Citigroup may soon get a chance to increase its dividend payout after the bank reported better-than-expected earnings and bolstered its reserves.
On Monday, Citigroup said that more than a quarter of its balance sheet is in cash or other liquid securities. Buoyed by that stronger cushion, Citigroup plans to resubmit its capital plans to the Federal Reserve, which could pave the way for a higher dividend.
It’s a bright spot for the bank. In March, the Fed quashed the bank’s plans to raise its dividend or increase share buybacks in a rebuff to Vikram S. Pandit, Citi’s chief executive.
Documents: The earnings releaseAfter the latest round of stress tests, the Fed was concerned that the bank might not have enough cash to withstand the most severe economic downturn.
The Fed’s denial was a tough blow for Citi, particularly after most of the bank’s rivals were allowed to raise dividend payments.
But this month, Mr. Pandit is on far firmer ground as the bank reported better-than-expected first-quarter earnings on Monday, driven by steady demand for loans from international consumers and businesses and an improving economic condition in the United States.
Pointing out the bank’s stronger capital position, Mr. Pandit told analysts that Citi planned to resubmit its capital plans to the Fed. Mr. Pandit said the bank ended the quarter with $122 billion of Tier 1 common capital, a crucial measure of the bank’s health and ability to withstand sudden market swings.
In the first quarter of 2012, it had a Tier 1 ratio of 12.4 percent, which was an increase from 11.8 percent at the end of the fourth quarter.
Citi’s shareholders, however, will have to be patient before seeing a dividend increase, from the current 4 cents a year. The process of resubmitting a capital plan to the Fed and winning approval could stretch for months. Mr. Pandit said it could be as late as the “end of the third quarter.” In the meantime, he told analysts, Citi would “generate strong returns for our shareholders.”
Much of the first quarter gains for Citi came from its investment banking business where the bank has worked hard to make up lost ground. Revenue in securities and banking was $6.65 billion, up 6 percent from last year. That is up more than 50 percent from the level it reported during its disappointing fourth quarter.
John C. Gerspach, Citi’s chief financial officer, said on a conference call that its trading unit was a strong point for the bank and would continue to surge.
For Citi, the real highlight was the fixed-income revenue results, which jumped 19 percent from the previous year.
Still, Mr. Gerspach said that continuing concerns in Europe could undercut trading. “If markets roil, things will be impacted again,” he said.
The bank, which is based in New York, reported that net income was down 2 percent, to $2.93 billion, or 95 cents a share from $2.99 billion, or 99 cents a share in the period a year earlier. Total revenue was $19.4 billion, down 2 percent from a year ago.
Excluding certain items, the bank said it earned $1.11 a share in the first quarter of 2012, up 7 percent from the period a year earlier. That exceeded analysts’ estimates of $1.02 a share, according to a survey by Bloomberg.
Shares of Citigroup rose 1.77 percent, or 59 cents, to $34 on the earnings news Monday.
As European banks flail, Citi has gained ground. Quarterly revenue from international transaction services grew 7 percent, to $2.7 billion.
Guy Moszkowski, a bank analyst with Merrill Lynch, said in a report that Citi’s trade finance business got a boost as European competitors struggled.
Citi benefited from its expansive global footprint, notching gains in Latin America and Asia. Revenue in the Latin American global consumer banking grew to $2.44 billion, up 6 percent from the first quarter of 2011.
In this nation, however, Citi is grappling with some thorny issues and trying to gain more consumer banking business. Loan balances on Citi’s branded credit cards were down 6 percent, to $2.07 billion in the latest quarter. As part of its push to rebuild its national consumer banking business, the bank will continue to court customers for its Citi branded cards.
“That’s going to be something that is an ongoing activity for this year,” Mr. Gerspach said on the conference call. He noted that Citi would “love to put some of our cash to work in loans” but that demand remains sluggish.
Average checking account deposits are up slightly to $169 billion, from $166 billion in the period last year.
Citi is also dealing with the weight of its soured mortgage portfolio although delinquencies on loans are declining.
In the wake of the $25 billion national mortgage settlement with federal and state regulators that helped quiet allegations about dubious mortgage practices and foreclosure abuses, Citi put aside a total of $720 million to handle costs related to that litigation.
An earlier version of this article omitted a word related to the value of the national mortgage settlement. The settlement reached with several banks was for $25 billion, not $25.