Citigroup Adjusted Profit Rises 21% as Expenses Decline

By David Henry
and Tanya Agrawal

Citigroup (C) posted a lower-than-expected quarterly profit as cost cuts failed to make up for a drop in fixed-income revenue, sending its shares down 3 percent in early trading.

The third-largest U.S. bank said its fixed-income revenue fell 15.5 percent to $2.33 billion in the fourth quarter, in what it called a "challenging trading environment."

Rising bond yields are cutting into demand for issuing debt as investors prepare for higher interest rates, a shift that has affected trading, underwriting and investment income for Wall Street banks.

JPMorgan Chase (JPM) and Goldman Sachs Group (GS) also took a hit during the last quarter as fixed-income trading declined or was stagnant.

Citigroup's fourth-quarter adjusted net income rose to $2.60 billion, or 82 cents a share, from $2.15 billion, or 69 cents a share, a year earlier, the bank said.

Analysts on average expected earnings of 95 cents a share, according to Thomson Reuters I/B/E/S. The average estimate came down 10 cents in the last two weeks, partly in expectation of weak fixed-income market revenue.

"Although we didn't finish the year as strongly as we would have liked, %VIRTUAL-article-sponsoredlinks%we made substantial progress toward our key priorities in 2013," Chief Executive Officer Michael Corbat said in a statement.

Citigroup's latest quarterly report included the first full-year results under Corbat, who was appointed to the job in October 2012 after directors pushed out Vikram Pandit.

Pandit held the post as the company restructured under heavy federal government ownership after the financial crisis.

Net income as reported under generally accepted accounting principles rose to $2.69 billion, or 85 cents a share. Fourth-quarter operating expenses declined 6 percent to $11.93 billion, on an adjusted basis.

Revenue fell 2 percent to $17.94 billion by the same measure, as U.S. mortgage loan refinancing volumes declined. Citigroup drew down loan loss reserves by $670 million, compared with $91 million a year earlier. Its investment banking revenue rose 3 percent to $1.04 billion, helped by a rebound in the stock market.

Citigroup's operating expenses in the quarter included $809 million in legal and related expenses, down from $1.3 billion a year earlier, as the bank worked to leave behind legal troubles that stemmed mainly from the mortgage crisis.

But its legal troubles might not be over. A source told Reuters on Wednesday that U.S. regulators sent investigators to its London headquarters as part of an international investigation into alleged manipulation of the global currency market.

Shedding Bad Assets

Citigroup said late Wednesday that it is selling mortgage servicing rights of $10.3 billion Fannie Mae residential first mortgage loans as it looks to reduce assets and expenses within its Citi Holdings division.

Citi Holdings houses the portfolio of troubled mortgage assets the bank is winding down after they led to huge losses since the financial crisis.

Citi Holdings' assets, which totaled $117 billion, or about 6 percent of the company's total assets at the end of December, have long been a drag on the company, tying up capital and generating losses. They once accounted for about 40 percent of total assets.

While Corbat has said that dealing with Citi Holdings is a priority, he has warned that there is no practical way to quickly get rid of the rest of those troubled assets.

Citigroup's global consumer banking revenue fell 5 percent to $9.47 billion.

Citigroup shares were down 2.9 percent at $53.41 Thursday on the New York Stock Exchange. The stock rose 32 percent in 2013, slightly less than the 35 percent rise of the KBW Bank Index.