Citigroup Q2 Earnings Impacted by $3.7B RMBS Charge
Citigroup reported Q2/14 net income of $181 million on revenues of $19.3 billion compared to net income of $4.2 billion on revenues of $20.5 billion for Q2/13. The bank said Q2/14 results included the impact of a $3.8 billion charge ($3.7 billion after-tax) to settle RMBS and CDO-related claims, which consisted of $3.7 billion in legal expenses and a $55 million loan loss reserve build, each recorded in Citi Holdings.
In a related news release, Bloomberg reported that Citigroup agreed to pay $7.0 billion in fines and consumer relieve to resolve government claims that it misled investors about the quality of mortgage-backed bonds. The $3.7 billion Q2 charge was to cover the cost of the settlement, Bloomberg said.
Michael Corbat, CEO of Citi, said, “Our businesses showed resilience in the face of an uneven economic environment. During the quarter, we continued to grow loans in our core businesses, reduce operating expenses by simplifying our products and processes and utilize our deferred tax assets. Despite the significant impact of today’s settlement on our net income, our capital position strengthened to an estimated Tier 1 Common ratio of 10.6% on a Basel III basis, and our tangible book value increased.”
Citigroup’s allowance for loan losses was $17.9 billion at quarter end, or 2.70% of total loans, compared to $21.6 billion, or 3.38% of total loans, at the end of the prior year period. Excluding the impact of the mortgage settlement, the $696 million net release of loan loss reserves in the current quarter compared to a $784 million release in the prior year period. Citigroup asset quality continued to improve as total non-accrual assets fell to $8.3 billion, an 18% reduction compared to the second quarter 2013. Corporate non-accrual loans declined 43% to $1.2 billion, while consumer non-accrual loans declined 12% to $6.7 billion.
To read the entire Citigroup news release, click here.