Citigroup Reports Dismal 1st Quarter

It's No Surprise, Though, And Its Shares Advance

NEW YORK, April 18 -- The bad news from Citigroup on Friday just kept coming: Losses of more than $5 billion. Revenue down 48 percent. Fresh write-downs and set-asides for expected losses on bad debt of $16 billion. And finally, 9,000 job cuts.

Citigroup's report of first-quarter results was worse than most analysts expected, adding to the series of grim earnings announced this week by financial institutions. Earlier, Merrill Lynch and Wachovia reported losses, and J.P. Morgan Chase said its profit declined by 50 percent from a year earlier.

But the results from Citigroup, among the companies hit hardest by the credit market turmoil, revealed few surprises. And at a time when investors seem to be cheering all but the most horrendous results, the bank's shares rose 4.5 percent -- spiking just as shares of J.P. Morgan and Merrill Lynch did on the days they reported.

Together with encouraging earnings from such large companies as Caterpillar and Honeywell International, Citigroup's results were enough to send the Dow Jones industrial average up 228.87, or 1.8 percent, to 12,849.36. The Standard & Poor's 500-stock index advanced 24.77, or 1.8 percent, to 1390.33.

The tech-heavy Nasdaq composite index had the biggest percentage increase, up 2.6 percent, or 61.14, to 2402.97. Tech shares were boosted by strong earnings from Google announced after markets closed Thursday, which silenced critics who had worried that the advertising recession would hurt its profit. Google shares were up 20 percent Friday.

The broad market rally -- the S&P rose 2.2 percent this week -- is a sign that investors are increasingly betting that the worst of the credit crunch is over.

Shares of financial companies, which declined 14.7 percent in the first quarter, rose 5.2 percent this week. While there may be more bumps ahead, investors are now more willing to ride them out, analysts said, in part because financial shares have fallen so far already.

Investors may also believe that the chances of more ugly surprises have lessened with financial institutions providing gloomy but not unexpected reports, analysts said. Merrill, whose earnings came in modestly below expectations, and Citigroup each reported their worst earnings ever in the previous quarter.

"A lot of people think the bad news is now out of the way," said Stephen J. Massocca, co-chief executive of Pacific Growth Equities.

But plenty of risks lie ahead, as Citigroup's executives pointed out. Citigroup's earnings report, which included losses in mortgages, auto loans and similar debt, underscored the continuing difficulties facing U.S. consumers. It also showed how losses are spreading from complex subprime mortgage securities into less-risky mortgages and other types of loans.

The markdowns included $6 billion on subprime-related assets, $3.1 billion on leveraged loans used to finance corporate buyouts and $1.6 billion on commercial real estate and non-subprime mortgages. Citigroup also took a hit of $1.5 billion on auction-rate securities, an unconventional corner of the credit market that froze in February.

"There's no assurance that the amount of marks that we have taken in this quarter are finished," said Gary L. Crittenden, Citigroup's chief financial officer. "I think we have substantially reduced our amount of risk, but there is always the prospect that you could have additional marks."