Citigroup has been fighting with one hand behind its back, Mike Corbat, chief executive, said in March. One big reason is Citi Holdings – the bank’s pool of troubled assets left over from the financial crisis. For the first quarter, Citigroup reported better than expected revenues (up 6 per cent year on year, to $21bn) and earnings per share (up 29 per cent year on year, to $1.23). The driver was the securities and investment banking division. But signs of improvement in Citi Holdings should not be overlooked.

Sure, more than four years since the financial crisis, a lot of heavy lifting has been done. Citigroup has reduced Citi Holdings assets significantly; it now accounts for only 8 per cent of the bank’s total. As of March, however, Citi Holdings represented nearly a quarter of Citigroup’s estimated risk-weighted assets under Basel III. In other words, a big chunk of capital is dedicated to loss-producing businesses. Citi Holdings had net losses of more than $1bn a quarter, on average, since 2010.

In the first quarter the net loss at Citi Holdings narrowed by a fifth from the year before, to $795m. Some $86bn of the $149bn of assets in Citi Holdings are North American mortgages. Investors have been eager for Citigroup to release more reserves as the US housing market recovers, but the bank has been cautious. A wise move, after the debacle of the past decade.

In the first quarter, though, Citi Holdings released $375m of reserves on North American mortgages– the first time it has done so on the basis of market improvements. Delinquencies on residential first mortgage and home equity loans in the portfolio have been on a steady decline, reaching 6.1 per cent in the first quarter, as against 8.6 per cent a year ago. If the housing recovery holds, the improvement at Citi Holdings could be a sign of things to come.

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