After reporting impressive results in the prior quarter,
) reported a disappointing fourth quarter 2012. Earnings per
share came in at 69 cents for the quarter, significantly below
the Zacks Consensus Estimate of 87 cents. However, earnings were
up 68% from the prior-year period on higher revenues and lower
loan loss provisions.
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
To read this article on Zacks.com click here.
Notably, results in the reported quarter were impacted by credit
valuation adjustment (CVA) and debt valuation adjustment (DVA) as
well as repositioning charges. Including CVA/DVA and
repositioning charges, Citigroup reported earnings of 38 cents
For the fourth quarter, Citigroup reported net income of $1.2
billion, up 25% from the prior-year quarter.
For the full year 2012, net income was $7.5 billion compared with
$11.1 billion in 2011. Excluding CVA/DVA and the impact of
minority investments along with the repositioning charges in the
fourth quarter of 2012 and the tax item in the third quarter of
2012, net income was $11.9 billion, up 18% year over year.
Total provisions for credit losses and benefits and claims for
the fourth quarter at Citigroup were down 8% year over year at
$3.2 billion. The improvement was primarily attributable to a 27%
decline in net credit losses to $3.1 billion, coupled with a $142
million release of credit reserves.
Performance in Detail
Revenues came in at $18.2 billion for the quarter, up 6% from the
prior-year quarter. Excluding CVA/DVA, Citigroup revenues
improved 8% from the prior-year period to $18.7 billion. However,
the figure was below the Zacks Consensus Estimate of $18.9
billion. The revenue increase was driven primarily by growth in
Citicorp revenues, though partially offset by the decline in Citi
Holdings revenues due to the continuing wind-down of those
For full year 2012, the company reported revenues of $70.2
billion, down 10% year over year. Excluding CVA/DVA and the
impact of minority investments, revenues were $77.1 billion, up
1% year over year.
At Citicorp, revenues came in at $17.1 billion, up 9% year over
year. Excluding CVA/DVA, revenue was $17.6 billion, up 9% from
the prior-year quarter. Higher revenues in Transaction Services
coupled with elevated revenues in the Securities and Banking
business and Global Consumer Banking led to this rise.
However, Citi Holdings reported revenues of $1.1 billion, down 3%
year over year. Revenues were $1.0 billion excluding CVA/DVA,
down 2% from the prior-year quarter. The figure was pulled down
primarily due to a decline in revenues in Local Consumer Lending
businesses driven by the ongoing drop in assets.
Operating expenses at Citigroup were up 5% year over year at
$13.8 billion. Increase in expenses reflected higher
repositioning charges and elevated legal and related costs,
including a $305 million charge related to the agreement in
principle reached with the Office of the Comptroller of the
Currency (OCC) and the Federal Reserve Board related to the
independent foreclosure review process.
Citigroup's credit quality was mixed in the reported quarter.
Total non-accrual loans increased 4% year over year to $11.5
billion. The company reported a 28% fall in Corporate non-accrual
loans, though a 17% increase was reported in consumer non-accrual
loans. Citigroup's total allowance for loan losses was $25.5
billion at quarter end, or 3.9% of total loans, down from $30.1
billion, or 4.7%, in the prior-year period.
Citigroup continued to build up its capital levels, with
preliminary Tier 1 Common ratio at 12.7%. Notably, its estimated
Basel III Tier 1 Common Ratio was 8.7%, up from 8.6% in the prior
quarter. Tier 1 Capital Ratio was 14.1%, up from 13.9% in the
prior quarter. As of Dec 31, 2012, book value per share was
$61.57 and tangible book value per share was $51.19, up 1% and
3%, respectively, from the prior-year period end.
At quarter end, Citigroup's end of period assets was $1.86
trillion, down 0.5% year over year while deposits of $930.6
billion, were up 7% year over year. Citi Holdings' assets
decreased 31% from the prior-year quarter level to $156 billion
and represented just 8% of the company's total assets at the
fourth quarter end.
Among its peers,
The Goldman Sachs Group Inc.
) reported its fourth-quarter 2012 earnings per share of $5.60,
significantly surpassing the Zacks Consensus Estimate of $3.47.
Moreover, the reported earnings outpaced the prior-year quarter
earnings of $1.84 and prior-quarter earnings of $2.85 per share.
Amid challenging global markets and the European debt crisis, the
results were driven by Goldman's record revenues with an
elevation in client activity. Yet, escalated operating expenses
acted as a headwind for the quarter.
Wells Fargo & Company
) has achieved the twelfth consecutive quarter of growth in
earnings per share by reporting earnings of 92 cents per share in
fourth quarter 2012. Results improved from earnings per share of
88 cents in the prior quarter and 73 cents in the year-ago
quarter. Also, it beat the Zacks Consensus Estimate by 5 cents.
Results at Wells Fargo benefited from improvement in top line,
aided by rise in all segments' revenue. It also reported $250
million in reserve release (pre-tax), attributable to improved
portfolio performance. However, the company experienced rise in
Following stable results in the second quarter of 2012 and
impressive results in the third quarter, Citigroup's fourth
quarter results were disappointing. Despite the upsurge in
revenue, on the whole, its profit level was below expectations.
Citigroup's underlying franchises of the consumer businesses have
remained strong, but revenues have continuously been under
pressure for the past several quarters. Considering the tepid
economic recovery, we believe that robust top-line expansion will
remain elusive in the near term.
Moreover, though Citigroup'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. Additionally, with
the thrust of new banking regulations, there will be pressure on
fees and loan growth could remain feeble.
Reduction in provisions for future losses and improved credit
trends are expected to counter the negatives. 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. Moreover, Citi currently retains a Zacks Rank #3