By Manya Saini and Tatiana Bautzer
(Reuters) – Citigroup’s profit fell in the first quarter as the company spent more on severance pay for laid-off employees and set aside money to replenish a government deposit insurance fund.
Net income fell to $3.4 billion, or $1.58 per share, in the three months ended March 31, the bank said Friday. That compares to $4.6 billion, or $2.19 per share, last year.
“Last month marked the end of the organizational simplification that we announced in September. The result is a cleaner, simpler management structure that is fully aligned with and facilitates our strategy,” CEO Jane Fraser said in a statement.
Citi said in its investor presentation that it expects to cut 7,000 employees and save $1.5 billion annually as a result of the reorganization. Shares rose 1% before the bell.
Fraser began a major restructuring in September to simplify the bank and improve performance. The costs of the restructuring increased expenses to $14.2 billion.
The largest round of staff changes, including reassignments and departures, was communicated to employees in late March.
The bank also paid $251 million into a Federal Deposit Insurance Corp fund that was depleted last year after three regional lenders went bankrupt.
First-quarter revenue fell 2% to $21.1 billion on a reported basis. Without special items such as company sales last year, the value was higher in the quarter.
Rival JPMorgan Chase reported higher first-quarter profit on Friday, while Wells Fargo’s quarterly profit shrank as it earned less from customer interest payments.
Performance across Citi’s services and banking businesses was outstanding. Revenue at the company, which provides cash management, clearing and payment services to the world’s largest companies, rose 8% to $4.8 billion, driven by an 18% increase in securities services revenue to $1, $3 billion.
Meanwhile, a resurgence in capital markets and investment banking fees led to a 49% rise in bank revenues to $1.7 billion. Corporate loans rose 34%.
The markets were a sore spot. Trading revenue fell 7% to $5.4 billion, hurt by fixed income and currencies.
Wealth management revenue fell 4% to $1.7 billion.
While Citi’s consumer banking division increased revenue, it also hoarded more cash to cover potential losses from customers who defaulted on their loans.
In the previous quarter, Citi posted a loss of $1.8 billion as one-time items reduced earnings.
“The past few months have not been easy,” Fraser wrote in March. “By far not. The changes we have made are the biggest that most of us have experienced at Citi… They have taken us to the top and improved our competitiveness,” she had said.
Investors have rewarded Fraser with a rise in its share price since the restructuring began in September. Next, they want to see growth in wealth management and investment banking.
The company’s shares have risen 18% this year, outperforming peers and outperforming the benchmark S&P 500.
The bank continues to face challenges, including regulatory issues and a troubled workforce. In February, Reuters reported that U.S. regulators had asked Citigroup to make urgent changes to how it measures its trading partners’ default risk.
Citi is working to address the issues outlined in two 2020 enforcement actions by the Federal Reserve and the Office of the Comptroller of the Currency.
The consent orders direct the bank to address deficiencies in its risk management, data governance and internal controls.
(Reporting by Tatiana Bautzer in New York and Manya Saini in Bengaluru; Editing by Lananh Nguyen and Arun Koyyur)