By Saabira Chaudhuri
Citigroup Inc.'s fourth-quarter profit plunged 86% from a year
earlier as the bank logged a previously disclosed legal charge
while trading revenue disappointed.
Shares fell about 1% in recent premarket trading after results
missed the estimates of analysts polled by Thomson Reuters.
For the quarter, Citigroup reported a profit of $350 million,
which includes $3.5 billion in legal and repositioning charges,
compared with a year-earlier profit of $2.46 billion. On a
per-share basis, Citigroup reported a profit of six cents. Analysts
polled by Thomson Reuters had expected earnings of nine cents a
share including the charges.
Revenue, which also missed analysts' estimates, fell 0.8% on an
adjusted basis, to $17.81 billion. Analysts had expected $18.55
billion.
Citigroup's results follow the first day of bank earnings season
Wednesday, when J.P. Morgan Chase & Co. earned less than
expected, due to elevated legal costs and depressed trading
revenue. Bank of America Corp. also missed its quarterly earnings
estimate Thursday, meaning that three of the four large U.S. banks
turned in results lower than the consensus estimate.
Citigroup in particular muddled through a rough 2014, with
deepening legal probes and uneven economic conditions that came on
top of regulatory issues at the bank's Mexico unit, Banamex, and a
$7 billion mortgage-securities settlement with the Justice
Department.
Pressure from regulators and investors has also mounted after
Citigroup last year failed the Federal Reserve's annual stress
test. Any guidance on dividend and buyback plans the bank gives on
its fourth-quarter earnings call with analysts will be closely
parsed.
Citigroup reported a 14% drop in trading revenue from a year
earlier to $2.46 billion, worse than the 5% drop Chief Executive
Michael Corbat in December had warned the bank was expecting for
the quarter.
Citigroup last week told trading executives that its securities
arm's December results were worse than expected, The Wall Street
Journal reported earlier this month. The bank made a last-minute
decision to cut the bonus money it had set aside for traders, while
it had previously planned on leaving its bonus pool flat.
Within trading, fixed income, currencies and commodities revenue
at Citigroup tumbled 16% from a year earlier to $1.99 billion,
driven by what the bank said were "difficult trading conditions in
spread products as well as a challenging macroeconomic environment
that impacted the rates business."
Equities trading revenue fell 2.7% to $471 million, amid lower
revenue from cash equities from the EMEA region that includes
Europe, the Middle East and Africa.
Bank of America also reported trading results that were worse
than expected, with sales and trading revenue plunging 20% from a
year earlier to $2.37 billion after a tough December.
The impact of a stronger dollar pressured revenue at Citigroup
in the fourth quarter. Year-over-year revenue was negatively
impacted by $458 million due to foreign exchange, the bank
said.
Citigroup's results weren't helped by lower expenses either this
quarter. Fourth-quarter operating expenses, excluding the legal and
repositioning charges, were flat from a year ago at $10.92
billion.
Analysts at Deutsche Bank recently said they think 2015 earnings
estimates for Citigroup are "likely too high," as regulatory and
legal costs as well as those tied to the Fed's stress tests will
probably remain elevated.
Last month, the New York bank said it would spend billions in
the fourth quarter to cover the cost of investigations into how it
has complied with anti-money-laundering rules and probes of its
trading in currencies and interest rates. That came after Citigroup
cut its third-quarter earnings after boosting its legal accruals by
$600 million in late October due to the foreign-exchange
investigation.
Investment banking revenue, a tailwind at U.S. banks for much of
the year amid strong M&A activity, finished the year on a
disappointing note. Revenue in that unit fell 7.1% from a year
earlier and 15% from the prior quarter to $1.07 billion, as debt
and equity underwriting fell 4% and 9% respectively, while advisory
revenue edged down 1%.
Perhaps the most internationally focused of the U.S. megabanks,
Citigroup has nonetheless exited a raft of markets lately as part
of its global efforts to streamline its operations. On Thursday,
the bank said its fourth-quarter revenue climbed 7% in North
America from a year earlier, and edged up 1% in Asia. However,
revenue fell 2% in EMEA and 9% in Latin America.
Citigroup's results were hurt by lower mortgage originations.
Originations tumbled 19% from a year ago and roughly 6% from the
prior quarter. Overall revenue in the consumer banking arm, which
includes mortgage banking, was flat at $9.44 billion.
Citigroup again reported a profit from parts of the company it
has been looking to shed since the financial crisis. Citi Holdings
logged $158 million in adjusted profit in the fourth quarter
compared with a $432 million loss a year earlier. Assets at the
division fell 16%.
Christina Rexrode contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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