June 19, 2019

DealBook: Facing Legal Costs, Citigroup Disappoints in 4th Quarter

A 'Citi' sign near the bank's headquarters in Manhattan.Mario Tama/Getty ImagesA ‘Citi’ sign near the bank’s headquarters in Manhattan.

Citigroup, which has been working to cut costs and unload troubled assets, continues to struggle under the weight of its mortgage woes.

The bank reported fourth-quarter profit of $1.2 billion, or 38 cents a share, significantly below analysts’ estimates. Excluding one-time items, earnings amounted to 69 cents a share.

Ahead of the bank’s quarterly earnings, analysts estimated earnings at 96 cents a share, according to a survey by Thomson Reuters. In the period a year earlier, the bank posted profit of $956 million, or 31 cents a share.

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The disappointing quarter relates to continuing legal problems, as the bank works to clean up the mortgage mess stemming from the financial crisis. In the fourth quarter, Citigroup had $1.3 billion of legal costs and related expenses.

Citigroup has also faced increasing pressure from shareholders to buoy its returns. As part of that effort, the bank has been working through a glut of soured loans and unloading less-profitable business lines while systematically reducing costs. In December, the bank announced that it would eliminate 11,000 jobs worldwide, part of a much larger contraction.

“Our bottom line earnings reflect an environment that remains challenging,” Michael L. Corbat, the bank’s chief executive, said in a statement. “It will take some time to work through the challenges of the current environment but realizing our core earnings potential, as well as improving our returns on assets and tangible equity, are critical goals going forward.”

Beneath the headline numbers, Citigroup did experience gains in some of its businesses.

The bank has been focusing on developing countries, where there are comparatively more growth opportunities than in the United States. Within the global consumer banking group, revenue increased 4 percent, to $4.9 billion, in the fourth quarter. Revenue in North America rose 3 percent, to $5.3 billion.

Citigroup’s securities and banking group also improved, on the strength of investment banking, equities and fixed income. The unit reported net income of $629 million for the quarter, compared with a $158 million loss in the period a year earlier.

Emphasizing improvements in the bank, John C. Gerspach, the bank’s chief financial officer, said on a conference call on Thursday that the bank had gained “client wallet share” in its investment banking business.

The fourth-quarter earnings are the first under Mr. Corbat’s leadership.

In October, the bank’s powerful chairman, Michael E. O’Neill, abruptly ousted Vikram S. Pandit as chief executive. Since taking the reins of the bank, Mr. Corbat has vowed to continue to revamp the bank, focusing on its core businesses and exiting less profitable areas.

Such efforts have weighed on the bank’s bottom line in the short term. In the fourth quarter, Citigroup’s operating expenses rose 5 percent, to $13.8 billion.

Along with its strategic moves, Citigroup also paid for its legal problems. Like rivals, the bank faces claims that it used shoddy documents in foreclosure proceedings that might have led to wrongful evictions.

Citigroup, along with nine other banks, agreed this month to sign on to an $8.5 billion settlement with the Federal Reserve and the Office of the Comptroller of the Currency. The settlement will allow Citigroup to move beyond an expensive review of loans mandated by regulators in 2011.

On the earnings call, Mr. Gerspach hinted that the banking industry’s legal woes were not over. “I think that the entire industry is still looking at some additional settlements that are still yet to appear,” he said.

Article source: http://dealbook.nytimes.com/2013/01/17/facing-legal-costs-citigroup-disappoints-in-4th-quarter/?partner=rss&emc=rss

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