Citigroup C delivered a 53.3% profit surprise in the fourth quarter of 2020 on reserve releases. Revenue from continuing operations per share of $ 2.07 in the quarter handily exceeded the Zacks consensus estimate of $ 1.35. The results were, however, a 3.7% decrease in relation to the quarter of the previous year.
The shares fell more than 2% during the pre-market negotiations, reflecting investors’ disappointment with the results. Notably, the full-day trading session will display a clearer picture.
Citigroup recorded higher market revenues during the reported quarter. Notably, stock market earnings impressed with favorable market conditions and strong customer volumes, driven by stellar derivatives, cash stocks and world-class financing performance. In addition, fixed income revenues were up, reflecting the strength in products and commodities, partially offset by lower revenues from rates and currencies.
At the same time, investment bank revenues declined due to disappointing debt underwriting businesses and reduced consulting income, partly mitigated by greater equity underwriting. Corporate loans were also negative.
While reserve releases have supported the results, increased spending was a major obstacle.
Net income was $ 4.6 billion compared to the $ 5 billion recorded in the previous year’s quarter.
For the year 2020, net income was $ 11.4 billion compared to the $ 19.4 billion recorded in 2019.
Revenues decrease, expenses increase
For 2020, the company reported revenues of $ 74.3 billion, in line with the previous year. The number, however, exceeded the Zacks consensus estimate of $ 70.4 billion.
Revenue fell 10% year-over-year to $ 16.5 billion during the final quarter of December. The reported number was also behind Zacks’ consensus estimate of $ 16.6 billion. The drop in revenues from Institutional Clients Group (ICG) and Global Consumer Banking (GCB), together with negative Corporate / Other revenues, resulted in this decline.
At the ICG segment, revenue was $ 9.3 billion during the October-December quarter, down 1% year-over-year. The lower revenues from investment banking and corporate loans were partially offset by higher revenues from the fixed income and stock markets.
GCB revenue decreased 14% year over year, to $ 7.3 billion. Lower revenues in North, Latin America and Asia GCB due to the pandemic resulted in this decline. Notably, retail bank and card revenues witnessed declines.
Corporate / Other negative earnings reached $ 85 million, compared to $ 542 million in revenue for the previous year. This disadvantage resulted from the reduction of legacy assets, the impact of low fees and the absence of “episodic” gains.
Citigroup’s operating expenses increased 2% year-over-year, to $ 10.7 billion. Continued investments in the transformation of the franchise, including investments in infrastructure, risk management and controls, together with higher repositioning costs, resulted in this increase. This was partially offset by efficiency savings and reduced discretionary spending.
Stable Balance
At the end of the fourth quarter, Citigroup’s assets at the end of the period were $ 2.26 trillion, an increase of 1% sequentially. Deposits rose 1% sequentially to $ 1.28 trillion. The company’s loans increased 1% sequentially, to $ 676 billion.
Credit quality: a mixed bag
Citigroup’s credit costs for the final quarter of December were negative by $ 46 million, compared to the $ 2.2 billion recorded in the previous year’s quarter. Notably, the release of reserve allowances for credit losses (ACL) in the ICG segment, aided by an improved outlook for global GDP and lower downgrades in the portfolio, together with lower net credit losses in the GCB, mainly led to this substantial drop .
The cost of credit includes reduced net credit losses of $ 1.5 billion and a credit reserve release of $ 1.5 billion and other benefits of $ 22 million.
Total non-accumulated assets increased 40% year-over-year, to $ 5.7 billion. The company reported an 18% increase in non-performing consumer loans to $ 2.1 billion. In addition, corporate loans without accumulation of $ 3.5 billion increased 61% over the same period last year.
Citigroup’s total provision for loan losses was $ 25 billion at the end of the reported quarter, or 3.73% of total loans, compared to $ 12.8 billion, or 1.84%, recorded in the previous year.
Solid Capital Position
At the end of the period from October to December, Citigroup’s Common Equity Tier 1 Capital index was 11.8%, down from 11.81% in the previous year’s quarter. The company’s supplemental leverage ratio for the quarter was 7%, up from 6.21% in the previous year’s quarter.
As of December 31, 2020, the book value per share was $ 86.59, an increase of 4% year on year, and the tangible book value per share was $ 73.83, an increase of 5% over the same period last year.
Capital deployment
During 2020, Citigroup repurchased US $ 2.9 billion common shares. The bank paid about $ 4.3 billion to shareholders as dividends on common shares.
Our point of view
Citigroup delivered impressive results, even this time on reduced credit costs. Solid market revenues (both fixed income and equity) and the share subscription business helped the bank, despite the unfavorable impact of reduced debt underwriting and a disappointing consulting business. The company exhibits solid capital, reflecting liquidity in the environment affected by the coronavirus.
A strong brand like Citigroup can be considered a good long-term investment option, given its global presence and attractive core business. In addition, the company’s growth appears encouraging in the midst of cost management. However, several legal difficulties remain concerns for the company.
Price, consensus and EPS surprise from Citigroup Inc.
Citigroup Inc. price-consensus-eps-surprise-chart | Citigroup Inc. quote
Citigroup currently carries a Zacks Rank # 3 (Hold). You can see the complete list of today’s Zacks # 1 Rank (strong buy) shares here.
Among other megabanks, Bank of America Corporation BAC, Morgan Stanley MS and Truist Financial Corporation TFC is scheduled to report quarterly figures on January 19, January 20 and January 21, respectively.
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