This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

What to Expect From Citigroup Earnings

NEW YORK (TheStreet) -- Citigroup (C) is due to report earnings for the fourth quarter on Thursday.

Analysts expect Citigroup to earn a profit of $3 billion or 96 cents per share on revenue of $18.18 billion for the quarter. Most analysts exclude accounting gains and losses from changes in the valuation of Citigroup bonds from their core estimates.

In the year-ago quarter, the bank earned a net income of $2.2 billion or 69 cents per share, excluding non-core items, on adjusted revenue of $18.7 billion.

Expectations are low ahead of the bank's earnings. As evident from earnings reports from JPMorgan (JPM) and Wells Fargo (WFC), fee income will likely be weak. The bank has also indicated that the pace of loan loss reserve releases will slow in the fourth quarter, partly due to the acquisition of a card portfolio from Best Buy  (BBY). Reserve releases have been a crutch that many banks have used to prop up earnings.

It also said legal expenses will remain elevated and that repositioning expenses in the fourth quarter would be somewhat higher than previous quarters.

Here's what will be in focus.

Core Expenses: Citigroup is in the middle of a massive $1.1 billion restructuring plan that it announced in late 2012. The bank is exiting unprofitable markets, refocusing its operations in many markets and reducing headcount in its institutional clients business, among other steps to boost efficiency.

Analysts have noted that the bank has made considerable progress. The efficiency ratio (operating expenses as a percentage of revenues) at Citicorp, its core banking arm, has declined from 63% in 2011 to 59% as of the 12 months ending Sept.2013. The bank has set a target efficiency ratio of the mid 50s by 2015.

Core expenses exclude repositioning charges. But legal expenses continue to be a wildcard. Like its other too-big-to-fail peers, the bank faces a number of legal challenges, including a probe into alleged currency manipulation practices.

Reuters reported Wednesday that regulators from the Office of the Comptroller of the Currency and the New York Federal Reserve visited the London office of Citigroup this week in connection with the currency probe.

The report follows news that the bank fired the head of European spot forex trading last week.

Citi Holdings Drag: Citi Holdings, the bank's non-core arm which houses assets that are either up for sale or are in run-off mode, is now a much smaller portion of the overall bank. Assets at $122 billion account for only 6% of total Citigroup assets, compared to over 40% in 2008.

Losses from Citi Holdings have also been steadily declining, with credit quality improving.

Reducing both the size of Citi Holdings measured by assets as well as the earnings drag is key in order to be able to meet the bank's profitability targets.

Citi is targeting a return on tangible common equity of 10% or higher, compared to 8.3% generated over the past 12 months. But Citi Holdings losses were a drag of 1.6% on ROTCE in the past 12 months.

Similarly, if the bank has to achieve the low end of its target Return on Assets, or ROA, of 90 basis points to 110 basis points by 2015, it would have to earn $17 billion in profit in 2015, assuming assets stay at this level. Citicorp, the core arm, already generates $16 billion. So it is clear that if losses from holdings reduce, the bank will be able to meet its targets sooner.

Capital Returns: Citigroup is now one of the most well-capitalized banks with a Basel II Tier I Common Ratio of 10.5%. The bank is required to hold a minimum of 9%. It still has sizeable deferred tax assets which if utilized would free up substantial capital.

Citi shares have been bid up in the past years on expectations that the bank will eventually be in a position to return substantial capital to shareholders. So far, the bank has chosen to proceed cautiously, preferring to prove to regulators that it has sufficient capital to deal with severe economic conditions.

Analysts will be looking for guidance on what the bank expects from the upcoming Federal Reserve stress tests. Investors are certainly hoping that the bank will finally raise its annual dividend from a measly 4 cents per share.

Shares of Citigroup were rising 1.8% Wednesday. 26 out of 32 analysts rate the stock a buy or outperform.

-- Written by Shanthi Bharatwaj in New York

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,960.57 -123.23 -0.72%
S&P 500 1,978.34 -9.64 -0.48%
NASDAQ 4,449.5640 -22.5440 -0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs