NEW YORK -(Dow Jones)- Citigroup Inc. (C) swung to a fourth-quarter profit as lending strengthened overseas, but revenue from bond trading took a severe hit from the prior quarter. The bank's earnings and revenue missed Wall Street expectations.
Citi reported a $1.3 billion profit--compared to a $7.6 billion loss a year earlier. Revenue jumped to $18.4 billion, from $5.4 billion a year earlier, but fell more than 11% from the third quarter. Expenses rose, because Citi hired more bankers and took a hit from the declining dollar. The bank took a $1.1 billion charge tied to the declining spread of Citi's own bonds following the U.S. Treasury Department's sale of its shares in the bank.
Citi's shares, which had gained after the Treasury sale, fell below its recently achieved $5 milestone on the earnings news. Shares were down 6.6% to $4.79.
Chief Financial Officer John Gerspach insisted during a conference call with reporters that Citi is "very pleased" with results, particularly because its investment in the Asian and Latin American lending businesses is paying off. Even the lackluster U.S. consumer banking business shows signs of new life, he said, as credit card lending seems to be picking up and loan losses continue to decline broadly.
He conceded fixed-income trading was weak, but insisted the business, one of Citi's traditional strengths, needs no fixing. Citi also continues to hire bankers around the world in capital markets, he said.
Gerspach added that about $800 million of the valuation adjustment of Citi's own bonds flowed through the fixed-income trading business, which makes the unit's performance look worse.
Chief Executive Vikram Pandit told investors during a separate conference call that, despite an "uncertain" economy, "our focus is on achieving sustained and responsible growth."
Gerspach, the chief financial officer, said North America consumer banking revenue should "grow modestly as loan demand begins to recover, particularly in the second half of the year," while loan demand in emerging markets will likely require more reserves this year.
The bank's credit-loss provision was $4.84 billion, down from $8.18 billion a year earlier.
In the fourth quarter, the weakening dollar cost Citi $150 million, Gerspach told reporters. Citi doesn't hedge its foreign exchange risk much. "As the dollar weakens against many currencies we will continue to see some pressure," Gerspach said, but "it's not a huge driver."
Citi also added $248 million to its reserve for potential claims to buy back soured mortgages from investors in mortgage-backed securities. The reserve now stands at almost $1 billion; claims from Fannie Mae and Freddie Mac are expected to peak later this year. Claims from private investors, a source of concern for bank investors lately, have so far been insignificant, Gerspach said.
Citi reported a profit of 4 cents a share, compared with a year-earlier loss of 33 cents a share. Analysts polled by Thomson Reuters most recently forecast earnings of 8 cents.
"Altogether, a soft quarter," Nomura Securities analyst Glenn Schorr wrote in a research note.
John McDonald of Sanford C. Bernstein & Co. wrote in a report the quality of the core earnings was "soft given higher operating expenses," but "credit continues to improve and Citi's balance sheet looks solid. We see good long-term value in Citi's shares."
At Citicorp, the company's core banking and capital markets segment, profit jumped 36% on the year, while revenue climbed 20%. Citi Holdings, which includes assets and businesses the company is unloading, saw its loss narrow as revenue dropped 11% but credit costs shrank.
(Summer Said contributed to this article.)
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