Citigroup (C)

Q4 2010 Earnings Call

January 18, 2011 10:30 am ET


John Gerspach - Chief Financial Officer and Member of Executive Committee

John Andrewas -

John Andrews - Director, Investor Relations

Vikram Pandit - Chief Executive Officer, Director and Member of Executive Committee


Andrea Jao - Cowen and Company, LLC

Jeffrey Harte - Sandler O'Neill & Partners L.P.

John McDonald - Bernstein Research

Betsy Graseck - Morgan Stanley

James Mitchell - Goldman Sachs

Glenn Shore

Guy Moszkowski - BofA Merrill Lynch

Moshe Orenbuch - Crédit Suisse AG

Edward Najarian - ISI Group Inc.

Carole Berger

Christoph Kotowski - Oppenheimer & Co. Inc.

Michael Mayo - Credit Agricole Securities (USA) Inc.

Matthew O'Connor - Deutsche Bank AG

Richard Bove - Punk Ziegel



Hello, and welcome to Citi's Fourth Quarter 2010 Earnings Review with Chief Executive Officer, Vikram Pandit; and Chief Financial Officer, John's Gerspach. Today's call will be hosted by John Andrews, Head of Citi Investor Relations. [Operator Instructions] Mr. Andrews, you may begin.

John Andrews

Thank you, operator. Good morning, and thank you everyone this morning for joining us. On the call today, of course, Vikram will take us through the presentation, initially, followed by John Gerspach, our CFO, who will take you through the detailed deck which available on our website. Afterwards, they will be happy to take your questions.

Before we get started, I would like to remind you that today's presentation may concern forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our discussion today and those included in our SEC filings, including without limitation, the Risk Factors section of our 2009 Form 10-K. With that said and out of the way, let me turn it over to Vikram. Vikram?

Vikram Pandit

John, thank you, and good morning, everybody. Thank you for joining us today. 2010 was a very good year for Citi. We made excellent progress in executing our strategy in every major area and as a matter of fact, if you had said a year ago that we would have accomplished what we have, I'm not so sure too many people would have believed it. Yet, we were profitable in each quarter, earning $10.6 billion for the year. Revenues increased for the quarter and for the year in two of our three core businesses, which are Transaction Services and Consumer Banking, and Securities and Banking had strong full year results.

Entering 2010, our primary goal was to become consistently profitable and we achieved it. Another goal was to continue to reduce assets in Citi Holdings and we did so by $128 billion. Remaining assets are now 19% of our balance sheet and that's down from almost 40% of the balance sheet at their peak.

We also have been building for the future from opening branches in Asia to making new investments in technology to attracting top-notch talent to our consumer and Institutional businesses. And we're building a position of strength that will allow us to harness the world's growth trends. And of course, the capstone to the year was the sale of the government's remaining shares of common stock. To date, U.S. taxpayers have earned a profit of approximately $12 billion on their investment in Citigroup and we'll always be grateful for the investment they made in our company and for standing by us through this financial crisis.

Specifically for the fourth quarter, our client business and flows were solid across the board and we saw a strong growth in our consumer franchise especially outside the U.S. On the Institutional side, although Transaction Services and Banking performed well, revenues in markets reflected weaker trading performance. And of course, we're happy to see our credit spreads improved as much as they did. That is a good sign. Not only of our progress, but also it'll reduce our cost of borrowing over time. But of course, it means that we had to take $1.1 billion charge due to CVA.

For 2011, we will build on the foundation we put in place and accelerate our strategy for Citicorp. We'll make investments to increase our lead in the emerging markets. We will seek to become a leader in digital banking and mobile payments. And we'll continue to recruit top talent, building on the key hires we made last year. And we'll do so despite a challenging economic backdrop. The effects of the financial crisis are still working their way through the system, and I think that macro trends will dominate micro trends, especially for the next few quarters. And although there are positive signs in the U.S. economy, the housing market yet has to recover, job creation has been weak and internationally excessive government leverage is still hampering recovery in the euro zone.

We continue to build our capital base, our Tier 1 common ratio now stands at 10.7%, up from 9.6% at the beginning of the year. Through earnings and reductions in Citi Holdings, we have built a robust loan loss reserves of $40.7 billion. We have participated in the stress test with the regulators and subject to their guidance, we still expect to be in a position to return capital to our shareholders in 2012.

Summing up, I believe we have the right business model, the right strategy for our company's present and future, and we are executing with discipline. The economic environment remains uncertain but our path for the future is clear. We've steadily build a foundation capable of producing consistent profitability and our focus now is on achieving sustained and responsible growth.

With that, I'd like to turn this over to John Gerspach and then we'll come back later and take some of your questions.

John Gerspach

Thank you, Vikram, and good morning, everyone. Starting on Slide 2. On a full year basis, Citigroup reported revenues of nearly $87 billion for 2010. Operating expenses totaled $47.4 billion. Credit costs were $26 billion, down 50% from prior year levels on a comparable basis. And for the full year, we earned $10.6 billion in net income or $0.35 per diluted share. We earned nearly $15 billion in our core Citicorp business, with earnings in Asia and Latin America contributing more than half of the total. Citi Holdings generated a loss of $4.2 billion.

Now turning to the quarter on Slide 3. Citigroup reported fourth quarter net income of $1.3 billion or $0.04 per diluted share. These results were significantly affected by three factors. First, CVA was a negative $1.1 billion as Citi spreads tightened in the fourth quarter, particularly following the U.S. Treasury sale of its remaining Citi shares in December. Second, revenues in Securities and Banking were lower due to weaker trading performance in the Fixed Income and Equities businesses. And third, expenses were $12.5 billion, up 8% from the last quarter and above our prior guidance.

Of the expense increase, more than half was due to the combined impact of foreign exchange and higher legal and related costs, while the remainder was attributable to severance, volume-related growth in certain businesses and continued investments. On the positive side, credit continued to improve in the quarter, with net credit losses declining 11% to $6.9 billion and we recorded a net loan loss reserve release of $2.3 billion.

Turning now to Citicorp and Citi Holdings on Slide 4. Our credit costs continued to decline in each segment, driven by improvements in both consumer and corporate credit. Citicorp reported revenues of $14.3 billion and net income of $2.4 billion. The underlying business drivers for Citicorp continued to show momentum in the fourth quarter. As an example, for the second consecutive quarter, we grew both consumer and corporate loans in Citicorp, primarily in the emerging markets. Sequentially, end of period consumer loans were up 3% and corporate loans grew 4%. Citi Holdings reported revenues of $4 billion and a net loss of $1 billion. Citi Holdings ended the year with $359 billion of assets, down $62 billion during the quarter and $128 billion for the year, including the sale of Student Loan Corporation.

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