Citigroup Earnings Miss Estimates as Stock and Bond Trading Revenue Slumps

Citigroup Inc., the third-largest U.S. bank, posted a profit of $1.31 billion that missed analysts’ estimates as revenue from stock and bond trading fell more than at JPMorgan Chase & Co.

Fourth-quarter net income was 4 cents a share, compared with a $7.58 billion loss, or 33 cents, in the same period in 2009, New York-based Citigroup said today in a statement. Eight analysts had predicted in a Bloomberg survey that Citigroup would report a per-share profit of 7 cents.

The results blemished Vikram Pandit’s first profitable year as chief executive officer, and the stock sank 6.4 percent, the most in more than six months. Citigroup made less money from buying and selling stocks with its own money and trading government bonds with clients, Chief Financial Officer John Gerspach said on a conference call with reporters.

“Trading tends to ebb and flow,” Gerspach, 57, said. “This was one of those weaker quarters, and I’d say one quarter doesn’t make a trend.”

Equities-trading revenue fell 43 percent from the third quarter to $596 million, while fixed-income trading dropped 58 percent to $1.48 billion. David Trone, an analyst at JMP Securities LLC in New York, had predicted $1.23 billion for equities and $3.22 billion for fixed-income.

Photographer: Jin Lee/Bloomberg

Vikram Pandit, chief executive officer of Citigroup Inc. Close

Vikram Pandit, chief executive officer of Citigroup Inc.

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Photographer: Jin Lee/Bloomberg

Vikram Pandit, chief executive officer of Citigroup Inc.

At New York-based JPMorgan, equity-trading revenue was $1.13 billion in the fourth quarter, almost unchanged from the third quarter, while fixed-income fell 7.9 percent to $2.88 billion.

Reducing Reserves

Citigroup also reduced the amount it has set aside for future loan losses by $2.25 billion.

For the full year, Citigroup had a $10.6 billion profit, and the bank’s stock rose 43 percent. Pandit, 54, took over in December 2007 and presided over losses of $29.3 billion during his first two years. The Treasury Department, which gave the bank a $45 billion taxpayer-funded bailout in 2008, sold the last of its stake in the fourth quarter.

Pandit in the statement called the year “full of milestones” and “critical for the turnaround of our institution.”

Compensation, the bank’s biggest expense, was $24.4 billion for the full year, down 2 percent from a year earlier, the company said in an earnings supplement. Citigroup had 260,000 employees at the end of 2010, up from 258,000 at the end of September, the first quarterly increase in three years.

Principal Trading

Gerspach told reporters the bank had about $150 million of gains from principal trading in the third quarter, and “virtually zero” in the fourth. The bank also had lower revenue from derivatives trades.

Citigroup didn’t mention the $150 million of principal stock-trading gains when it reported third-quarter earnings in October, instead attributing the strength to “emerging markets, as well as in derivatives,” according to a statement at the time.

The results also included a cost of $1.1 billion from “credit valuation adjustments,” taken primarily in the trading division. The cost stemmed from an accounting rule that requires companies to write up the value of their own liabilities when their bond spreads tighten. Citigroup’s spreads narrowed as investors grew more confident of the bank’s ability to repay them.

“I don’t think anybody is taking victory laps yet at Citigroup,” said William Fitzpatrick, a portfolio manager at Optique Capital Management in Milwaukee, which owns Citigroup shares. “There’s a long way to go. It was a $50 stock four years ago. It’s now $5.”

Share Price

Citigroup fell 33 cents to $4.80 at 4:15 p.m. in New York Stock Exchange composite trading. The decline was the biggest since June 29.

JPMorgan, the second-biggest U.S. lender, reported net income of $4.83 billion on Jan. 14. Bank of America Corp., the largest U.S. bank, may report adjusted profit of $2.61 billion on Jan. 21, according to the average estimate of 13 analysts in a Bloomberg survey.

Citigroup’s revenue for the quarter more than tripled to $18.4 billion. Net income from Citicorp -- which includes the bank’s “core” consumer and investment-banking units -- rose to $2.45 billion from $1.8 billion in the year-earlier period. The Citi Holdings unit, which includes businesses tagged for sale, narrowed its loss to $1 billion from $2.58 billion in 2009.

Profit from Citigroup’s trading and investment-banking division, run by ex-Morgan Stanley executive John Havens, fell to $236 million in the quarter from $328 million in 2009. The bank doesn’t specify costs for paying the unit’s employees.

Debt Investors

The investment-banking operation, which includes advising companies on mergers and acquisitions as well as handling share and debt offerings, reported revenue slid to $1.17 billion for the quarter from $1.46 billion in the year-earlier period. The bank slipped in rankings of deal advisers and corporate debt underwriters during 2010, data compiled by Bloomberg show.

The investment-banking unit’s “disconcerting” performance is “something to keep an eye on throughout 2011,” Trone at JMP Securities said in a Jan. 10 note to clients. Pandit hired former Commerce Secretary and Kellogg Co. CEO Carlos Gutierrez and ex-White House Budget Director Peter Orszag for the division in December.

Citigroup’s regional consumer bank reported fourth-quarter net income more than doubled to $1.34 billion from $561 million in the fourth quarter of 2009. More than 70 percent of the unit’s profit came from Latin America and Asia. The bank’s global consumer head, Manuel Medina-Mora, said in November that more than half its potential revenue could be tied to emerging markets over the next three years.

International Business

“Citi has the international aspect to it that ought to provide for some very strong revenue growth over the next two years,” said Gary Townsend, who manages about $2 million of Citigroup shares for investment firm Hill-Townsend Capital LLC in Chevy Chase, Maryland.

Losses from Citigroup’s bad loans declined to $6.85 billion in the quarter from $7.14 billion in the year-earlier period as more customers made their payments on time.

“Industry asset-quality data continues to suggest that the worst of the credit crisis is behind us, as credit-card delinquencies continue to decline and mortgage delinquencies have stabilized,” Jeff Harte, an analyst at Sandler O’Neill & Partners, wrote in a Jan. 11 note.

Pandit continued to dispose of unwanted businesses and distressed assets in the Citi Holdings unit. Sales in 2010 included a hedge-fund business, loan portfolios, the Student Loan Corp. and life insurer Primerica Inc., which listed on the New York Stock Exchange in March.

Local consumer lender CitiFinancial lost $60 million in the quarter, compared with a $574 million loss a year earlier. Pandit renamed the business OneMain in December as he prepares the unit for sale. It lost $328 million in all of 2010.

To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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