Investment Banking Propels Citigroup's Fourth-Quarter Profit -- 2nd Update

Date : 01/14/2020 @ 6:28PM
Source : Dow Jones News
Stock : Citigroup Inc (C)
Quote : 78.79  -0.21 (-0.27%) @ 12:59AM
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Investment Banking Propels Citigroup's Fourth-Quarter Profit -- 2nd Update

Citigroup (NYSE:C)
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2 Months : From Dec 2019 to Feb 2020

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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)

Copyright (c) 2020 Dow Jones & Company, Inc.

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