AKBTY Akbank Turk Anonim Sirketi (QX)

Citigroup Inc.'s (C) first-quarter profit remained virtually flat from a year earlier at $2.9 billion, but revenue, particularly from equity and debt capital-markets operations, improved from the fourth quarter.

In a quarter clouded by a tangle of one-time charges related to the value of Citi's own debt, various divestitures, and a reduction of the reserves set aside for future loan losses, the bank was still able to eke out improvements in all three of its lines of business.

Revenue of $19.4 billion fell 1.6% from a year earlier but rose 13% from the previous quarter.

The results are a relief for Citi, which has struggled with its capital markets operations and reported disappointing results for the previous two quarters. But a change in leadership proved fruitful, Chief Financial Officer John Gerspach said during a call with reporters.

"Our equity-derivatives performance now is much improved, and we think that is directly related to changes we made in the business," he said. "We feel we've got equities back on track. In fixed income, we've always had a strong franchise and that, once again, showed itself in the first-quarter," particularly in Latin America and Asia.

Citi also reported an increase in capital, which is important because the bank's request to raise its dividend or to buy back stock was rebuffed after the Federal Reserve's most recent stress test, an embarrassing setback for Chief Executive Vikram Pandit.

The bank will resubmit the test by mid-June, Pandit said during a conference call with analysts. "New factors may need to be taken into account in the resubmission," he said. "We need to understand the process ... we expect to receive additional information from the Fed this month."

Pandit said the Federal Reserve has 75 days to review the plan once Citi resubmits the test. Citi's requests to the Fed "could range from resubmitting exactly what we asked for before, all the way to waiting until the 2013 submission" to return more capital to shareholders, Pandit said.

Citi's loan book grew 12% from a year earlier, to $514 billion. Though Pandit said the overall outlook for the world economy remains clouded by uncertainty. Gerspach said, "We have roughly 26% of our balance sheet right now tied up in either cash or highly liquid securities." Citi would rather make more loans with the deposits than buy securities.

"But we don't see that level of demand at this time," he said. "Loan demand is picking up" in the emerging markets, and trade finance lending is another pocked of demand. Still, "the European economies are still struggling, and the U.S. is dealing with a rather sluggish recovery," Gerspach said.

Citi had invested particularly in hiring new bankers last year, and Gerspach and Pandit insisted that spending will drive revenue. "While our businesses operated in an improved environment, we also saw the benefit of our investments," Pandit said in a press release. "We generated revenue growth and had positive operating leverage across all three of Citi's core businesses" of lending, payment processing, and capital markets advising and trading.

After the quarterly news, Citi's shares rose 1.54%, to $33.91 in midsession Monday trade.

Wells Fargo Securities analyst Matthew Burnell wrote in his research note the "core beat should help Citi outperform today."

Citigroup's vast international footprint has been an important source of strength for the massive bank, with increased lending in Asia and Latin America helping to balance choppier performance in Citi's capital markets business.

The results included a $1.3 billion charge related to the value of Citi's debt. Like J.P. Morgan Chase & Co. (JPM) and other banks, Citi has accounted for an increase in the value of its own outstanding bonds because that would make it more expensive for the bank to retire the debt.

The company reported a profit of $1.11 a share, excluding the charge to its debt and the impact of the sales of businesses, like the reduction of its ownership stake in Turkish bank Akbank TAS (AKBNK.IS, AKBTY).

Analysts expected core earnings of $1 per share, and revenue of $19.81 billion in revenue. Citi's revenue, excluding the charges, was $20.2 billion.

Nomura analyst Glenn Schorr said Citi reported a "well rounded quarter with a much better quarter at the (investment bank), continued loan and deposit growth...and decent credit trends combining with good expense-control trends combining with good expense control."

Revenue at Citi's capital markets business was $5.2 billion, a 12% decline from a year earlier but an improvement from the $3.2 billion in the fourth quarter. The business made a $1.3 billion profit, compared with a $134 million loss in the fourth-quarter, driven in part by a 54% rise in fixed-income underwriting, to $601 million. Fixed-income trading and equity-trading revenue more than doubled.

The company's retail banking business posted a 5% increase in revenue from a year earlier and 1% from the fourth quarter, to $10 billion--improving virtually around the world.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;

matthias.rieker@dowjones.com

--Mia Lamar contributed to this article.

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