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How Citigroup Inc. (C) Makes Its Money

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Fellow Fools: If you don’t know how a company makes its money, you’ll probably never be able to properly evaluate it as an investment.

Bearing that less-obvious-than-one-might-think bit of investing wisdom in mind, today we’re going to take a look at Citigroup Inc. (NYSE:C), the country’s third largest bank and second biggest wreck after Bank of America (NYSE:BAC) to emerge intact from the financial crisis, which makes it a complicated enough potential investment to warrant a deep dive into just how this company generates the enormous revenue it does.

Citigroup Inc (NYSE:C)

First, a slight detour
A good place to start our investigation is with one of the bank’s quarterly reports, which will be chock-full of detailed, relevant information. For the first quarter of 2013, Citigroup Inc. (NYSE:C) reported total revenue of $20.5 billion including CVA/DVA, and $20.8 billion excluding CVA/DVA.

CVA stands for Credit Valuation Adjustment, which accounts for the “counterparty credit risk” a bank is exposed to when it comes to its derivative positions. DVA stands for Debt Value Adjustment and accounts for changes in the market value of the fixed-income securities, or debt, the bank has issued.

CVA and DVA are supposed to give investors a truer picture of a bank’s finances, but they typically end up just confusing the issue, as different banks report their revenue in different ways at different times, depending on what they think makes their earnings look best. To cut down on confusion, since Citigroup Inc. (NYSE:C) uses the CVA/DVA inclusive number of $20.5 billion for its first-quarter earnings report, that’s the number we’ll use, too.

Show me the revenue
Now that we’ve emerged from that rabbit hole, back to our original question: How was this $20.5 billion in revenue generated? A quick scan of Citigroup Inc. (NYSE:C)’s first-quarter financial supplement reveals the following major revenue streams:

1. Global consumer banking
This is exactly what you think it is: traditional banking. The primary business lines are credit cards, retail banking, mortgage origination, and commercial banking.

For the first quarter of 2013, Citigroup Inc. (NYSE:C) took in slightly more than $10 billion in revenue in global consumer banking, making this the superbank’s top revenue generator. In comparison, JPMorgan Chase (NYSE:JPM) generated $11.6 billion for the same quarter and Bank of America generated $9.5 billion.

2. Securities and banking
This is Citi’s corporate and investment banking operation: archetypal Wall Street kinds of moneymakers, including capital services, market-making, and wealth management.

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