Citigroup profit tumbles as loan defaults loom

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(Reuters) – Citigroup Inc (C.N) reported a 46% plunge in quarterly profit on Wednesday as the bank set aside nearly $5 billion to prepare for an expected flood of defaults on loans due to a virtual halt in economic activity caused by the coronavirus pandemic.

FILE PHOTO: Workers are seen at Citibank offices in the Canary Wharf financial district in London, Britain, November 17, 2017. REUTERS/Toby Melville

The novel coronavirus outbreak has temporarily shuttered businesses around the globe, put millions out of work in the United States alone and is expected to cause the deepest recession in recent memory.

Wall Street banks are bracing themselves for a sharp rise in loan defaults as rising unemployment rates leave Americans cash- strapped and unable to make payments on their credit cards, mortgages and other loans.

Lenders with more exposure to unsecured loans such as credit cards are more susceptible to hefty writedowns, as credit card delinquencies have historically risen in lockstep with unemployment.

Citigroup recorded a $4.89 billion expense in the quarter, up from $20 million in the year-ago period, to boost reserves against anticipated losses on loans, primarily in its credit cards.

JPMorgan Chase & Co (JPM.N) said on Tuesday its profit plunged by more than two-thirds mostly because of a $7 billion addition to loan loss reserves, half of which were for credit cards.

“Our earnings for the first quarter were significantly impacted by the COVID-19 pandemic,” Citi’s Chief executive Officer Michael Corbat said in the earnings statement.

“The deteriorating economic outlook and the transition to the new Current Expected Credit Loss standard (CECL) caused us to build significant loan loss reserves.”

The blow to earnings was cushioned by a surge in fees as trading desks cashed in on the turbulent markets in February and March. Both equities and fixed income trading reported a 39% jump from a year earlier.

Total revenue rose to $20.73 billion, topping Wall Street’s estimate of $19 billion, according to Refinitiv data.

Total net income fell to $2.52 billion, or $1.05 per share, in the three months ended March 31, from $4.71 billion, or $1.87 per share, a year earlier. Earnings per share were also boosted by a 10% reduction in shares outstanding.

Analysts on average had expected Citigroup to earn $1.04 per share.

Total end-of-period loans grew 8%, excluding foreign-exchange fluctuations, while deposits jumped 17%.

Shares fell 4% in premarket trading as concerns about rising credit costs overshadowed the trading gains, which are expected to fade following government intervention to stabilize markets.

Reporting by Sweta Singh in Bengaluru and Imani Moise and David Henry in New York; Editing by Sriraj Kalluvila

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