Citigroup today reported net income of $1.6 billion in the first quarter of 2009, recording its first profit since the third quarter of 2007. The bank also reported revenues of $24.8 billion, driven by strong performance at the institutional clients group.

Citigroup, however, lost money but it was the smallest since 2007. The profit was partially offset by net write-downs, including $7.3 billion in net credit losses and a $2.7 billion net loan loss reserve.

Before paying dividends tied to the government's investment Citigroup earned $1.6 billion. The bank, however, registered a first-quarter loss of $966 million or 18 cents per its common shares after massive loan losses and dividends to preferred stockholders. Citigroup has 5,385 million shares outstanding.

The 18 cents per share loss was, however, narrower than the 34 cents analysts predicted and way below the loss of $1.03 a share (over $5 billion) reported a year ago.

The $0.18 loss per share reflected the reset in January 2009 of the conversion price of the $12.5 billion convertible preferred stock issued in a private offering in January 2008, the bank said. This did not have an impact on net income but resulted in a reduction to income available to common shareholders of $1.3 billion or $0.24 per share, it added.

The loss per share also reflected preferred stock dividends, which did not impact net income but reduced income available to common shareholders by $1.3 billion.

Total revenues of $24.8 billion were up 99 per cent compared to the first quarter of 2008, with sequential improvement across all regions. Net interest margin of 3.30 per cent increased 50 and 8 basis points versus the first and fourth quarter 2008, respectively. Operating expenses were down $3.7 billion, or 23 per cent, since the first quarter 2008.

"Our results this quarter reflect the strength of Citi's franchise and we are pleased with our performance. With revenues of nearly $25 billion and net income of $1.6 billion, we had our best overall quarter since the second quarter of 2007," said Vikram Pandit, chief executive of Citi.

"As strong as our franchise is, we have been taking steps to strengthen it further. We have lowered risk and dramatically reduced the problem legacy assets that have caused many of our losses. We have meaningfully lowered expenses and headcount and improved efficiency. We have also increased our capital base,'' he said.

The number of employees are down about 13,000 since the fourth quarter 2008 to 309,000 and approximately 65,000 since peak levels.

Citigroup's Tier 1 capital ratio was approximately 11.8 per cent versus 7.7 per cent in the first quarter 2008.

Deposits declined 8 per cent from first quarter 2008, but the base remained relatively stable at $763 billion compared to the fourth quarter 2008. This has been partially due to the sale of the German retail banking operations and the impact of foreign exchange.

Citigroup's US deposits increased $8 billion sequentially and $28 billion year-over-year.

Citigroup has been the weakest of the large US banks, posting quarterly losses since the fourth quarter of 2007. The Q1 2009 profit is one of the first signals that the US banking industry might not be as sick as many believed.

Citigroup's better-than-expected performance comes after surprisingly strong earnings from JPMorgan Chase & Co, Goldman Sachs Group Inc, and Wells Fargo & Co over the past several days.