Citigroup earnings miss estimates on litigation, reserves

Citigroup Inc., the third-biggest U.S. bank by assets, reported a profit increase that was less than analysts estimated as litigation costs rose and benefits from releasing loan-loss reserves declined.

Net income climbed 25% to $1.2 billion in the fourth quarter, or 38 cents a share, from $956 million, or 31 cents, a year earlier, the New York-based lender said today in a statement. Earnings adjusted for one-time items including restructuring costs and a mortgage settlement were about 76 cents a share. Twenty-one analysts surveyed by Bloomberg estimated 96 cents on average.

Chief Executive Officer Michael Corbat, 52, took over in October and last month announced plans to eliminate about 11,000 employees and pull back from some emerging markets, undoing part of the expansion strategy of his predecessor, Vikram Pandit. Litigation costs included $305 million from a settlement between U.S. banks and federal regulators, who were probing claims that lenders improperly seized homes.

“New management won’t mind sacrificing a little earnings in the fourth quarter to help make 2013 earnings goals easier to hit,” said Marty Mosby, an analyst in Memphis, Tennessee, with Guggenheim Securities LLC. “They really aren’t going to be held accountable for what happens in the fourth quarter.”

Citigroup dropped 2.7%, the biggest intraday decline since Dec. 21, to $41.30 at 10:49 a.m. in New York. The drop was the second-largest on the 24-company KBW Bank Index, behind Bank of America Corp.

Legal Costs

Legal costs at the Citicorp division, which contains the consumer-banking and trading units, more than tripled to $735 million, the bank said. While some of the increase was related to the federal foreclosure settlement, Chief Financial Officer John Gerspach told journalists that most was related to “a variety of issues” at the U.S. consumer bank.

“It’s tied to the U.S. consumer business and beyond that I don’t think there’s much more to say at this point,” Gerspach said. “There is a series of items. I don’t think they’re unique to us.”

Corbat oversaw a $142 million release from the reserve for loan losses, compared with $1.47 billion a year earlier. Richard Staite, an analyst in London with Atlantic Equities LLP, had predicted a release that was about three times bigger.

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