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By David Henry and Tanya Agrawal
(Reuters) - Citigroup Inc <C.N> reported a higher-than-expected 31 percent rise in first-quarter profit on Monday as revenue from its securities and investment banking business swelled.
The No. 3 U.S. bank said on Monday that net income rose to $3.8 billion (2.4 billion pounds), or $1.23 per share, in the period -- the first full quarter under Chief Executive Michael Corbat -- from $2.9 billion, or 95 cents per share, a year earlier.
"During the quarter, we benefited from seasonally strong results in our markets businesses, sustained momentum in investment banking, continued year-over-year growth in loans and deposits in Citicorp, and a more favourable credit environment," Corbat said in a statement.
Under Corbat Citigroup partly recovered from its embarrassing failure last year under former CEO Vikram Pandit to win approval from the Federal Reserve after a stress test for its plan to distribute capital.
Citigroup shares were up 2.7 percent at $46 before the bell.
The company scored higher capital levels on a new test and received approval in March for its cautious application to spend $1.2 billion on stock buybacks. Citigroup has not asked to raise its quarterly dividend from its nominal level of one cent per share.
Excluding certain accounting adjustments, net income rose to $4.0 billion, or $1.29 per share, in the latest quarter, from $3.4 billion, or $1.11 per share, a year earlier.
Analysts on average had forecast earnings of $1.17 per share before the certain accounting adjustments.
Total revenue rose 6 percent to $20.5 billion. Expenses fell 10 percent to $12.4 billion from the fourth quarter.
The bank said its net interest margin for the first quarter was 2.94 percent, up marginally from 2.93 percent in the fourth quarter.
MORE LOAN LOSS RESERVES RELEASED
Citigroup, which is reviewing some of its weaker operations around the world, said revenue from its securities trading and investment banking business rose 31 percent to $6.98 billion.
The results were also lifted by the release of $652 million in loss reserves, of which $351 million was from the Citi Holdings portfolio that is largely composed of mortgage assets. These assets are tied to U.S. house prices, which have been rising.
Under Corbat, who took over October, Citigroup took a more cautious approach on loan loss reserves in the fourth quarter, releasing just $86 million.
The profit contributed to an increase in Citigroup's Basel III Tier 1 common equity ratio, a key regulatory measure of capital, to 9.3 percent at the end of March from 8.7 percent three months earlier, the company said.
"All they have to do is a get a little better, and they can get back to a valuation closer to their competitors," said Mark Mandell, portfolio manager at Dalton Investments in Santa Monica, California, which owns Citigroup shares.
Citigroup's adjusted results exclude the impact of changes in value of debt and obligations of its trading partners.
Citigroup shares rose 13.2 percent this year through Friday. In the same period, the KBW Bank stock index rose 9.6 percent and Standard & Poor's 500 stock index rose 11.4 percent.
(Reporting by David Henry in New York and Tanya Agrawal in Bangalore; Editing by Supriya Kurane)