Citi's $1.2B Fourth-Quarter Profit Misses Market Forecasts

Citigroup’s fourth-quarter earnings results fell far short of analysts’ expectations, despite the fact that credit losses were down 40 percent from the previous year.

The New York-based lender reported net income of $1.2 billion, or 38 cents per share, for the fourth quarter of 2011. This compares to net income of $1.3 billion, or 43 cents per share, in the fourth quarter 2010.
Analysts were expecting to see the latest quarter turn a profit of 50 cents per share. The company attributed the shortfall to a sharp decline in investment banking revenues.
Citigroup’s net income for the full year of 2011 was $11.3 billion, up from $10.6 billion in 2010.
The company says its total cost of credit has improved dramatically, driven by a 40 percent decline in net credit losses to $4.1 billion in the fourth quarter and a $1.5 billion release of credit reserves. The credit reserve release reflects a lower level of inherent losses remaining in the company’s portfolio, Citi explained in its Tuesday earnings release.
The global bank has a total of just over $30 billion set aside to cover loan losses, with $10 billion earmarked specifically for its North American real estate lending business. Citi’s total loan loss reserves represent 4.7 percent of its portfolio.
CFO John Gerspach told investors that legacy mortgage issues “are the single largest source of risk facing the U.S. banking industry.”
Citigroup took a $200 million hit as a result of loan repurchases from investors during the fourth quarter. Buybacks in 2011 were up 80 percent when compared to the previous year.
The company says it increased reserves for litigation costs by $557 million during the fourth quarter, with the lion’s share slated to cover legal costs tied to mortgage disputes.
Consumer loans held in the company’s Citicorp division which were 90-plus days delinquent fell 22 percent from the prior year to $2.4 billion. The 90-plus delinquent ratio plummeted 27 percent to 0.98 percent of loans.
Delinquencies on loans held in its Citi Holdings division, however, increased. Two years ago, Citi split its business into two silos – Citicorp and Citi Holdings, with Citi Holdings being the entity that houses the operations the company wants to sell off or wind down. Some $100 billion in mortgages sit under the Citi Holdings banner.
Gerspach told investors to expect delinquencies on these loans to continue to rise over the next couple of quarters as previously modified mortgages turn delinquent again. Nevertheless, Gerspach added, “To date, those re-default rates remain below our expectations.”
He cited statistics that show re-defaults of less than 25 percent for the company’s own proprietary modification programs and less than 15 percent for government programs.
Citi disclosed Tuesday that it plans to eliminate 5,000 jobs this year and cut expenses by $3 billion.
“Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment,” said Vikram Pandit, Citi’s CEO.