) fourth-quarter 2011 earnings per share of 38 cents missed the
Zacks Consensus Estimate of 50 cents. The company's earnings per
share also deteriorated from the prior quarter's $1.23 and year-ago
quarter's 40 cents.
For full year 2011, Citigroup's earnings came in at $3.66 per
share. This also fell short of the Zacks Consensus Estimate of
$3.83 per share. Yet, the results improved from $3.55 earned in the
With the weakness in the economy as a whole and fundamental
stress on the banking sector in particular, top-line headwind
continued at Citigroup. Expenses also increased in the quarter.
However, as expected, the negatives were partly offset by an
improvement in credit quality and the company reported a drop in
provisions for credit losses.
For the fourth quarter, Citigroup reported net income of $1.2
billion compared with $3.8 billion in the prior quarter and $1.3
billion in the prior-year quarter. However, full year net income of
$11.3 billion compared favorably with $10.6 billion reported in the
Fourth quarter revenues came in at $17.2 billion, down 7% year
over year. The revenue figure also fell short of the Zacks
Consensus Estimate of $18.7 billion. Full year 2011 revenues were
$78.4 billion, down 10% year-over-year and missed the Zacks
Consensus Estimate of $79.8 billion.
With credit spreads tightening during the fourth quarter,
Citigroup results included a loss of $40 million for credit
valuation adjustment (
) and debt valuation adjustment (
),. Full year CVA/DVA in 2011 was $1.8 billion compared to a loss
of $469 million in 2010. Excluding CVA/DVA, fourth quarter 2011
revenues were $17.2 billion, down 12% year-over-year while full
year revenues were $76.5 billion, reflecting a drop of 12% from
However, it is encouraging to note that the fourth quarter total
provisions for credit losses and benefits and claims at Citigroup
plunged 41% year over year to $2.9 billion. The improvement was
attributable to a 40% decline in net credit losses to $4.1 billion,
coupled with a $1.5 billion release of credit reserves. For full
year 2011, total provisions for credit losses and benefits and
claims were down 51% year-over-year to $12.8 billion.
Quarter in Detail
At Citicorp, excluding CVA, revenues inched down 8% year over
year to $14.1 billion. Lower revenues in Securities and Banking
primarily pulled the figure down. However, the company reported a
slight increase in Regional Consumer Banking (RCB) and Transaction
Revenues at Citi Holdings also plummeted 30% year-over-year at
$2.8 billion and reflected the company's continuing efforts to
reduce this segment's assets. On the other hand, higher revenues
from hedging activities which was partly offset by reduced
investment yields and lower gains on sales of AFS securities
augmented Corporate/Other revenues $238 million year-over-year to
Operating expenses at Citigroup ascended 4% year over year to
$12.9 billion. The uptick was due to higher legal and related costs
and repositioning charge. Moreover, the company experienced a $470
million increase in the provision for taxes primarily owing to the
write-down in the value of Japanese deferred tax assets reflecting
legislation in Japan that decreased the corporate income tax
Citigroup's credit quality metrics improved in the quarter.
Non-accrual assets of $11.8 billion decreased 44% from the
prior-year quarter, reflecting a 62% decline in corporate
non-accrual loans and a 26% drop in consumer non-accrual loans.
Citigroup's total allowance for loan losses was $30.1 billion at
quarter end, or 4.7% of total loans, down from $40.7 billion, or
6.31%, in the prior-year period.
Citigroup continued to improve its capital strength, with Tier 1
Common ratio improving to 11.8% from 11.7% in the prior quarter.
Tier 1 Capital Ratio also ascended to 13.6% from 13.45% in the
Book Value per share moved up to $60.78 from $60.56 in the prior
quarter and $56.15 in the year-ago quarter. Tangible Book Value per
share increased to $49.81 from $49.50 in the prior quarter and
$44.55 in the year-ago quarter.
At quarter end, Citigroup's end of period assets was $1.87
trillion, down 2% year over year while deposits of $866.9 billion,
were up 3% year over year. Citi Holdings' assets declined 25% from
the year-ago period to $269 billion at the end of the fourth
quarter of 2011.
Although Citigroup's underlying franchises of the consumer
businesses have remained strong, revenues have continuously been
under pressure for the past several quarters. Considering the
protracted economic recovery, top line is expected to remain
suppressed in the upcoming quarters.
Though Citigrou's strategy to shrink non-core assets would
improve the valuation over time, the trimmed Citi Holdings
portfolio would result in revenue challenges, partially restricting
the upside potential of the stock.
While we believe that investments and efficiency savings will
help in garnering a solid market share, volatile equity markets,
weak loan demand, low liquidity and a tough regulatory environment
remains our major concern.
With the thrust of new banking regulations, there will be
pressure on fees and loan growth could remain feeble. Additionally,
expenses are projected to increase, thus depressing its bottom-line
There are increasing concerns related to the European economy.
In addition, Citigroup has failed to significantly enhance
shareholder value following the financial crisis and this somewhat
weakened its competitive position.
Yet reduction in reserves for future losses and improved credit
trends are expected to counter the negatives. At least in the short
run, one can consider a company like Citigroup as a value
investment given its global footprint and attractive core business.
It is also among the best reserved banks.
Following the announcement of fourth quarter results, the stock
is trading at a discount. Citigroup shares are maintaining a Zacks
#3 Rank, which translates into a short-term Hold rating. However,
considering the fundamentals, we have a Underperform recommendation
on the stock.
Among Citigroup's peers,
JPMorgan Chase & Company
) came up with its fourth quarter earnings release last Friday.
Similar to Citigroup, JPMorgan's earnings per share of 90 cents
marginally missed the Zacks Consensus Estimate of 92 cents. Results
were worse than $1.12 earned in the prior-year quarter.
With a global footprint, Citigroup's results give us a clue
about the economic indicators and their trends and hence needs to
be analyzed thoroughly. Following Citigroup,
Goldman Sachs Group Inc.
) will report on January 18 and
Bank of America Corporation
) on January 19.
BANK OF AMER CP (
): Free Stock Analysis Report
CITIGROUP INC (
): Free Stock Analysis Report
GOLDMAN SACHS (
): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
To read this article on Zacks.com click here.