By Saabira Chaudhuri and Shayndi Raice
Citigroup Inc.'s fourth-quarter profit more than doubled from a year earlier, but results missed analyst estimates
as the firm's cost-cutting efforts fell short and mortgages and fixed-income trading suffered continuing weakness.
Shares sank 3.3% to $53.18 in early trading on Thursday.
"They missed my estimates by about 9%," noted Richard Staite, an analyst with Atlantic Equities. He said the bank's
trading desks performed worse than rivals and that the bank's cost-cutting initiatives didn't make as much progress as
Indeed, after rival banks Wells Fargo & Co., J.P. Morgan Chase & Co. and Bank of America Corp. 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 cuts while maintaining market share in the
firm's diverse group of banking businesses.
Credit Suisse analyst Moshe Orenbuch noted Thursday morning that Citigroup's operating expenses rose from the third
quarter, while he had expected them to be flat. The main culprits were legal costs and those related to restructuring
certain parts of the company, he said.
For the quarter, Citigroup reported a profit of $2.69 billion, or 85 cents a share, compared with a profit of $1.2
billion, or 38 cents a share, for the fourth quarter of 2012, which was weighed down by $2.3 billion in legal charges
and costs tied to layoffs. Revenue edged down 0.8% to $17.78 billion.
Meanwhile, stripping out one-time items and accounting adjustments, per-share earnings were up at 82 cents from 69
cents. Revenue dropped 2.5% on an adjusted basis to $17.94 billion. Analysts polled by Thomson Reuters had expected per-
share earnings of 95 cents on revenue of $18.18 billion.
Citigroup "didn't finish the year as strongly as we would have liked," Mr. Corbat said in prepared remarks.
Citigroup Chief Financial Officer John Gerspach said on a call Thursday that he thought there might be a "
disconnect" over analyst expectations for Citi's legal costs. "We continue to think those legal-related expenses are
going to remain elevated for the foreseeable future," he said.
Mr. Gerspach also attributed some of the challenges to recent market conditions, including interest rates, slow
economic growth and the decline in mortgage-refinancing activity. "I don't think it's as much we don't know how to grow
revenues," he said. "I think in each of the businesses, they are facing some environmental, market-related issues."
Citigroup's earnings come on the heels of strong results from Bank of America, another bank that has been working
through problems it encountered during the financial crisis. And while both banks improved their earnings and faced
fewer legal headaches this quarter, Citigroup falling short of analyst earnings' estimates and suffering a modest
decline in revenue leaves open questions about how far it still has to go in its turnaround effort.
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. Operating expenses dropped
5.9% from the year-earlier period to $11.93 billion, though they did rise from the third quarter. And the bank ended
2013 with net income of $13.9 billion, its highest figure since before the financial crisis.
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 fixed-income decline
to lower client activity in credit and securitized markets.
Citigroup's fixed-income declines are among the steepest of any large U.S. bank that has reported fourth-quarter
results so far. Earlier Thursday, Goldman Sachs also reported its fixed income revenue dropped 15% from the year
earlier. Bank of America has reported revenue from its fixed-income unit jumped 22% from the year earlier.
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 the 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% from a year earlier and 23% from the prior quarter to
Citigroup has also been helped by loan-loss reserve releases, which generally accompany improved consumer health
and rising home prices. For the fourth quarter, the bank was helped by a loan loss reserve release of $670 million, up
sharply from a release of $91 million a year earlier. Separately, net credit losses fell 15% from a year earlier to $
The bank 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.
Mr. Corbat had previously set a target to save $900 million by the end of 2013. Thursday, the bank said it had
saved $872 million for the year. Legal costs were down 37% from the fourth quarter of 2012 to $809 million, but up 9%
from the third quarter. "The efficiency gains were effectively derailed this quarter," said Sterne Agee analyst Todd
Hagerman. "The heavy expenses were clearly a disappointment."
One of the most internationally focused of the U.S. megabanks, Citigroup 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
Write to Saabira Chaudhuri at email@example.com and Shayndi Raice at firstname.lastname@example.org
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
Copyright (c) 2014 Dow Jones & Company, Inc.