Citigroup, the first of the big U.S. banks to report fourth-quarter results, missed revenue estimates by a half-billion dollars as bond trading revenue declined amid a difficult December for markets.
The bank said fixed-income revenue dropped 21 percent to $1.94 billion from a year earlier as trading conditions deteriorated after the company gave guidance in early December. That miss accounted for the lion's share of the revenue shortfall: Citigroup said it produced $17.1 billion in company-wide revenue, below the $17.6 billion average estimate of analysts surveyed by Refinitiv.
"A volatile fourth quarter impacted some of our market-sensitive businesses," CEO Michael Corbat said in the earnings release. He added that management "remain committed" to delivering on their 2019 targets.
Still, the bank made $1.61 in profit per share excluding one-time impacts of the U.S. tax overhaul, beating analysts' expectations for $1.55 on better-than-expected cuts in expenses and loan losses. Operating expenses fell 4 percent to $9.89 billion in the quarter, driven in part by lower compensation costs. Earnings of $4.2 billion rose 14 percent in the quarter, thanks to lower expenses, credit costs and a lower corporate tax rate.
Citigroup shares, which had dropped 18 percent in the three months before Monday's earnings report, climbed 1.1 percent to $57.26 at 9:49 am. Shares of the bank lost 30 percent last year, worse than the 20 percent decline of the KBW Bank Index, on concerns the bank's international operations could expose it to struggling emerging markets and the U.S.-China trade war.
Citigroup said in early December that trading revenue would likely dip from the previous year amid choppy markets. In particular, fixed-income trading desks struggled during the gyrations in currencies and interest rates.
But with sharp declines in asset classes around the world, trading conditions worsened after the company's Dec. 5 guidance. The bank's overall trading revenue dropped 14 percent as improving equities results were overwhelmed by the bond-trading miss.
The revenue shortfall meant that the bank missed a performance target by more than expected: Its operating efficiency for the year improved 86 basis points to 57.4 percent, missing the 100 basis point target given by the bank earlier in the year. However, it did meet expectations for overall returns: Citigroup generated 10.9 percent return on tangible capital, exceeding its 10.5 percent target.
The bank's credit losses appeared to hold up in the quarter: Citigroup's allowance for loan losses was 1.81 percent of the bank's total loans, compared to 1.86 percent a year earlier. Company-wide loans rose 3 percent to $684 billion.
Another focus at New York-based Citigroup, the third-biggest U.S. lender by assets, will be on any guidance Corbat or CFO John Gerspach will give on revenue and growth expectations for 2019 and beyond. Recently, companies from Apple to Starbucks have taken down expectations for the year amid signs of a global slowdown in profits.
While the "real economy" of consumers and corporations spending and taking out loans "continued to be robust," there are concerns that the impact of both the U.S.-China trade dispute and moves by central banks to reverse quantitative easing will impact the economy in 2019, Gerspach told reporters during a media call. There haven't been significant impacts yet from the U.S. government shutdown, though if it continues that could impact operations, he said.
As for trading, markets have improved at the start of the year, according to Gerspach: "We have seen improvements in trading conditions," he said. "Volatility has somewhat moderated, and equity prices and yields have shown signs of stabilization."
Gerspach is retiring in March, to be replaced by Mark Mason, who is CFO of the bank's institutional clients group. The company shuffled other leaders across its sprawling operations last year amid its disappointing share performance. That includes the departure of global credit-card chief Judson Linville.
Here's what Wall Street expected:
- Earnings: $1.55 a share, a 21 percent increase from a year earlier, according to Refinitiv
- Revenue: $17.6 billion, a 2.2 percent increase from a year earlier
- Trading Revenue: Fixed income: $2.3 billion, Equities: $664.5 million, according to FactSet
- Efficiency ratio: 57.6 for the quarter.
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