Citigroup’s costly legal travails contribute to disappointing earnings

Posted on January 18, 2013



Citigroup Inc. reported higher fourth quarter earnings Thursday –even though the latest quarter was burdened with well over $1 billion in special charges.

Net earnings rose 26 percent to $1.2 billion, or 38 cents per diluted share, up from $956 million, or 31 cents per share, in the year-ago period.

“To be clear, we are not satisfied with these bottom-line earnings,” Citigroup CEO Michael Corbat told analysts in a conference call.

“Our bottom line earnings reflect an environment that remains challenging – with businesses working through issues like spread compression and regulatory changes – as well as the costs of putting legacy issues behind us,” he continued.

Citi’s earnings per share were well below the 96 cents expected by analysts surveyed by Yahoo finance.  But the latest quarter was hurt by $1.3 billion in legal charges, the company noted. Excluding that charge, along with debt valuation adjustment, credit valuationadjustment and repositioning charges, officials said adjusted earnings were 69 cents per share, still below Wall Street expectations.

“To me the most important take-away from the quarter was that they showed positive operating leverage in each of the core businesses,” said Eric Wasserstrom, managing director at Suntrust Robinson Humphrey, Inc. By Wasserstrom’s calculation, Citi’s adjusted per-share earnings were 95 cents, just below consensus forecasts.

“The market reacted a bit differently” to the bank’s latest earnings, he said.  ”The way the market sees it is that there’s some risk to the EPS estimates, but what we would argue is that irrespective of that fact, this is one of the few names that is actually growing revenues.”

CEO Corbat wouldn’t comment on costs related to legal and regulatory matters “until they become fact,” but said costs are likely to remain somewhat elevated given the uncertainties associated with the fiscal cliff and other U.S. economic issues.  However, he also said he did not expect the fourth quarter lull “to be the new norm.”

Corbat assumed his position as CEO early October, after his predecessor Vikram Pandit was ousted. Since then, Corbat said, he has spent a good deal of time conducting business reviews and restructuring management. Those actions added to repositioning charges.

“I’m a believer in ‘you are what you measure’,” Corbat said, adding that he will continue to set clear goals and share key metrics with analysts to hold company management accountable.

For the full year, Citi’s net earnings were $7.54 billion, or $2.44 per share, down 32 percent from $11.1 billion in the prior year.

Citi shares closed down $1.24, or 2.9 percent, at $41.24

Citigroup shares came SOURCE: Yahoo finance. Citigroup shares under pressure after the bank released fourth-quarter earnings.

SOURCE: Yahoo finance.
Citigroup shares under pressure after the bank released fourth-quarter earnings.

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