Citigroup misses estimate as revenues fall

Reuters, Tuesday 18 Jan 2011

Citigroup fourth quarter profit is below expectations and shares fell 5.2 per cent to $4.86 in premarket trading

Slumping revenues from trading fixed income products pushed Citigroup Inc fourth-quarter profit below expectations even as loan losses eased at the No. 3 U.S. bank.

Shares of Citigroup fell 5.2 per cent to $4.86 in premarket trading.

Citigroup released about $2.3 billion in reserves for bad loans, mainly due to an improvement in the store credit cards business it has put up for sale.

But a slump in Citigroup's securities and trading unit hurt revenues, which fell 6 per cent on a managed basis from the third quarter to $18.4 billion.

The bank's fixed-income revenue alone dropped 58 per cent from the third quarter -- compared to a 7.9 per cent drop at larger rival JPMorgan Chase & Co, which reported its fourth-quarter earnings on Friday.

That could unsettle investors, who had been reassured by the more moderate than expected drop at JPMorgan, ahead of other big bank earnings later this week including Goldman Sachs Group Inc on Wednesday, Morgan Stanley on Thursday and Bank of America Corp on Friday.

S&P futures gave up early gains to turn flat after the weak Citigroup results.

"My guess is, Citi wishes they had more loan loss reserves that they could have released to get earnings. Eventually, you need real revenue growth if you're going to get profit growth, you can't just keep releasing reserves," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor.

Citigroup, which took $45 billion in U.S. bailout funds during the financial crisis, reported a net profit of 4 cents per share for the fourth quarter. That compared with a year-earlier loss of $7.6 billion, or 33 cents per share.

Analysts on average expected Citigroup to post a profit of 8 cents per share for the fourth quarter of 2010, according to Thomson Reuters.

It was the fourth consecutive quarterly profit for Citigroup, and its first since the U.S. government finished selling off its stake in the company last month.

Citigroup took a $1.1 billion hit to results, before taxes, because of a credit value adjustment. That adjustment -- which Citigroup Chief Financial Officer John Gerspach said accelerated after the government finished selling its Citi stake -- is due to the bond market's perception that Citi's credit quality improved during the quarter.

Under accounting rules, that improvement forces the bank to take charges because its liabilities are theoretically worth more.

Shares of Citigroup closed at $5.13 on Friday -- their highest close since August 2009.

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