Citigroup Earnings: A Surprising $4.4 Billion Profit, Biggest Since 2007

Citigroup (C) said Monday it earned a surprising $4.4 billion in the first quarter, its highest profit in almost three years. The poster child for "too big too fail" easily topped Wall Street estimates on strong results from its investment banking operations and lower provisions for credit losses.

Larger rivals Bank of America (BAC) and JPMorgan Chase (JPM) also reported better-than-expected results last week, giving further indications that the financial sector and larger economy are indeed on the mend, but that news has been overshadowed by the Securities and Exchange Commission's civil fraud charges against Goldman Sachs (GS).

For the three months ended March 31, New York-based Citigroup swung to a profit of $4.4 billion, or 15 cents a share, versus a year-ago net loss of $966 million, or 18 cents. Analysts, on average, expected the company to break even on a per-share basis, according to data from Thomson Reuters.

Still Cautious

Citigroup's revenue came in at $24.5 billion for the first quarter, down from the $27 billion booked in the year-ago period but a significant improvement over the $7.9 billion recorded in the previous quarter. Analysts were looking for revenue of $20.8 billion. However, Citigroup management struck a cautious tone despite the unexpectedly robust results.

"We are proud of our first quarter results but remain cautious about the environment, given the uncertain economic recovery and high unemployment in the U.S.," said CEO Vikram Pandit in a press release. "Realistically, we do not expect our performance to follow an invariable trend-line upward."

Still, the latest results show continued stability at the once-mighty so-called financial supermarket. It was just a year-and-a-half ago that the U.S. government had to bail out the bank -- twice -- with $45 billion of taxpayer money. At one point, Uncle Sam even took a 36% stake.

Whittling Down the Toxic Stuff

Last month the Treasury Department announced that it would start selling its already pared-down 27% equity stake in Citi. Investors saw that as a positive sign: After all, if the Treasury believes Citi is in a strong-enough position that it doesn't need government support, then it must be on firmer financial ground.

Of course, Citi still has to wade through billions of dollars of bad assets, which it has placed in a division called Citi Holdings, where it is slowly whittling them down. And while the damaged fraction of Citi is shrinking, the healthier part is growing: Citicorp, which is now its core banking division, accounted for 73% of revenue in the most recent quarter, compared with 61% in 2007.

With additional reporting by Pallavi Gogoi