Citigroup , Inc., the world's largest bank, said today its earnings for the second quarter fell 73 percent over the same period last year, primarily because of a $4.95 billion provision to pay for legal settlements, including claims by investors who blame Citigroup for their losses in the collapse of the telecommunications giant WorldCom .
Without the legal fees, Citigroup said it would have reported a rise in earnings of 24 percent to $5.34 billion, or $1.02 a share. That would have beaten the 97-cent average estimate of analysts polled by Thompson Financial. Instead, group earnings were only $1.14 billion last quarter, or 22 cents per share.
Overall, group revenue rose 9 percent to $21.1 billion, excluding the $1.2 billion sale of a 20 percent stake in Samba Financial Group, a Saudi bank.
"Excluding the effects of these items," Charles Prince, Citigroup's chief executive said, referring to the settlement costs, "underlying business dynamics were strong."
"The credit environment is the best we have seen in years," he added in a written statement released today.
The collapse of WorldCom, Enron and other corporations has forced Citigroup to set aside nearly $10 billion to settle litigation claims. In May, Citigroup agreed to pay $2.65 billion to investors who bought some $10 billion in WorldCom securities in 2001, just a year before the long-distance carrier declared bankruptcy. The investors asserted that Citigroup hid from them the risks of buying the WorldCom bonds.
Setting aside the massive provisions for legal settlements, Citigroup's business and profits were up strongly over last year. In the global consumer banking and credit unit, which makes up about half the company's profit, earnings rose 37 percent to $1.01 billion, on a rise in revenue of just 21 percent.
The group's famed corporate and global investment banking unit lost $2.8 billion because of legal costs, even including its $378 million after-tax share of the sale of a 20-percent stake in Samba Financial Group. Without the exceptional items, the investment banking unit would have seen its profit rise 31 percent to $1.77 billion, from $1.34 billion a year earlier, on revenue growth of just 1 percent, the company said.
Trading for the group's own accounts accrued profits of $273 million from $63 million a year earlier, it said.
Citigroup shares were trading at $43.88, down $1.22, or 2.71 percent, from Wednesday's close of $45.10 in noontime trading on the New York Stock Exchange.