C Citigroup Inc

By Telis Demos 

Citigroup Inc. bounced back from a year-earlier loss, but its vital trading business struggled under tough market conditions in the fourth quarter.

The bank's net income was $4.3 billion in the latest quarter, versus a loss of $18.9 billion a year earlier, when it took a large one-time charge related to the 2017 corporate tax cut.

But overall revenue at the bank was $17.1 billion, down 2% from a year ago. That decline was led by a 14% drop in the trading business, where revenue fell to $2.6 billion.

December's volatility was especially tough for traders on desks dealing in interest rates, currencies and bonds, where it became harder for banks to commit capital to their clients. Traders across Wall Street stepped back from the market at the end of 2018 and low-cost algorithms took over, leading prices to swing wildly.

Rates and currencies trading, normally a stalwart for Citigroup, fell 26% from a year earlier. The bank said that a "risk-off sentiment" among investors made it harder for the bank to buy and sell to facilitate trades for clients. In response, Citigroup said it shrank the risky assets carried on its balance sheet.

That performance in trading overwhelmed the rest of Citigroup's lending and banking business, which broadly showed little impact from the global growth fears that have roiled markets.

Lending rose 3% from a year ago, and Citigroup improved the net interest income it generated, even as consumers and corporations sought out higher deposit rates. The bank also reduced its lending losses from a year earlier.

"We clearly see a disconnect between what we see in our business on an anecdotal basis and what the markets are saying," Citigroup Chief Executive Michael Corbat told analysts on Monday. "Right now, we see the biggest risk in the global economy is one of talking ourselves into the next recession, as opposed to the underlying fundamentals taking us there."

Still, the trading result may herald the beginning of a tough season across Wall Street, especially at peers JPMorgan Chase & Co., which reports earnings Tuesday, and Bank of America Corp., which reports on Wednesday.

While volatility earlier in the year had helped banks' stock traders produce big gains, December's moves took a bite out of their larger fixed-income units.

Citigroup's capital-markets revenue also declined from a year ago, with a sharp drop in stock and bond issuance deals. That weakness could extend across Wall Street, especially as the federal government shutdown impacts the Securities and Exchange Commission's ability to approve new deals to move forward. Quarterly mergers-and-acquisitions revenue, however, rose by nearly 50%.

Citigroup sought to blunt the effect of the trading decline by slashing expenses, led by a steep drop in compensation. Pay across the bank was 14% lower than it was in the third quarter.

The bank has pledged to make big gains in its core profitability by 2020, and analysts are watching each quarter closely.

Activist investor ValueAct Capital Partners LP, which owns a 1.3% stake in the bank, last week announced a deal with the bank to gain access to confidential information.

Investor concern about the impact of slowing global growth on the New York bank's vast international business has weighed on Citigroup's stock in recent months Its shares have fallen about 23% over the past 12 months, while the broader KBW Nasdaq Bank Index is down about 19%.

The bank's shares were up 4.3% in midday trading on Monday.

Total consumer and institutional revenue from Asia was down 5% from a year ago, marked by wealth-management clients in the region scaling back their exposures. But Latin American and European revenues were higher from a year ago.

"There is a slowdown in China, but it's not the type of slowdown we would consider to be particularly disruptive," Chief Financial Officer John Gerspach said Monday.

Write to Telis Demos at telis.demos@wsj.com

(END) Dow Jones Newswires

January 14, 2019 12:49 ET (17:49 GMT)

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