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Citigroup Misses Estimates by a Wide Margin (Update 2)

  • Citigroup reports fourth-quarter earnings per share of 85 cents. Excluding one-time and non-core items, earnings came in at 82 cents per share.
  • Revenue came in at $17.8 billion or $17.9 billion, excluding items.
  • Analysts expected EPS of 95 cents on revenues of $18.18 billion.
  • For 2013, the bank posted a profit of $13.9 billion on revenues of $76.4 billion.

Updated from 8:30 a.m. ET with management commentary and additional information throughout.

NEW YORK (TheStreet) -- Citigroup (C - Get Report) finished the year with $13.8 billion in profits, its highest since 2006, but shares were down 3.6% in early trading to $53.02, as fourth-quarter earnings fell well short of expectations.

Net income for the fourth quarter came in at $2.7 billion or 85 cents a share on revenue of $17.8 billion. During the fourth quarter of 2012, the bank reported a profit of $1.2 billion or 38 cents a share on revenues of $17.9 billion.

The fourth-qarter results included a "CVA/DVA loss" of $164 million, or $100 million after tax.  An accounting quirk requires banks to book a loss when the value of their bonds rises. The results also included a $189 after-million tax benefit from the sale of Citi's credit card business in Brazil. Results for the prior period included a $1 billion repositioning charge, or $653 million after-tax.

Excluding these items, the bank reported earnings 82 cents a share, compared to an adjusted EPS of 69 cents a year earlier.

While that represents a 19% year-over-year growth in earnings, the report missed consensus estimates.

Analysts polled by Thomson Reuters on average estimated the bank would report EPS of 95 cents on revenue of $18.18 billio. Consensus estimates included litigation charges and repositioning charges but excluded the gain from credit card unit sale and CVA/DVA charges.

"Although we didn't finish the year as strongly as we would have liked, we made substantial progress toward our key priorities in 2013," CEO Michael Corbat said in a statement. "Having grown our operating net income by 15% over 2012, we achieved our highest amount of net income since before the financial crisis. We accelerated our growth in capital and ended the fourth quarter with an estimated Basel III Tier 1 Common ratio of 10.5%, exceeding our target for the year. We also grew loans in our core businesses by 7%, utilized $2.4 billion of our deferred tax assets, and reduced the assets in Citi Holdings by 25% while cutting its annual loss in half. In addition, we improved our efficiency by executing on the repositioning actions announced at the end of 2012, reducing expenses and growing revenues."
 
Revenue at Citicorp, the company's core banking arm, fell 4% from the fourth-quarter, excluding CVA/DVA, led by a 5% decline in global consumer banking revenue and a 4% decline in securities and banking revenues.

Global consumer banking revenue was weak due to "significantly lower refinancing activity and continued spread compression." Retail banking revenue in North America declined 35% due to lower mortgage banking fees. International consumer banking revenue grew 2% on a constant-dollar basis.

In the securities and banking division, investment banking fees grew by a modest 3% year-over-year. Fixed income trading revenue -- the biggest driver of markets revenue -- was particularly weak, declining 15% year-over-year. The bank said the decline reflected a "challenging trading environment and the absence of the strong fourth quarter 2012 revenues of Citi Capital Advisors, which Citi continues to wind down."

 CFO John Gerspach said during a media conference call that the bank's credit and securitized products business saw a "fall off in client volumes."

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