Story updated with additional information.

NEW YORK ( TheStreet) -- Citigroup ( C) shares were down sharply in on Tuesday after the bank released fourth-quarter earnings that fell far short of Wall Street expectations.

Citi earned just half what Wall Street was expecting for the fourth quarter, with part of the disappointment pegged to an accounting oddity and part coming from underwhelming revenue growth.

Citi shares were falling 6% to $4.82 in recent trading.

The New York-based bank said it earned $1.3 billion last quarter, or 4 cents per share, compared with a net loss of $7.6 billion or 33 cents per share, a year ago. The average analyst had been expecting Citi to earn 8 cents per share, on average, according to Thomson Reuters. Revenue of $18.4 billion fell far short of the average expectation of $20.5 billion as well.

Part of the earnings miss also came from a $1.1 billion credit valuation adjustment, which occurs when the value of credit default swaps on Citigroup's bonds decline. Effectively, the bank has to pay up when the market believes its balance sheet is stronger. Many analyst estimates do not take these adjustments into account, while others, like Barclays' Jason Goldberg, expected just a "modest" CVA loss.

After Citi's report, Sandler O'Neill analyst Jeff Harte said he had been estimating just a $250 million CVA, but also said Citi's trading results came in far below his expectations. He concluded that the lackluster results aren't a worry for investors, though. According to Harte, the charge is not likely to be a recurring item and trading results are "notoriously volatile, with a single quarter providing very little insight into future results."

"Shares are likely to sell off on the 4Q10 earnings miss," Harte said. "However, as we work through the details we do not anticipate pressure on forward earnings estimates and therefore expect Citi shares to rebound intra-day.

Citi's equity markets revenues fell 43% to $596 million, a drop it attributed to weaker derivatives activity and principal positions. Revenue from fixed-income trading also declined 58% to $1.5 million - partly because of the CVA charge, but also because of lower income in nearly every category, due to weaker market-making results.

During a conference call with analysts, CFO John Gerspach said the decline "was not due to a decline in customer volume levels," but "weaker trading performance, especially in the fixed-income business." He said two-thirds of the decline came from low rates in the so-called G-10 countries.

Nomura Securities analyst Glenn Schorr indicated that investors also had some concern about Citi's expenses. While credit costs declined, the firm is seeing higher costs from mortgage-related litigation, as well as from the build-out of its consumer franchise in the U.S. and abroad.

Citi's core North American consumer banking division saw revenue decline 5% during the fourth quarter, while expenses rose 7%. At its international consumer banking division - a key area management is targeting for growth - revenue climbed 4%, but expenses surged 10%. Schorr noted that while the expenses are in line with Citi's guidance, the unexpected revenue drop calls into question why management didn't hold back on spending.

Gerspach assured him that the firm has "flexibility in our expense base" and will "pace our investment spending based upon the way we see...investments playing out."

Executives also noted that while Citi's mortgage repurchase reserve -- to cover buyback demands from investors -- rose slightly to stand at $969 million at quarter-end, the firm has much exposure to such costs than other big mortgage banking peers. Gerspach added that Citi's exposure to litigation or buybacks related to private-label securities -- a concern that has plagued Bank of America ( BAC) -- is also relatively minor.

"While private-label securitizations is something that we obviously are continuing to monitor, it, quite frankly, isn't as big an exposure for us as it might be for others," the CFO said during the call.

On a bright note, Citi continued to make progress in the elimination of its noncore "Citi Holdings" division. The firm managed to wind down or divest $62 billion worth of those assets during the period, a decline of 15%. Citi Holdings assets stood at $359 billion at Dec. 31.

In an internal memo to employees, Pandit hailed 2010 as "a year full of milestones," one that "will be remembered as the year Citi turned the corner."

"Gratifying as it is to look back on what we've done, our real focus must remain on what we need to do: continue to execute our strategy," said Pandit. "We've entered 2011 with strong momentum--and we'll need it, as the global economy remains sluggish and growth uneven."

-- Written by Lauren Tara LaCapra in New York.

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

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