By Saabira Chaudhuri and Shayndi Raice
Citigroup Inc. reported its fourth-quarter profit more than doubled from a year earlier, but it became the only big
U.S. bank to miss profit estimates for the quarter as cost-cutting efforts fell short and mortgages and fixed-income
trading suffered continuing weakness.
Shares sank 4.2% to $52.71 in afternoon trading Thursday.
Richard Staite, an analyst with Atlantic Equities, said the bank's trading desks performed worse than rivals
compared with the third quarter and that the bank's cost-cutting initiatives didn't make as much progress as expected.
Indeed, after rival banks Wells Fargo & Co., J.P. Morgan Chase & Co., Bank of America Corp. and Goldman Sachs Group
Inc. all released earnings that were better than expected earlier in the week, Citigroup executives now face tough
questions from analysts who had been hoping Chief Executive Michael Corbat would be able to ramp up cost cutting while
maintaining market share in the firm's diverse group of banking businesses.
For the quarter, Citigroup reported a profit of $2.69 billion, up from a profit of $1.2 billion for the fourth
quarter of 2012, which was weighed down by $2.3 billion in legal charges and costs tied to layoffs. Stripping out one-
time items and accounting adjustments, per-share earnings were rose to 82 cents from 69 cents. Revenue dropped 2.5% on
an adjusted basis to $17.94 billion. Both were short of the amounts expected by analysts polled by Thomson Reuters who
projected earnings of 95 cents on revenue of $18.18 billion.
"This was certainly the worst quarter under Mike Corbat," CLSA analyst Mike Mayo said.
Citigroup "didn't finish the year as strongly as we would have liked," Mr. Corbat said in prepared remarks.
The bank's operating expenses of $11.93 billion were up 2.4% from the third quarter, disappointing some analysts,
although expenses were 5.9% lower than the year-earlier period. Credit Suisse analyst Moshe Orenbuch--who had expected
expenses to be flat from the third quarter--said the main culprits behind the rise from the third quarter were legal
costs and so-called repositioning expenses, or those tied to furthering Citigroup's cost-cutting effort.
Repositioning expenses of $234 million were up 76% from the third quarter, although they were down 77% from the
year-earlier quarter, which included a large one-time cost associated with the effort. Meanwhile, legal costs of $809
million were up 9% from the third quarter, although they were down 37% from the fourth quarter of 2012.
Citigroup Chief Financial Officer John Gerspach warned on a call Thursday that legal expenses "are going to remain
elevated for the foreseeable future."
One of Mr. Corbat's top priorities has been cutting expenses at the bank, which for much of the past decade has
maintained a bloated expense structure and was slow to trim when the financial crisis hit.
He had previously set a target to save $900 million by the end of 2013. Thursday, the bank said it had fallen
slightly shy of that target, saving $872 million for the year.
"The efficiency gains were effectively derailed this quarter," said Sterne Agee analyst Todd Hagerman. "The heavy
expenses were clearly a disappointment."
Even before the earnings miss, many analysts had slashed estimates on Citigroup since the start of the quarter,
pointing to weaker-than-expected fixed-income trading revenue as a major reason. Between the start of the fourth quarter
and the bank's Thursday earnings report, the consensus per-share earnings estimate on Citigroup had fallen by 17%.
For the fourth quarter, Citigroup reported its adjusted fixed-income trading revenue fell 15% from a year earlier
and 16% from the prior quarter to $2.33 billion. Mr. Gerspach on the call attributed the company's quarter-over-quarter
fixed-income decline to "a falloff in client volumes" in spread and securitized products."
By some metrics, Citigroup logged the worst performance of any large U.S. bank for the fourth quarter so far.
Earlier Thursday, Goldman Sachs also reported its fixed-income revenue dropped 15% from a year earlier but jumped 38%
from the third quarter. Bank of America has reported adjusted revenue from its fixed-income unit rose 16% from a year
earlier and 2.3% from the third quarter. J.P. Morgan's fixed income revenue was flat on the year and down 7% from the
During the quarter, Citigroup's revenue slumped across all regions except Latin America. Revenue fell 4.2% in North
America, 7.9% in Europe, the Middle East and Africa, and 1.4% in Asia. Latin America was a relative bright spot, with
revenue rising 4.2%.
"I don't think it's as much we don't know how to grow revenues," said Mr. Gerspach. "I think each of the businesses
are facing some environmental, market-related issues."
Like other big banks, Citigroup's results were hurt by lower mortgage originations as the refinancing boom
continues to wane amid higher interest rates. U.S. mortgage originations plummeted 51% from a year earlier and 43% from
the third quarter.
Mr. Gerspach said Citi's mortgage revenues stabilized in the fourth quarter, and that going forward, he doesn't see
Among the bright spots: Investment-banking revenue rose 3.3% on year and 23% from the prior quarter to $1.04
Citigroup has also been helped by loan-loss reserve releases, which generally accompany improved consumer health
and rising home prices.
But the bank also continues to see a drag on earnings from assets it has been looking to shed since the financial
crisis, though the picture is slowly getting better. The division with those assets generated a $422 million loss in the
fourth quarter on an adjusted basis compared with a $1.02 billion loss a year earlier.
Write to Saabira Chaudhuri at firstname.lastname@example.org and Shayndi Raice at email@example.com
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