Citigroup Monday reported slightly higher quarterly earnings on lower expenses and better credit quality as it faced questions over its capital planning and financial controls following recent stumbles. The banking giant, facing scrutiny over a fraud problem unearthed in Mexico and the failure of its Federal Reserve "stress" test in the US, said net income for the first quarter was $3.9 billion, up 3.5 percent from the year-ago figure of $3.8 billion. "Despite a quarter that was difficult for our company, we delivered strong results," said chief executive Michael Corbat. Citi's results translated into earnings per share of $1.23 when special items are excluded, better than the $1.14 projected by analysts. Strong points included a dip in expenses, as Citi trimmed its headcount to 248,000 from 257,000 a year ago. Citi also benefited from improving credit quality. The company's net credit losses were $2.4 billion, down from $2.9 billion. John Gerspach, Citi's chief financial officer, said the gain in credit quality was due to a better housing market as well as an improvement in the overall economy. But results were dragged down by a 12 percent drop in markets and securities services revenue. Also, global consumer banking revenues declined five percent, including a three percent fall in the international segment and "significantly lower" mortgage refinancing activity in the US. Gerspach said the Fed's rejection in March of Citi's plan for returning capital to shareholders did not appear to be based on concerns about the company's business model, its strategy or its ability to generate capital. "The issue is with our capital-planning process and how we identify risks in certain stress scenarios and so we need to intensify our existing process and make it more robust," Gerspach told journalists on a conference call. Gerspach said the bank has ramped up staff in those areas to meet the Fed's concerns. Corbat pledged to "dedicate whatever resources" are needed to get the green light from the Fed to boost the dividend and make other distributions. Citi also faced questions over its Mexico controls in the wake of its February announcement that it trimmed earnings by $235 million from the fourth quarter of 2013 due to fraud in Mexico. The fraud occurred in Oceanografia, a major oil services supplier to Mexico's state-owned company Pemex. Citi has said a "signficant portion" of recorded spending was fraudulent. Gerspach said Citi's review unearthed a second case of fraud with the Pemex program. He said that case was "much smaller" and that the company behind the fraud -- of less than $30 million -- was in the process of repaying the money. Gerspach declined to give the name of that supplier. "We're certainly conducting an internal investigation on the entirety of the control structure in Mexico," Gerspach said. For the first quarter Citi revenues dipped from $20.25 billion to $20.12, billion, above the $19.37 billion projected by Wall Street analysts. Citi shares were up 4.1 percent in late-morning trade at $47.53.