C Citigroup Inc

By Christina Rexrode and Telis Demos 

Citigroup Inc. said Wednesday that its fourth-quarter profit rose 7%, becoming the latest bank to benefit from volatile political events that boosted trading. The bank also cut expenses, and borrower quality improved.

CEO Michael Corbat, who has spent most of his four years on the job shrinking the bank and putting out fires, is hoping to turn to a new chapter in which the bank will focus less on drastic measures to remake itself and more on day-to-day tasks like improving shareholder returns.

"Restructuring is over," Mr. Corbat said on a call with analysts. "We will be getting to produce capital returns our investors expect and deserve."

Citigroup beat analysts' expectations on quarterly profit but missed on revenue. Shares were down about 1.9% in afternoon trading.

Last year marked a period when Citigroup was able to stay under the radar after years of scandals, especially as Wells Fargo & Co.'s settlement of a sales scandal dominated headlines for the last four months of the year. Citigroup, meanwhile, passed the Federal Reserve's stress test and tripled its dividend, and it was the only bank to pass regulators' exam on living wills on the first try.

But the bank's shareholder returns have lagged behind. The company's return on equity, a closely watched profitability metric, rose to 6.2% from 5.9% in the year-ago quarter, but Citigroup's ROE trailed the other five big U.S. banks, which posted returns between 7% and 11% for the fourth quarter.

Mr. Corbat on Wednesday laid out new goals for equity returns and efficiency. The chief financial officer, John Gerspach, said the bank was "on the right path" to improving shareholder returns, citing the higher dividend and increased share buybacks over the past year. A year ago, Citigroup was roughly in line with previous financial targets that Mr. Corbat had laid out.

"Mike, it seems you've been the most optimistic on this call than you have, I think, since you started," said Buckingham analyst James Mitchell.

But Mr. Corbat, more than other bank CEOs, may need to grapple with what the new presidential administration might mean for his company. Citigroup's shares have rallied since Donald Trump's election, largely on the assumption that the new president will dismantle banking regulations. But the protectionist tone of Mr. Trump's campaign also has raised concerns about Citigroup's business model, where a key strategy is moving money around the world for governments and global businesses. Citigroup has defended its business strategy, including its investment in Mexico.

On a call with reporters, Mr. Gerspach said it was too early to tell how policies or sentiments might shake out, but that the bank was positioned for any scenario and would continue servicing multinational companies in the U.S. and around the world.

"We've been around for 205 years at this point, we've kind of seen it all," Mr. Gerspach said. "And we'll deal with whatever people throw at us."

He also said the bank is still positive on its Mexico business. "Our views on Mexico are not driven by the fluctuations of the value of the peso," Mr. Gerspach said. "It's a good franchise for us."

And if the Trump administration has fueled uncertainty about what happens next with the banking industry, it has also made banking clients more optimistic about the economy. Citigroup's shares have jumped 17% since the election, a bit under the 20% for the KBW Nasdaq bank index.

Citgroup's fourth-quarter trading revenue, excluding an accounting adjustment, rose 31% to $3.7 billion from $2.82 billion a year earlier. That was significantly better than what Mr. Gerspach predicted last month, when he said he expected trading revenue to be up by nearly 20% from a year ago. The numbers also followed strong trading results at rivals, including J.P. Morgan Chase & Co.'s increase of 24% and Bank of America Corp.'s gain of 11%.

Citigroup's trading results were driven by a 36% increase in its larger fixed-income trading unit. Revenue increased 15% in its smaller equities-trading unit, which the bank has been trying to expand for years. Investment banking revenue was flat.

Quarterly profit at the New York-based bank was $3.57 billion, up from $3.34 billion a year earlier. Per-share earnings were $1.14, higher than the $1.12 expected by analysts.

Revenue fell 8% to $17.01 billion, missing analysts' expectations of $17.3 billion. However, the decline came from a drop at Citi Holdings, the unit where the bank stores assets it is in the process of selling or winding down.

The bank set aside reserves for bad loans at a much smaller pace than a year ago, when low oil prices raised concerns about defaults among the banks' energy-related clients.

Quarterly revenue at the consumer bank rose just 2%, with a 10% drop in Latin America, where the bank has been shrinking its consumer business.

Revenue increased 15% in branded credit cards in North America, a unit where the bank has been investing in its Costco Wholesale Corp. partnership.

Quarterly expenses fell 9%. The bank cut about 5% of its workforce, to 219,000 from 231,000.

One thing Citigroup will have to do to improve shareholder returns, including return on equity, is continue the long process of consuming deferred tax assets. Those assets are credits against future tax bills, most of which the bank built up during the financial crisis, but the bank has to hold capital against them.

At the end of the fourth quarter, those assets were about $46.7 billion, down more than $1 billion over the year.

Write to Christina Rexrode at christina.rexrode@wsj.com and Telis Demos at telis.demos@wsj.com

(END) Dow Jones Newswires

January 18, 2017 14:58 ET (19:58 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.