Citigroup Quarterly Profit Falls, But Beats Forecasts
Citigroup , the nation's largest bank, said Friday its fourth quarter profit fell from a year earlier when earnings were boosted by a gain from the sale of a business. But the latest results beat analysts' forecasts, thanks to strength in corporate and investment banking.
The New York-based financial giant, with $1.88 trillion in assets, said it earned $5.13 billion, or $1.03 a share, in the fourth quarter, down from $6.93 billion, or $1.37 a share, a year earlier. The year-earlier figure included a $2 billion gain on the sale of an asset management business; excluding the gain, earnings in the fourth quarter of 2005 were 98 cents a share.
The latest quarter's results included $415 million in charges stemming from previously announced cutbacks in the bank's consumer-finance operations in Japan.
Quarterly revenue rose 3% to a record $23.83 billion, up from $20.78 billion in the same period in 2005.
Analysts surveyed by Thomson Financial had projected earnings of $1.00 a share
on revenue of $22.45 billion.
The bank also announced that the board approved a 10% increase to the quarterly dividend on the company's common stock to 54 cents per share from 49 cents per share, payable on Feb. 23 to stockholders of record Feb. 5.
Charles Prince, chairman and chief executive, said in a statement that results reflected "double-digit revenue growth in our corporate and investment banking, wealth management and alternative investment businesses."
He noted "positive trends" in U.S. consumer operations, offset in part by the problems in the Japanese finance arena, where new legislation limiting lending rates and terms prompted Citigroup to cut back operations. Citigroup opened nearly 1,200 bank branches and consumer finance offices worldwide last year, the report said.
For 2007, Prince said, the bank's priorities include growing businesses while "focusing sharply on expense management and remaining highly disciplined in credit management."
Analysts and investors have criticized the bank for expenses that have been rising faster than revenue.
"The key in 2007 is to have the top line keep growing similar to what it has, but to have the expense base if not contract, at least slow its growth trajectory so they can deliver the bottom-line results," Jeff Harte, a banking analyst with Sandler O'Neill, told CNBC.
Prince in December appointed Robert Druskin, who chairs Citigroup's corporate and investment banking division, to review the bank's expense base. Prince said last month he expects the review to be completed by the end of the January-March quarter.
The latest earnings report indicated that operating expenses were up 23% in the fourth quarter.
Like other banks reporting this week, Citigroup faced some deterioration in credit quality. It raised provisions for losses to $2.3 billion in the fourth quarter from $2.1 billion in the third period.
For the full year, profits totaled $21.54 billion, or $4.31 a share, down 12% from $24.6 billion, or $4.75 a share in 2005. Revenue was $89.6 billion for 2006, up from $83.6 billion in 2005.
"From a strategic standpoint, (Prince is) doing the right things," Harte told CNBC. "But judgment day is approaching. As we look at 2007, it's going to be time to start delivering bottom-line growth on some of the intiatives that he has put in place. I'm pretty optimistic they'll be able to deliver and we will see a pretty good 2007."