OREANDA-NEWS. Citigroup (Citi) reported a 1.01% return on assets (ROA) in the second quarter of 2015 (2Q'15), and within the company's target of 90 basis points (bps) to 110 basis points, according to Fitch Ratings. Controlled expenses and a higher loan loss reserve release were partially offset by lower revenues on a linked-quarter basis. Results also reflected the absence of any large legal or repositioning charges, and a profitable quarter for Citi Holdings.

Over the past couple years, Citi's earnings during the first half of the year have started out favorably, only to be marred by material litigation costs or lower capital markets revenues later on. As such, Citi's ability to meet its full-year targets will likely hinge much more so on performance in the latter part of the year. That said, Fitch views the first half of 2015 (1H'15) results as solid, and situate the company well for meeting full-year targets, especially given the pending sale of OneMain Financial, which will result in an estimated pre-tax gain of approximately $1 billion. The deal is expected to close in late 3Q'15.

CVA/DVA gains were $196 million after-tax in 2Q'15, as compared to $20 million in after-tax losses in 2Q'14. Second quarter results last year also incorporated the large settlement with the DOJ resolving legacy RMBS and CDO-related claims. Excluding these non-core items, second quarter revenues declined 2% from a year ago; however, net income was 18% higher driven by reductions in core expenses, legal and repositioning charges, and credit costs.

The impact of foreign exchange translation into U.S. dollars can impact financial reporting. For example, as previously discussed, revenues in 2Q'15 declined 2% from a year ago. However, excluding the impact of foreign exchange translations, revenues actually increased 3% from a year ago for Citigroup. Reported expenses also declined 1.5% on a constant dollar basis, producing core operating leverage during the quarter.

Citi hedges its CET1 exposure to fluctuations in currencies; however, movements in foreign currencies still resulted in a $5 billion deduction to CET1 capital from a year ago, though there was nominal impact to Citi's ratio given corresponding impacts to Basel III RWA.

Net income in both International Consumer Banking and North America Consumer Banking decreased on a sequential basis. Revenue growth in 2Q'15 in International Consumer Banking was outstripped by higher expenses as higher compliance and regulatory-related spending, volume growth-related expenses, and technological investments exceed any efficiency savings. Conversely, on a linked quarter basis, revenues declined in North America Consumer Banking, more than offsetting lower expenses during the quarter.

Fitch notes that net income in both International Consumer Banking and North America Consumer was higher for the first half of the year as compared to 1H'14. North America retail banking once again had a good quarter with revenues up 11% from a year ago reflecting continued volume growth, higher mortgage origination activity, and improved deposit spreads. Conversely, 2Q'15 revenues in Citi-branded cards fell 5% from a year ago, while Retails Services was flat.

Fixed income revenues declined 12% sequentially and 1% from a year ago, following strong performance in both last quarter and a year ago quarter. The quarter's results reflected continued strength in rates and currencies more than offset by lower revenues in spread products. The 1% decline in Equity Markets from a year ago is mainly attributed to $175 million in valuation adjustments related primarily to prime brokerage financing transactions, with less than $100 million in remaining exposure. Some of the negative valuation adjustment may reverse as payments are made in the future.

Global Consumer Banking's reported loan losses were fairly stable at around 2.2% during the quarter. Given Citi's higher loss content credit card book and emerging markets exposure, loan losses tend to be higher than peer averages. Citi reported continuing stability in late stage delinquencies in the regions, with some modest improvement in past dues in North America.

Citi continues to wind down its Citi Holding assets, and ended the quarter with $116 billion in total assets or roughly 6% of consolidated assets. In early March, Citi announced the sale of OneMain, which has subsequently classified as Held for Sale, approximately $160 million of net credit losses were recorded as a reduction to revenue in 2Q'15, though P&L neutral.

Citi's capital ratios continue to remain very good and generally above global peers. The company's estimated Common Equity Tier 1 under Basel III on a fully phased-in basis increased to 11.4% at quarter-end. The sequential 30bps improvement was due primarily to net earnings, partially offset by a capital return of $1.7 billion, mainly in the form of share buybacks. Citi expects its G-SIB surcharge could be 400bps, translating into a fully phased-in requirement of 11%, though U.S. rules have yet to finalized.

Citi also reported that it would already be in compliance with the supplementary leverage ratio at the holding company with a 6.7% ratio, up 30bps from the prior quarter-end.