C Citigroup Inc

By Christina Rexrode and Telis Demos 

Citigroup Inc. said Wednesday that its fourth-quarter profit rose 7%, the latest bank to benefit from volatile political events that boosted trading. The bank also cut expenses, and borrower quality improved.

Citigroup beat analysts' expectations on quarterly profit but missed on revenue.

Quarterly profit at the New York-based bank was $3.57 billion, up from $3.34 billion a year earlier. Per-share earnings were $1.14, better than the $1.12 expected by analysts.

Revenue however fell 8% to $17.01 billion, missing analysts' expectations of $17.3 billion. However, the decline came from a drop at Citi Holdings, the unit where the bank stores assets it is in the process of selling or winding down.

Citigroup Chief Executive Michael Corbat, in a statement, said Citigroup "had a strong finish to 2016," capping a year that began muted, with dismal trading across the industry and concerns about energy borrowers.

Last year marked a period when Citigroup was able to stay under the radar, especially as Wells Fargo & Co.'s sales scandal absorbed headlines for the last four months of the year. Citigroup, meanwhile, passed the Federal Reserve's stress test and tripled its dividend, and it was the only bank to pass regulators' living wills exam on the first try.

But Mr. Corbat now needs to pivot to showing investors that the bank can continue to improve shareholder returns, something that company executives have talked about openly over the past year. The company's return on equity, a closely watched profitability metric, rose to 6.2% from 5.9% in the year-ago quarter, but Citigroup's ROE trailed the other five big U.S. banks, which posted returns between 7% and 11% for the fourth quarter.

And Mr. Corbat, more than other bank CEOs, may need to grapple with what the new presidential administration might mean for his company. Citigroup's shares have rallied since Mr. Trump's election, largely on the assumption that the new president will dismantle banking regulations. But the protectionist tone of Mr. Trump's campaign also has raised concerns about Citigroup's business model, where a key strategy is moving money around the world for governments and global businesses. Citigroup has defended its business strategy, including its investment in Mexico.

In a call with reporters, Chief Financial Officer John Gerspach said it was too early to tell how policies or sentiments might shake out, but that the bank was positioned for any scenario and would continue servicing multinational companies both in the U.S. and around the world.

"We've been around for 205 years at this point, we've kind of seen it all," Mr. Gerspach said. "And we'll deal with whatever people throw at us."

He also said the bank is still positive on its Mexico business. "Our views on Mexico are not driven by the fluctuations of the value of the peso," Mr. Gerspach said. "It's a good franchise for us.

Citigroup's shares have jumped 17% since the election, compared with 20% in the KBW Nasdaq bank index. In Wednesday morning trading, Citigroup's shares slid 0.5% to $58.08.

But the incoming Trump administration has been good for trading, as the uncertainty caused by his election has been a boon for trading desks, including Citigroup's. Fourth-quarter trading revenue, excluding an accounting adjustment, rose 31% to $3.7 billion from $2.82 billion a year earlier. That was significantly better than what Mr. Gerspach predicted last month, when he said he expected trading revenue to be up by nearly 20% from a year ago. The numbers also followed strong trading results at rivals, including J.P. Morgan Chase & Co.'s increase of 24%, and Bank of America Corp.'s gain of 11%.

Citigroup's trading results were driven by a 36% increase in its larger fixed-income trading unit. Revenue increased 15% in its smaller equities-trading unit, which the bank has been trying to expand for years. Investment banking revenue was flat.

The bank set aside reserves for bad loans at a much smaller pace than a year ago, when low oil prices raised concerns about defaults among the banks' energy-related clients.

Quarterly revenue at the consumer bank rose just 2%, with a 10% drop in Latin America, where the bank has been shrinking its consumer business.

Revenue increased 15% in branded credit cards in North America, a unit where the bank has been investing in its Costco Wholesale Corp. partnership.

Quarterly expenses fell 9%. The bank cut about 5% of its workforce, to 219,000 from 231,000.

Write to Christina Rexrode at christina.rexrode@wsj.com and Telis Demos at telis.demos@wsj.com

(END) Dow Jones Newswires

January 18, 2017 10:16 ET (15:16 GMT)

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