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Profits at Citigroup Plunge 46% in Q1

By Bram Berkowitz – Updated Apr 15, 2020 at 10:36AM

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The impact of CECL and COVID-19 results in an increase to total loan reserves.

Total profits at Citigroup (C 1.94%) in the first quarter of 2020 tumbled 46% year over year as the bank braces for higher loan losses as a result of the novel coronavirus pandemic.

The results are in line with other large banks that have reported earnings so far. JPMorgan Chase saw profits drop nearly 69%, Wells Fargo saw a drop of 89%, and Bank of America saw a decline of 45%.

Citi reported net income of $2.5 billion in the first quarter, representing $1.05 per diluted share. Revenue in the quarter was $20.7 billion, up 12% on a year-over-year basis.

Citigroup

Image Source: Getty

The main detraction from earnings was an increase of $4.9 billion in the credit provision, an expense that banks set aside to add to their pool of reserves they use to cover loan losses.

"COVID-19 is a public health crisis with severe economic ramifications. All of the work we have done in recent years has put us in a very strong position from a capital, liquidity and balance sheet perspective," Citi's CEO, Michael Corbat, said in a statement. 

The bank's earnings were also heavily impacted by the implementation of the current expected credit loss (CECL) accounting method, which requires banks to forecast losses on the life of a loan as soon as it is originated. The policy just went into effect on Jan. 1 and resulted in a $4.1 billion increase in the company's total reserves.

That, coupled with the new provision build this quarter forecasting for coronavirus-related losses, sent the total allowance for loan losses to $22.8 billion, up more than $10.5 billion year over year.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
C
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Bank of America Corporation
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