & Co.
• Goldman Sachs Group Inc.
• Wells Fargo & Co.
• Thomson Reuters
• Hill-Townsend Capital LLC
• Fox Pitt Kelton