Investment Banking Propels Citigroup's Fourth-Quarter Profit -- 2nd Update
January 14 2020 - 1:28PM
Dow Jones News
By David Benoit
Citigroup Inc. on Tuesday said fourth-quarter profit rose 15%
and beat expectations on a surge in its investment-banking
operations.
The New York bank posted profit of $4.98 billion, or $2.15 a
share. That included a per-share gain of 25 cents thanks to a tax
boost. Analysts had expected $1.81 per share, not including the tax
gain, according to FactSet. A year earlier, Citigroup had earned
$4.31 billion, or $1.64 per share.
Revenue climbed 7% to $18.38 billion from $17.12 billion a year
earlier. Analysts had expected $17.9 billion.
In the consumer-banking business, revenue increased 5% to $8.46
billion and profit rose 12% to $1.58 billion. The corporate bank's
revenue and profit both rose 10%, to $9.38 billion and $2.88
billion, respectively, bouncing back from a weak period a year
ago.
Shares rose more than 2% in midday trading Tuesday.
The gains helped propel Citigroup above its promised
profitability targets, which analysts had widely expected it to
miss.
The bank's return on tangible common equity, which measures the
profitability of its assets, was 12.1% for the full year. Citigroup
had targeted 12% for all of 2019, and the bank looked on pace for
that, "or darn close," Chief Financial Officer Mark Mason told
skeptical analysts in September.
But Mr. Mason told analysts Tuesday that the bank was lowering
its 2020 target to a range of 12% to 13%, lower than the 13.5% the
bank had previously targeted.
Mr. Mason has been warning in recent months that the 2020
economy is far different than Citigroup expected it would be when
executives set the target, and reiterated that as the reason for
the change. The new target is still above the 11.9% that analysts
have been forecasting, according to FactSet.
The 2019 beat could provide a credibility boost to Chief
Executive Michael Corbat's plans. He and Mr. Mason on Tuesday
pointed to the progress the bank has been making on profits. They
have said they wouldn't sacrifice investments in the business to
hit a few targets.
Citigroup's stock rose more than 50% in 2019, outpacing rivals
in the KBW Nasdaq Bank Index and the broader market. Still, it
trades at lower valuations than peers, which analysts have blamed
on lower returns than the industry.
Shares rose in premarket trading Tuesday.
In the consumer bank, revenue from card offerings rose 6% to
$5.34 billion. Retail banking revenue rose 3% to $3.12 billion.
Citigroup set aside $1.99 billion, up 8%, to handle potentially
souring consumer loans.
In the corporate bank, investment-banking revenue rose 6%,
proving a surprise from the flat forecast Mr. Mason gave only in
December. Its equity underwriting business led the gain, up 33%,
boosted by work on some big public offerings such as Alibaba Group
Holding Ltd.'s Hong Kong listing and Saudi Arabia's record-breaking
Aramco IPO. Its business advising clients on mergers and
acquisitions fell 19%.
In markets, total trading revenue was up 31%, benefiting from
the easy comparison. Year-ago results were hampered by dismal
trading across the industry, particularly in bonds, when market
turmoil dried up volume. Revenue in fixed-income trading jumped
49%.
That more than offset a weak period for equities trading, which
fell 23%. Citigroup has been investing in building a bigger
equities trading division but has been buffeted by a shrinking
industry.
Revenue from the treasury and trade solutions unit, which helps
companies manage money around the globe, rose 2% to $2.61 billion.
The business has benefited as companies seek to maneuver their
supply chains to keep pace with global trade fights.
Expenses rose 6% for the quarter but were flat for the full
year, hitting another target Mr. Corbat had set.
Across the company, Citigroup's North America revenue rose 7%
while it had big gains in Asia, up 10%.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
January 14, 2020 13:13 ET (18:13 GMT)
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